UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 8-K

                                 CURRENT REPORT

                       PURSUANT TO SECTION 13 OR 15 (d) OF

                       THE SECURITIES EXCHANGE ACT OF 1934

        Date of report(Date of earliest event reported): October 27, 1997

                               THE AES CORPORATION
             (exact name of registrant as specified in its charter)

                 DELAWARE                0-19281                54-1163725
         (State of Incorporation)    (Commission File No.)    (I.R.S. Employer
                                                             Identification No.)

                             1001 North 19th Street
                               Arlington, Va 22209

          (Address of principal executive offices, including zip code)

               Registrant's telephone number, including area code:
                                 (703) 522-1315

                                 NOT APPLICABLE
          (Former Name or Former Address, if changed since last report)


<PAGE>



ITEM 7.  Financial Statements and Exhibits

         a. (i)   Financial Statements of Businesses Acquired.

         In  connection  with AES's  acquisition  of Companhia  Centro-oeste  de
Distribuicao de Energia  Eletrica-CEEE D2 ("CEEE D2") as previously  reported in
the Company's  8-k dated  November 10, 1997,  the Company  submits the following
audited financial  statements.  The following  audited  financial  statements of
Companhia  Centro-oeste de  Distribuicao de Energia  Eletrica- CEEE D2 (formerly
Midwest Division of Companhia  Estadual de Energia Eletrica- CEEE) as of and for
the nine months ended September 30, 1997, together with the Auditors' report are
expressed  in  Brazilian  Reais  and  prepared  in  accordance  with  accounting
practices originating in Brazil's Corporation Law.



<PAGE>



       COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
   (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)

                              FINANCIAL STATEMENTS
                      NINE MONTHS ENDED SEPTEMBER 30, 1997
                       WITH REPORT OF INDEPENDENT AUDITORS



<PAGE>





       COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
   (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)


                              FINANCIAL STATEMENTS
                      Nine months ended September 30, 1997



                                    CONTENTS



Report of Independent Auditors.................................................1

Audited Financial Statements

Balance Sheet..................................................................2
Statement of Income............................................................4
Statement of Shareholders' Equity..............................................5
Statement of Changes in Financial Position.....................................6
Notes to Financial Statements..................................................7







<PAGE>



                         REPORT OF INDEPENDENT AUDITORS


The Board of Directors and Shareholders
Companhia Centro-Oeste de Distribuicao de Energia Eletrica


We have examined the  accompanying  balance sheet of Companhia  Centro-Oeste  de
Distribuicao de Energia Eletrica-CEEE D2 (formerly Midwest Division of Companhia
Estadual de Energia  Eletrica-CEEE)  as of September  30, 1997,  and the related
statements of income, shareholders' equity and changes in financial position for
the nine months then ended,  expressed in Brazilian currency and prepared on the
basis described in Note 2. These financial  statements are the responsibility of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements based on our audit.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the  financial  position of Companhia  Centro-Oeste  de
Distribuicao de Energia Eletrica-CEEE D2 (formerly Midwest Division of Companhia
Estadual de Energia  Eletrica-CEEE) as of September 30, 1997, and the results of
its operations,  and changes in its shareholders'  equity and financial position
for the nine months then ended,  in  accordance  with the  accounting  practices
originating in Brazil's Corporation Law.


                         Porto Alegre, December 30, 1997


                                  Ernst & Young
                          Auditores Independentes S.C.
                            CRC-2 SP/15,199/O-6/S/RS


                               Arnaldo C. Kurayama
                         Accountant CRC-SP/101,151/S/RS


<PAGE>



A free translation from Portuguese into English of financial statements prepared
in Brazilian currency in accordance with the accounting practices originating in
Brazil's Corporation Law
-------------------------------------------------------------------------------

       COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
   (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)

                            BALANCE SHEET (NOTE 2.A)
                               September 30, 1997
                        (Expressed in thousands of reais)


ASSETS
CURRENT ASSETS
  Cash and cash equivalents                            20,318
  Customers accounts receivable                        59,834
  Allowance for doubtful accounts                      (3,000)
  Accounts receivable - CEEE                           11,191
  Other accounts receivable                             3,857
  Stores                                                1,424
  Prepaid expenses                                        139

                                                     --------
TOTAL CURRENT ASSETS                                   93,763

LONG-TERM ASSETS
  Deferred income and social contribution taxes        21,134
  Other credits                                            83

                                                     --------
TOTAL LONG-TERM ASSETS                                 21,217

PERMANENT ASSETS
  Investments                                           9,991
  Property, plant and equipment - net                 587,415

                                                     --------
TOTAL PERMANENT ASSETS                                597,406


                                                     ========
TOTAL ASSETS                                          712,386
                                                     ========



<PAGE>










LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
  Suppliers                                               34,237
  Taxes and social charges                                28,316
  Loans-Current portion                                    1,669
  Accrual for retirement benefits                          9,510
  Payroll accruals                                         7,609
  Other payables and accruals                              5,882

                                                        --------
TOTAL CURRENT LIABILITIES                                 87,223

LONG-TERM LIABILITIES
  Loans                                                   26,890
  Accrual for retirement benefits                         46,632
  Provision for contingencies                              4,700
  Other long-term liabilities                              3,039
                                                        --------
                                                          81,261

  Special obligations                                     21,795

                                                        --------
TOTAL LONG-TERM LIABILITIES                              103,056

SHAREHOLDERS' EQUITY
  Capital                                                536,344
  Capital reserves                                           335
  Accumulated loss                                       (14,572)

                                                        --------
TOTAL SHAREHOLDERS' EQUITY                               522,107


                                                        ========
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY               712,386
                                                        ========


See accompanying notes.


<PAGE>



       COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
   (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)


                         STATEMENT OF INCOME (NOTE 2.B)
                      Nine months ended September 30, 1997
                        (Expressed in thousands of reais)


GROSS OPERATING REVENUE
  Electricity sales to final consumers                   477,770
  Electricity sales to other concessionaires                 210
  Other revenue                                            5,779
                                                        --------
                                                         483,759
DEDUCTIONS FROM OPERATING REVENUE
  Regulatory charges                                     (20,653)
  Value - added sales tax (ICMS)                         (94,711)
  COFINS and PASEP taxes                                 (12,792)
                                                        --------
                                                        (128,156)

                                                        --------
NET OPERATING REVENUE                                    355,603

OPERATING EXPENSES
  Purchases of electricity                              (189,623)
  Personnel                                              (44,323)
  Third party materials and services                     (13,700)
  Depreciation                                           (24,279)
  Other expenses                                         (20,399)
                                                        --------
                                                        (292,324)

                                                        --------
OPERATING INCOME BEFORE FINANCIAL INCOME                  63,279

  Financial income, net                                    5,953

                                                        --------
OPERATING INCOME                                          69,232

NONOPERATING INCOME
  Extraordinary items                                    (50,786)
  Nonoperating income, net                                    22
                                                        --------
                                                          50,764)

                                                        --------
INCOME BEFORE TAXES                                       18,468

  Income and social contribution taxes                   (27,140)
  Deferred income and social contribution taxes           21,134

                                                        ========
NET INCOME FOR THE PERIOD                                 12,462
                                                        ========



See accompanying notes.


<PAGE>




       COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
   (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)

                  STATEMENT OF SHAREHOLDERS' EQUITY (NOTE 2.B)
                      Nine months ended September 30, 1997
                        (Expressed in thousands of reais)
<TABLE>
<CAPTION>

                                                                                                  CAPITAL   ACCUMULATED
                                                                                        CAPITAL   RESERVE    LOSS          TOTAL
                                                                                                                         
<S>                                                                                     <C>       <C>        <C>          <C>  
BALANCE AT DECEMBER 31, 1996                                                            641,988       --           --     641,988
                                                                                                                         
Net assets and liabilities  included in CEEE-D2 on December 31, 1996 and capital                                         
reserve and net income  related to the period from January 1 to August 10, 1997,                                         
the  amounts  of  which  were  not  transferred  to the new  company  (Companhia                                         
Centro-Oeste de Distribuicao de Energia  Eletrica)  created on July 28, 1997 and                                         
which  started its  operations  on August 11,  1997 (See Note  2(b2)) 
    
                                                                                       (105,644)  (2,610)     (27,034)   (135,288)
                                                                                                                         
   Remuneration of construction in progress:
     Period from January 1 to August 10, 1997                                                --    2,610           --       2,610
     Period from August 11 to September 30, 1997                                             --      335           --         335
                                                                                                                         
   Net income (loss):                                                                                                    
     Period from January 1 to August 10, 1997                                                --       --        27,034      27,034
     Period from August 11 to September 30, 1997                                             --       --       (14,572)    (14,572)
                                                                                                                         
                                                                                       ========   ======      ========     =======
BALANCE AT SEPTEMBER 30, 1997                                                           536,344      335       (14,572)    522,107
                                                                                       ========   ======      ========     =======
</TABLE>
See accompanying notes

<PAGE>


       COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
   (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)

              STATEMENT OF CHANGES IN FINANCIAL POSITION (NOTE 2.B)
                      Nine months ended September 30, 1997
                        (Expressed in thousands of reais)


SOURCES OF WORKING CAPITAL
  FROM OPERATIONS
  Net income for the period                                              12,462
  Items which do not affect working capital:
   Depreciation                                                          24,279
   Long-term monetary variations                                          2,194
   Provision for losses with investments                                    128
   Provision for contingencies                                            4,700
   Accrual for long-term retirement benefits                             46,632
   Deferred income and social contribution taxes                        (21,134)
   Cost of permanent assets disposed                                      1,705
                                                                       --------
                                                                         70,966
  FROM THIRD PARTIES                                     
   Reduction of long-term assets                                         10,531
   Increase in long-term liabilities                                      7,552
                                                                       --------
                                                                         18,083
                                                         
                                                                       --------
TOTAL FUNDS PROVIDED                                                     89,049
                                                         
USES OF WORKING CAPITAL                                  
  Property, plant and equipment                                          11,872
  Investments                                                               666
  Reduction  of net assets (see Note-2(b2))                             135,288
  Transfer of long-term liabilities to current liabilities                1,527

                                                                       --------
TOTAL FUNDS USED                                                        149,353

                                                                       ========
DECREASE IN WORKING CAPITAL                                             (60,304)
                                                                       ========

CURRENT ASSETS
  At beginning of period                                                135,200
  At end of period                                                       93,763
                                                                       --------
                                                                        (41,437)
CURRENT LIABILITIES
  At beginning of period                                                 68,356
  At end of period                                                       87,223
                                                                       --------
                                                                         18,867

                                                                       ========
DECREASE IN WORKING CAPITAL                                             (60,304)
                                                                       ========



See accompanying notes.


<PAGE>



       COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
   (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)

                          NOTES TO FINANCIAL STATEMENTS
                               September 30, 1997
                             (In thousands of reais)


1.   OPERATIONS

     Companhia   Estadual  de  Energia   Eletrica-CEEE   is  a  publicly  traded
     corporation  under Brazilian Law,  controlled by the State of Rio Grande do
     Sul Government,  and was included in the privatization program of the state
     government in 1996.  In accordance  with the model for sale approved by the
     State Government,  the main electric energy operating activities of CEEE in
     generation,  transmission and  distribution by region,  would be segregated
     and  transferred to new companies to be created for these  purposes.  These
     companies were to be sold separately to different  investor  groups.  Thus,
     CEEE formed six new companies,  which were: two energy generating companies
     (thermal and hydro electric),  one energy transmission  company,  and three
     energy    distribution    companies,    separated    by   state    regions:
     North-Northeast-D3, Midwest-D2 (CEEE-D2) and South-Southeast-D1. On October
     21, 1997, the companies  responsible for the  distribution of energy in the
     North-Northeast-D3  and in the Midwest-D2 regions were privatized by way of
     an auction.  Companies  for the latter two regions  were formed on July 28,
     1997 and their operating activities began on August 11,1997. On October 27,
     1997,  the new  shareholders  (private  sector)  assumed  their  respective
     management.

     AES Guaiba  Empreendimentos  Ltda.  (holding of  CEEE-D2)  acquired a share
     interest in the  distribution  operations of the Midwest  region,  known as
     CEEE-D2 (Companhia Centro-Oeste de Distribuicao de Energia Eletrica).

     The  Midwest  region  (D2)  concession  area  covers  125   municipalities,
     including three million inhabitants in the central west region of the State
     of Rio Grande do Sul.  On  September  30,  1997,  the  CEEE-D2  had 827,528
     registered customers.  Approximately 35% of its revenue is derived from the
     industrial sector, 39% from the residential sector, 15% from the commercial
     sector,  4% from the rural  sector and 7% from the public  sector.  CEEE-D2
     does not have any generating capabilities, so that all the necessary energy
     is supplied  by third  parties  (ELETROSUL-36%,  ITAIPU-38%,  CEEE-14%  and
     Companhia de Geracao Termica de Energia Eletrica - CGTEE - 12%).




<PAGE>



       COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
   (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                               September 30, 1997
                             (In thousands of reais)


2.   PRESENTATION OF THE FINANCIAL STATEMENTS

     In order to meet the requirements of the Securities and Exchange Commission
     of the  United  States  (SEC),  as to  the  presentation  of the  financial
     statements of the  businesses  being  acquired,  the  operations  are being
     treated as a business  division  for the  purposes  of this  report and are
     presented for the nine months ended September 30,1997  separately from CEEE
     as a whole.  Thus,  the  statements  of  income,  shareholders'  equity and
     changes in financial  position for the period January 1 to August 10, 1997,
     included in the official  books of CEEE,  are added to the positions in the
     official  books  of  Companhia  Centro-Oeste  de  Distribuicao  de  Energia
     Eletrica for the period August 11 to September 30, 1997.

     The principles  and  assumptions  used by CEEE  management to segregate the
     distribution operations by region within the state of Rio Grande do Sul and
     specifically, for the Midwest region, are described in Note 2(b).

     The financial  statements  of CEEE-D2 were prepared in accordance  with the
     accounting  practices  set out in Law No.  6,404/76  (Brazil's  Corporation
     Law), the standards  specified by the CVM - Comissao de Valores Mobiliarios
     (Brazilian  Securities  Commission),  and the  standards  used to  regulate
     public  utilities  established  by government  authorities  through DNAEE -
     Departamento  Nacional de Aguas e Energia Eletrica (National  Department of
     Waters and Electric Energy).

     A) BALANCE SHEET AT SEPTEMBER 30, 1997

        The balance sheet  accounts,  shown in the above  financial  statements,
        were prepared based on Companhia Centro-Oeste de Distribuicao de Energia
        Eletrica's  current  official  books as of  September  30, 1997 and duly
        adjusted for accruals as of that date,  identified  after the closing of
        the respective actual financial statements.  To improve the presentation
        of the  financial  statements,  the  effects of these  adjustments  were
        reflected  in  the  preparation  of the  September  30,  1997  financial
        statements, herein shown, conforming to the reconciliation shown below:




<PAGE>



       COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
   (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                               September 30, 1997
                             (In thousands of reais)


2.   PRESENTATION OF THE FINANCIAL STATEMENTS -- continued

     A) BALANCE SHEET AT SEPTEMBER 30, 1997 -- continued

<TABLE>
<CAPTION>


                                                                                     SHAREHOLDERS'
          DESCRIPTION                                                                    EQUITY      NET INCOME
      ----------------------                                                         -------------  -----------
<S>                                                                                      <C>          <C>
          Net income for the period of January 1 to August 10,1997                             -       27,034
          Net income for the period of August 11 to September 30, 1997 before                  -       23,625
          adjustments                                                                   --------     --------

          BALANCE ON SEPTEMBER 30, 1997 BEFORE ADJUSTMENTS                               560,304       50,659

          Complement to the provision for PIS and COFINS                                  (1,937)     (1,937)
          Reversal of the provision for the reversion global reserve - RGR                 6,783        6,783
          Constitution of the allowance for doubtful accounts                             (3,000)     (3,000)
          Duplicate energy invoice to ELETROSUL                                            1,824        1,824
          Unrecorded energy invoices to CEEE and CGTEE                                    (2,652)     (2,652)
          Provision for labor contingencies                                               (1,200)     (1,200)
          Provision for contingencies related to the ELETROCEEE Foundation                (3,500)     (3,500)
          Provision for complementary retirement benefits                                (44,476)    (44,476)
          Provision for contributions to ELETROCEEE for retirements                       (8,503)     (8,503)
          Provision complement for income tax                                             (1,681)     (1,681)
          Provision complement for social contribution tax                                  (550)       (550)
          Constitution of deferred income tax                                             16,016       16,016
          Constitution of deferred social contribution tax                                 5,118        5,118
          Other adjustments                                                                 (439)       (439)
                                                                                        --------     -------
          TOTAL NET EFFECT                                                               (38,197)    (38,197)

                                                                                        ========     ========
          BALANCE ON SEPTEMBER 30, 1997 (ADJUSTED)                                       522,107       12,462
                                                                                        ========     ========
</TABLE>


B) STATEMENTS OF INCOME, SHAREHOLDERS' EQUITY AND CHANGES IN FINANCIAL POSITION

     The conditions for the preparation of these financial statements, including
     the allocation of financial-statement  items to CEEE-D2, were based on: (i)
     the  fractions  of  property,  plant  and  equipment  transferred  to  each
     division; (ii) the sector in which each division operates; (iii) the number
     of employees  transferred  or allocated  to each  division;  and (iv) other
     information.  Below are the main criteria used for the  preparation of each
     statement:





<PAGE>



       COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
   (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                               September 30, 1997
                             (In thousands of reais)


2.   PRESENTATION OF THE FINANCIAL STATEMENTS -- continued

     B)  STATEMENTS  OF INCOME,  SHAREHOLDERS'  EQUITY AND CHANGES IN  FINANCIAL
     POSITION -- continued

        b.1)  Statement of income

              The  statement  of income  for the  period of  January 1 to August
              10,1997  was  prepared  based on the  statement  of income for the
              first six-month period of 1997 available from CEEE's privatization
              process  which  was  adjusted,  basically,  by the cost of  energy
              purchased for resale,  which had been increased by energy supplied
              by CEEE through water power  generation and by thermal energy from
              CGTEE,  using  the  tariffs  effectively   contracted  with  these
              companies. The statement of income for the period July 1 to August
              10, 1997 was prepared based on the same  assumptions  and criteria
              used for the first six-month period of 1997. The net income (loss)
              for the  periods of January 1 to August 10,  1997 and August 11 to
              September 30, 1997 (official  books of Companhia  Centro-Oeste  de
              Distribuicao  de  Energia  Eletrica)  amount to R$ 27,034  and (R$
              14,572),  respectively.  Below are described the criteria used for
              the segregation of the principal  income accounts  attributable to
              the CEEE-D2, originally recorded in the official books of CEEE:

               o    Electricity sales - Allocated in each division  according to
                    the operating region (municipalities);

               o    Deductions from operating  revenue - Allocated in proportion
                    to the billing attributable to each division;

               o    Purchases of  electricity - Allocated  between each division
                    in  accordance  with the  energy  volumes  required  to meet
                    billing,djusted  by the  volume to be  supplied  by CEEE and
                    CGTEE;

               o    Personnel - Allocated based on the employees attributable to
                    each division;

               o    Third party materials and services - All identified expenses
                    were attributed to each division based on their realization,
                    the remaining balance was maintained in CEEE;


               o    Depreciation  -  Proportional  to the  property,  plant  and
                    equipment attributed to each division;



<PAGE>


COMPANHIA  CENTRO-OESTE DE DISTRIBUICAO  DE ENERGIA  ELETRICA-CEEE  D2 (FORMERLY
     MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA  ELETRICA-CEEE)  NOTES TO
     FINANCIAL STATEMENTS (CONTINUED) September 30, 1997 (In thousands of reais)

2.   PRESENTATION OF THE FINANCIAL STATEMENTS -- continued

     B)  STATEMENTS  OF INCOME,  SHAREHOLDERS'  EQUITY AND CHANGES IN  FINANCIAL
     POSITION -- continued

        b.1)  Statement of income -- continued

               o    Other  expenses - Allocated  in each  division  based on the
                    nature of each  account and origin of expense.  The accounts
                    that  could not be  attributed  to only one  division,  were
                    allocated based on information from the user;

               o    Financial income  (expenses) - Financial income derived from
                    overdue   accounts  was  allocated  to  each  division,   in
                    accordance   with  its  region   (municipality).   Financial
                    expenses  were  allocated in  accordance  with  interest and
                    restatement for each loan and note account;

               o    Provision  for  income  and  social   contribution  taxes  -
                    Calculated  using the rates in force on  taxable  income for
                    each division.

      b.2)    Statements of shareholders'  equity and changes in financial
               position

              For the purposes of this report,  the following  amounts are being
              shown as reduction in the statements of  shareholders'  equity and
              changes in financial position: a) the shareholders' equity balance
              for the distribution  operations in the CEEE-D2 region on December
              31,1996  in the  amount of R$  105,644;  b) the net income for the
              period  January 1 to August  10,  1997 in the amount of R$ 27,034;
              and c) the  capital  reserve  to be  added to net  equity  for the
              period January 1 to August 10,1997 in the amount of R$ 2,610.  The
              total  of  these  amounts  adds up to R$  135,288,  which  was not
              transferred  to  the  new  company   (Companhia   Centro-Oeste  de
              Distribuicao de Energia Eletrica) created to manage the operations
              in the Midwest region.



<PAGE>



       COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
   (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                               September 30, 1997
                             (In thousands of reais)


2.   PRESENTATION OF THE FINANCIAL STATEMENTS -- continued

     C) OPENING BALANCE SHEET - DECEMBER 31, 1996

        The December 31, 1996 balance sheet was prepared based on the statements
        shown  in  the   privatization   process   (Companhia   Centro-Oeste  de
        Distribuicao  de  Energia  Eletrica),  together  with the  criteria  for
        carve-out  of the  balance  sheet  items  of  CEEE  to be  given  to the
        Divisions,  which were as follows:  (i) the  fractions of the  property,
        plant and equipment  transferred  to each  division;  (ii) the sector in
        which each division operates;  (iii) the number of employees transferred
        or allocated to each division; and (iv) other information.


3.   PRINCIPAL ACCOUNTING PRACTICES

     A)  STATEMENT OF INCOME

         Income  and  expenses  are  calculated  based  on the  accrual  method,
         including  the  effects  of  monetary  adjustments  on the  assets  and
         liabilities, as applicable.

     B)  CASH AND CASH EQUIVALENTS

          Includes  the amount of R$ 10,000  relating  to short  term  financial
          investments which are monetarily corrected to their current values, as
          applicable.

     C)  CUSTOMER ACCOUNTS RECEIVABLE

          Includes  the  accounts  receivable  for billed and  unbilled  monthly
          electricity consumption and recognized on the accrual basis.

     D)  ALLOWANCE FOR DOUBTFUL ACCOUNTS

          An allowance  for doubtful  accounts is recorded by  management  to be
          sufficient to cover presently foreseeable losses.



<PAGE>



       COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
   (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                               September 30, 1997
                            (In thousands of reais)


3.   PRINCIPAL ACCOUNTING PRACTICES

     E)  STORES

         Refers  to  the  materials  used  for  the   maintenance  of  operating
         equipment,  recorded  at the  average  acquisition  cost which does not
         exceed their market value.

     F)  INVESTMENTS

         Are  recorded at  acquisition  cost and adjusted to market  value,  as
         applicable.

     G)  PROPERTY, PLANT AND EQUIPMENT

         Recorded at purchase or  construction  cost,  monetarily  corrected  to
         December 31, 1995. Depreciation was calculated on the balance of assets
         in service,  using the straight-line  method and the rates described in
         Note  6.   Material   destined  for   construction   is  classified  as
         construction  in  progress  and is  recorded  at the  aquisition  cost.
         Construction in progress is being remunerated at the Long-Term Interest
         Rate - TJLP,  limited to 10% per year, with the amount being attributed
         to capital and credited to  shareholders'  equity in a capital  reserve
         account.

     H)  SPECIAL OBLIGATIONS

         Special  obligations are contributions  received from customers,  which
         are to be used exclusively for investment in the  distribution  network
         to provide energy to the contribuitors.

     I)  INCOME AND SOCIAL CONTRIBUTION TAXES

         Income and social contribution taxes were calculated in accordance with
         the current legislation, especially Law 9,430 of December 27, 1996. The
         CEEE-D2  recorded  deferred  income  and  social  contributions  taxes,
         calculated  based  on  the  temporary   differences  presented  in  the
         financial statements.



<PAGE>



       COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
   (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                               September 30, 1997
                             (In thousands of reais)


3.   PRINCIPAL ACCOUNTING PRACTICES -- continued

     J)  RELATED PARTY TRANSACTIONS

         CEEE-D2  maintains a current  account  with the  Companhia  Estadual de
         Energia  Eletrica-CEEE,  for the expenses paid by CEEE-D2 which are the
         responsibility  of CEEE  and for  those  paid  by  CEEE  which  are the
         responsibility  of CEEE-D2.  Up to September 30, 1997 these amounts had
         not been  restated,  not  even  for  interest.  The  energy  purchased,
         supplied by CEEE and CGTEE, is supported by supply  contracts signed by
         all parts and  approved  by DNAEE and  totaled R$ 32,135,  recorded  as
         energy  purchased.  The amount for energy  purchased  from January 1 to
         September  30,  1997 from CEEE and  CGTEE was R$  73,574,  representing
         38.8% of the cost of energy purchased.


4.   TRADE ACCOUNTS RECEIVABLE

       DESCRIPTION                      BILLED      UNBILLED     TOTAL
       ------------------------------  --------    ----------  ------

         Residential                   16,471       10,505     26,976
         Industrial                     3,300        9,096     12,396
         Commercial and services        4,827        3,998      8,825
         Rural                          1,659        1,382      3,041
         Governments                    2,286          647      2,933
         Public lighting                2,401          259      2,660
         Public service                 1,969          574      2,543
         Others                           460            -        460

                                      ==========    =======   =======
       TOTAL                           33,373       26,461     59,834
                                      ==========    =======   =======


5.   DEFERRED INCOME AND SOCIAL CONTRIBUTION TAXES

     CEEE-D2  recorded  deferred income tax of R$16,016 and social  contribution
     tax of R$ 5,118,  calculated on the temporary  differences presented in the
     financial statements, which refer mainly to the nondeductible provision for
     retirement benefits.



<PAGE>



       COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
   (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                               September 30, 1997
                             (In thousands of reais)


6.   PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>

                                                      ACQUISITION OR
                                          PRECIATION  CONSTRUCTION  ACCUMULATED
       DESCRIPTION                          RATE         COST       DEPRECIATION       NET
       ---------------------------------------------------------------------------------------
<S>                                          <C>       <C>              <C>           <C>
       IN SERVICE
         Land                                           2,831                 -       2,831

         Building and improvements           3%        22,935           (16,697)      6,238
         Machinery and equipment          3 and 4%    846,635          (298,846)    547,789
         Vehicles                            3%        10,947            (2,559)      8,388
         Office equipment and furnishings    3%         1,827              (949)        878
         Land use rights                                6,075                 -       6,075
                                                                                    
                                                    ---------------------------------------
         TOTAL  IN SERVICE                            891,250          (319,051)    572,199
                                                                                    
       CONSTRUCTION IN PROGRESS                                                     
         Construction in progress                      10,144                 -      10,144
         Material held in stock                         5,072                 -       5,072
                                                                                    
                                                    ---------------------------------------
         TOTAL IN PROGRESS                             15,216                 -      15,216
                                                                                    
                                                    =======================================
         TOTAL                                        906,466          (319,051)    587,415
                                                    =======================================
                                                                                  
</TABLE>


<TABLE>
<CAPTION>

7.   SUPPLIERS

       DESCRIPTION
       -----------
<S>                                                                                 <C>   

        Centrais Eletricas do Sul do Brasil S.A. - ELETROSUL                        11,993
        ELETROSUL - ITAIPU repass                                                    7,201
        Companhia Estadual de Energia Eletrica - CEEE                                9,120
        Companhia de Geracao Termica de Energia Eletrica - CGTEE                     2,886

                                                                                 ---------
        Total electricity suppliers                                                 31,200

        Other suppliers                                                              3,037

                                                                                ==========
        TOTAL                                                                       34,237
                                                                                ==========


</TABLE>


<PAGE>



       COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
   (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                               September 30, 1997
                             (In thousands of reais)


8.   TAXES AND SOCIAL CHARGES

       DESCRIPTION
       -----------

        ICMS (State VAT)                              11,631
        COFINS (payroll tax)                           1,463
        PASEP (payroll tax)                              475
        INSS (social security)                           706
        FGTS (dismissal indemnity fund)                  171
        Social contribution tax based on income        3,370
        Income tax                                    10,491
        Other contributions                                9

                                                     =======
        TOTAL                                         28,316
                                                     =======


9.   LOANS

                                    INTEREST
       DESCRIPTION          INDEX    RATES(A)  SHORT-TERM  LONG-TERM    TOTAL
       -----------                  --------   ---------- -----------  ---------

       Fundacao ELETROCEEE  INPC     9% p.a.    1,669       23,195        24,864
       Customers             -         -            -        3,695         3,695

                                               =======     =======       =======
       TOTAL                                    1,669       26,890        28,559
                                               =======     =======       =======

          The amount of the loan from the ELETROCEEE  Pension fund refers todebt
     acceptance  contract,  assumed by CEEE-D2 as a result of the breaking up of
     the whole  contract with CEEE. The loan is amortized on a monthly basis and
     is guaranteed by customer invoice remittances held by several banks.

          Customers refers to refund agreements, amounts advanced from customers
     interested in electric  energy  supply and loans to finance their  electric
     connections,  all generally involved with the expansion of the distribution
     network. These amounts will be returned in four years after the date of the
     conclusion of the installation, without interest or monetary correction.




<PAGE>



       COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
   (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                               September 30, 1997
                             (In thousands of reais)


9.   LOANS -- continued

     The due dates and the  repayment  amounts of the  long-term  loans with the
ELETROCEEE Pension fund are as follows:

       DUE DATES
       --------------------------

         Oct.-Nov.-Dec.-1998               419
         1999                            1,676
         2000                            1,676
         2001                            1,676
         2002                            1,676
         From 2003 on                   16,072
                                        ======
       TOTAL                            23,195
                                        ======


10.  ACCRUAL FOR RETIREMENT BENEFITS

     In accordance  with the collective  agreement the CEEE-D2 is responsible to
     pay a  complementary  retirement  benefit for credit  service that had been
     conceded by the Previdencia  Oficial  (Official Social Security) to regular
     participants  in the ELETROCEEE  Pension Fund and who had not yet fulfilled
     all the  requirements  to receive  the  benefits  from the above  mentioned
     Pension  Fund.  Such  benefit  will  be  paid  by the  Sponsors  until  all
     requirements  are  met,  so  that  the  participant   would  be  considered
     definitively retired by the Pension Plan.

     An accrual  for these  future  payments  was  recorded  by CEEE-D2  and the
     calculation considered the average payment period of this benefit to be 132
     months,  representing  calendar  years of 13  months.  The  amount  of that
     provision  was adjusted to its present value using a rate of 12% per annum.
     The balances on September 30, 1997 are summarized below:
<TABLE>
<CAPTION>

                                                 ADJUSTMENT
                                     ORIGINAL    TO PRESENT    NET       LONG         SHORT
      DESCRIPTION                  GROSS AMOUNT    VALUE      AMOUNT     TERM          TERM
      ------------------          -------------- ---------  --------    --------     -------
<S>                                      <C>       <C>         <C>       <C>            <C>  
      Retirement complement              84,618    (36,979)    47,639    39,539         8,100
      Contribution to Pension fund       14,730     (6,227)     8,503     7,093         1,410

                                   =============  ========= =========== ======== =============
      TOTAL                              99,348    (43,206)    56,142    46,632         9,510
                                   =============  ========= =========== ======== =============
</TABLE>


<PAGE>



       COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
   (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                               September 30, 1997
                             (In thousands of reais)


11.  CONTINGENCIES

     Companhia   Estadual  de  Energia   Eletrica-CEEE,   formerly   controlling
shareholder of CEEE-D2,  is being cited in several lawsuits in the tax and civil
areas.  In the opinion of the  Company's  attorneys the  probability  of loss is
remote. Thus, it is not necessary to create any provision for losses. As for the
labor lawsuits against CEEE by employees up to August 11, 1997  subcontracted by
(transferred  to) Companhia  Centro-Oeste de  Distribuicao  de Energia  Eletrica
(CEEE-D2) on that date, the responsibility for any contingencies up to that date
is  CEEE's,  passing  subsequently  to  CEEE-D2.  Thus,  a  provision  for labor
contingencies  for the 475 lawsuits by employees of CEEE-D2 has been constituted
in the amount of R$ 1,200,  including the responsibility  period of CEEE-D2 from
August 11, 1997 on.

     The  ELETROCEEE  (Pension  fund) is being cited in two  lawsuits in the tax
area,  where the  collection  of income tax at source on the  earnings  on fixed
income  investments  (CDB, CDI, etc) and variable income (equity  securities) of
the Pension  Fund is being  questioned.  These  lawsuits are in the amount of R$
84,000.  CEEE-D2 is  constituting  a provision in the amount of R$ 3,500,  which
refers to the percentage of its participation of 4.21% in the Pension Fund.


12.  SHAREHOLDERS' EQUITY

     CEEE-D2's capital is R$ 536,344,  represented by 536,344,395 nominative, no
par value,  common shares.  Each common share entitles the holder to one vote at
shareholder meetings.

     CEEE-D2  corporate  bylaws do not foresee the  distribution of dividends to
the shareholders. As a result, the regulations laid out by Law 6,404/76 (article
202) prevail, which determine that 50% of net income, adjusted by the following,
be destined for dividends: (i) the amount destined for the creation of the legal
reserve; (ii) the amount destined for the creation of the contingency reserve.

     The  base  used for the  calculation  of  dividends  is the net  income  as
presented in the corporate books.



<PAGE>



       COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
   (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                               September 30, 1997
                             (In thousands of reais)


13.  PENSION FUND

     CEEE-D2  is  co-sponsor  of  the  Fundacao  CEEE  de  Seguridade  Social  -
ELETROCEEE  (Pension fund),  which has as its main objective  supplementing  the
social benefits of its participants.

     The annual cost to the CEEE-D2 is  estimated to be 7.5% for the normal cost
(amortization of future  service),  1.5% for  administrative  cost and 2.44% for
supplementary  cost with  amortization of past service (Reserve to be amortized)
of the payroll (SRC - real contribution salary).

     The sponsors are responsible for the coverage of any deficit  calculated in
the benefit plan of the Pension fund

     The benefits plan is of the "defined  benefit" type, using the capitalizing
method.  The  actuarial  review was  performed on the base date of September 30,
1997 which gives the following position:
<TABLE>
<CAPTION>

                                                                TOTAL
                                                               BALANCE                 BALANCE
                                                             RECORDED BY            ATTRIBUTABLE TO
       DESCRIPTION                                            ELETROCEE                CEEE-D2
       ------------------------------------------------     ----------------        ---------------
    <S>                                                           <C>                    <C>
       MATHEMATICAL RESERVES
        Vested benefit obligation - retired employees           230,964                     -
        Non-Vested benefit obligation-current employees         666,908                47,260

        Reserve to be amortized                                (106,491)              (12,332)
                                                              ---------              --------
                                                                791,381                34,928
                                                                             
       TECHNICAL SURPLUS(DEFICIT)                                 3,908                  (836)
                                                              =========              ========
       TECHNICAL RESERVE                                        795,289                34,092
                                                              =========              ========
                                                                             
       TOTAL ASSETS AVAILABLE                                   811,793                34,092
                                                              =========              =========
</TABLE>






<PAGE>



       COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
   (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                               September 30, 1997
                             (In thousands of reais)


14.  FINANCIAL INSTRUMENTS

     All the assets and liabilities,  which are considered financial instruments
(loans,  investments,  etc.),  included in the financial statements at September
30,  1997  do  not  represent  significant  changes  between  their  market  and
accounting values.


15.  EXTRAORDINARY ITEMS

     The following  adjustments to the September 30, 1997  financial  statements
are being included as set out in Note 2(a).  Among these  adjustments,  some are
considered  nonrecurring  as they are not  related to  Division  operations  and
because of their unusual and infrequent nature, and are shown below:

      DESCRIPTION
      -------------------------------------------------------

       Tax contingencies related to ELETROCEEE (Pension fund)            (3,500)
       Provision for retirement benefits                                (47,639)
       Contributions to the Pension fund for early retirements           (8,503)
       Net provision for RGR received by CEEE                             8,856
                                                                        --------
       TOTAL                                                            (50,786)
      --------------------------------------------------------          ========


16.  SUBSEQUENT EVENTS

     On  October  21,  1997,  by way of a Special  Auction  held by the Bolsa de
Valores do Extremo Sul (Extreme South Stock Exchange) - BVES, the  privatization
of Companhia  Centro-Oeste de Distribuicao  de Energia  Eletrica  (CEEE-D2) took
place,  whereby  100% of the  capital of  CEEE-D2,  which was held by  Companhia
Estadual de Energia Eletrica - CEEE, was sold for approximately R$ 1,510,000, at
a premium 93.55%. As was established under the privatization bid agreement,  the
winner of the auction (AES Guaiba  Empreendimentos  Ltda.) assumed the following
obligations:

     Submit to DNAEE ,  beforehand,  any  alterations to the Company bylaws that
would imply any changes in shareholder control;



<PAGE>



          COMPANHIA  CENTRO-OESTE DE DISTRIBUICAO  DE ENERGIA  ELETRICA-CEEE  D2
          (FORMERLY   MIDWEST   DIVISION  OF   COMPANHIA   ESTADUAL  DE  ENERGIA
          ELETRICA-CEEE) NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30,
          1997 (In thousands of reais)


16.  SUBSEQUENT EVENTS -- continued

o    Submit,  independently of the requirements of the concession contract,  the
     requested documents or any other information relative to the Company,  that
     has  been  asked  for by  monitoring,  controlling  or  auditing  State  or
     Government Concession entities;

o    Ensure that at least one member of the Company's  Administrative Council be
     freely  chosen by the  employees  if the shares they own,  including  those
     acquired  during the offer to employees,  are not  sufficient to ensure the
     election  of a  representative.  The  election  process  for  the  employee
     representative will be coordinated by the employee labor union representing
     the majority of employees;

o    Keep the  Company  as "a  publicly  traded  company"  for the period of the
     concession,  except as the result of legal requirements,  keeping the share
     register  open for the trading of Company  stock on the stock  exchange for
     the minimum of 360 days after the purchase or sale of shares.  If the stock
     register  for the trading of shares on the stock  exchange is not kept open
     for the above  mentioned  time, the  controlling  shareholders  must make a
     public offer to purchase the shares held by the  employees at the price per
     lot of one thousand shares set by the auction, restated by the IGPM, or any
     other index that has  substituted  it,  within the period of 13 months from
     the date of the signing of the purchase or sale contract for the shares;

o    Assume as sponsor,  relative to the  employees of the Company,  without the
     help of the Fundacao CEEE de Seguridade Social - ELETROCEEE (Pension fund),
     the guarantee for the current social security benefit plan for a three year
     minimum;

o    Be  responsible  for the financing of the  amortization  of the  ELETROCEEE
     (Pension fund)  reserve,  in the time taken to amortize this reserve at the
     rates  calculated  by the actuary  responsible  for setting the amount,  in
     proportion to the SRC (Real  Contribution  Salary) of the  participants who
     are covered by the plan;

o    Maintain up to August 31, 2004,  the current  assistance and medical health
     benefits  for the  employees  laid  out in the  agreement  signed  with the
     Sindicato dos Trabalhadores SENERGISUL (Labor Union);



<PAGE>



       COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
   (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                               September 30, 1997
                             (In thousands of reais)


16.  SUBSEQUENT EVENTS -- continued

O    Assume,  through  subcontracts,  the rights and obligations  established in
     energy supply  contracts,  including those with guarantees given by CEEE to
     the supplier of the above mentioned contracts


         a. (ii)  Pro forma Financial Information

                  The following  unaudited pro forma consolidated  statements of
operations information combine the results of AES's investment in CEMIG, Destec,
and ESEBA which were previously reported in the AES Corporation's Form 8-K dated
July  3,  1997,  and in  CEEE  D2,  which  was  previously  reported  in the AES
Corporation's  Form 8-K dated November 10, 1997, for the year ended December 31,
1996 and the nine months ended September 30, 1997 as if the acquisitions and the
associated financings had occurred on January 1, 1996.

                  The unaudited pro forma  adjustments  are based upon available
information and certain assumptions and estimates which the Company believes are
reasonable  under the  circumstances.  The  unaudited  pro forma  results do not
purport to be  indicative  of the results that would have been  obtained had the
acquisitions  and  the  financings  occurred  at the  beginning  of the  periods
presented,  nor are they  intended to be a  projection  of future  results.  The
unaudited pro forma financial information should be read in conjunction with the
notes herein.

YEAR ENDED DECEMBER 31, 1996(1)(2)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)                                                          ADJUSTMENTS         PRO FORMA                                  
                                                                    FOR THE ESEBA,     FOR THE ESEBA,                    PRO FORMA 
                                                                    CEMIG & DESTEC     CEMIG & DESTEC     CEEE D2         FOR ALL  
                                                                     ACQUISITIONS      ACQUISITIONS     ACQUISITION    ACQUISITIONS
                                                       ACTUAL        & FINANCINGS      & FINANCINGS     & FINANCING     & FINANCINGS
-----------------------------------------------------------------------------------------------------------------------------------
($ in millions, except per share amounts)


<S>                                                    <C>              <C>              <C>                <C>           <C>
TOTAL REVENUES(4)                                      $ 835            $ 702            $ 1,537            $ 398         $ 1,935
TOTAL OPERATING COSTS AND EXPENSES                       557              704              1,261              360           1,621
                                                       -----            -----            -------            -----          ------

OPERATING INCOME                                         278               (2)               276               38             314

OTHER INCOME AND (EXPENSE):
Interest expense                                        (144)            (102)              (246)            (121)           (367)
Interest income                                           24               --                 24               --              24
Equity in earnings of affiliates, net of tax              35               50                 85               --              85
                                                       -----            -----            -------            -----          ------

INCOME (LOSS) BEFORE INCOME TAX
     AND MINORITY INTEREST                               193              (54)               139              (83)             56

Income tax (Benefit)                                      60              (41)                19              (36)            (17)
Minority interest                                          8               (2)                 6                3               9
                                                       -----            -----            -------            -----          ------

NET INCOME (LOSS)                                      $ 125              (11)           $   114            $ (50)         $   64
                                                       =====            =====            =======            =====          ======
NET INCOME (LOSS) PER SHARE(3)                          0.72            (0.06)              0.66            (0.29)           0.37
                                                       =====            =====            =======            =====          ======

</TABLE>
<PAGE>

NINE MONTHS ENDED SEPTEMBER 30, 1997(1)(2)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)                                                          ADJUSTMENTS         PRO FORMA                                  
                                                                    FOR THE ESEBA,     FOR THE ESEBA,                    PRO FORMA 
                                                                    CEMIG & DESTEC     CEMIG & DESTEC     CEEE D2         FOR ALL  
                                                                     ACQUISITIONS      ACQUISITIONS     ACQUISITION    ACQUISITIONS
                                                       ACTUAL        & FINANCINGS      & FINANCINGS     & FINANCING     & FINANCINGS
-----------------------------------------------------------------------------------------------------------------------------------
($ in millions, except per share amounts)


<S>                                                      <C>            <C>             <C>              <C>            <C>
TOTAL REVENUES(4)                                        $   880        $   127         $ 1,007          $   320        $ 1,327
TOTAL OPERATING COSTS AND EXPENSES                           620            113             733              323          1,056
                                                         -------        -------         -------          -------        -------

OPERATING INCOME                                             260             14             274               (3)           271

OTHER INCOME AND (EXPENSE):
Interest expense                                            (154)           (44)           (198)             (87)          (285)
Interest income                                               28              8              36                5             41
Equity in earnings of affiliates, net of tax                  58             18              76               --             76
                                                         -------        -------         -------          -------        -------

INCOME (LOSS) BEFORE INCOME TAX MINORITY
     INTEREST,AND EXTRAORDINARY ITEM                         192             (4)            188              (85)           103

Income taxes                                                  50             (9)             41              (35)             6
Minority interest                                             10              4              14                1             15
                                                         -------        -------         -------          -------        -------

INCOME (LOSS) BEFORE EXTRAORDINARY ITEM                      132              1             133              (51)            82

EXTRAORDINARY ITEM - NET LOSS ON EXTINGUISHMENT OF
   DEBT (LESS APPLICABLE INCOME TAXES OF $2 MILLION)          (3)            --              (3)              --             (3)
                                                         -------        -------         -------          -------        -------

NET INCOME (LOSS)                                            129              1             130              (51)            79
                                                         =======        =======         =======          =======        =======
NET INCOME (LOSS) PER SHARE:
Before extraordinary loss                                   0.76           0.01            0.77            (0.30)          0.47
Extraordinary loss                                         (0.02)             -           (0.02)               -          (0.02)
                                                         -------        -------         -------           ------        -------
NET INCOME (LOSS) PER SHARE (3)                          $  0.74        $  0.01         $  0.75           $(0.30)       $  0.45
                                                         =======        =======         =======           ======        =======
</TABLE>

The  following  unaudited  pro  forma  consolidated  balance  sheet  information
represents  AES's  financial  position at  September  30, 1997 as if the CEEE D2
acquisition and associated financing had occurred on that date.


<PAGE>
AS OF SEPTEMBER 30, 1997(1)(2)
<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------------
(UNAUDITED)                                                          ADJUSTMENTS         PROFORMA
                                                     ACTUAL        FOR THE CEEE D2    FOR THE CEEE D2
                                                                     ACQUISITION        ACQUISITION
                                                                     & FINANCING        & FINANCING
----------------------------------------------------------------------------------------------------
($ in millions)

ASSETS
<S>                                                <C>                 <C>                <C>
CURRENT ASSETS:

Cash and cash equivalents                           $   358            $    50            $   408
Short-term investments                                   27                 --                 27
Accounts receivable, less provision to
 reduced contract receivable of $39                     206                 52                258
Inventory                                                69                  1                 70
Receivable from affiliates                               13                 --                 13
Deferred tax                                             49                  1                 50
Prepaid expenses and other current assets                77                 15                 92
                                                    -------            -------            -------
                                                               
TOTAL CURRENT ASSETS                                    799                119                918
                                                               
PROPERTY, PLANT, & EQUIPMENT:                                  
Land                                                     33                 --                 33
Electric generation and distribution assets           2,563              1,156              3,719
Accum depreciation, depletion, and amortization        (336)              (291)              (627)
Construction in progress                                800                 14                814
                                                    -------            -------            -------
                                                               
PROPERTY, PLANT AND EQUIPMENT, NET                    3,060                879              3,939
                                                               
OTHER ASSETS:                                                  
Electricity concession agreements                       229                765                994
Deferred costs, net                                      89                 37                126
Project development costs                               100                 --                100
Investments in and advances to affiliates             1,835                 --              1,835
Debt service reserves and other deposits                173                 --                173
Goodwill and other intangible assets, net                26                 --                 26
Other assets                                            257                 59                316
                                                    -------            -------            -------
                                                               
TOTAL OTHER ASSETS                                    2,709                861              3,570
                                                    -------            -------            -------
                                                               
TOTAL                                               $ 6,568            $ 1,859            $ 8,427
                                                    ========           =======            =======

LIABILITIES & STOCKHOLDERS' EQUITY                             
                                                               
CURRENT LIABILITIES:                                           
Accounts payable                                    $    74            $    31            $   105
Accrued interest                                         39                 --                 39
Accrued and other liabilities                           183                 48                231
Project financing debt - current portion                533                 --                533
                                                    --------           -------            -------
                                                               
TOTAL CURRENT LIABILITIES                               829                 79                908
                                                               
LONG-TERM LIABILITIES:                                         
Project financing debt                                2,814                650              3,464
Other notes payable                                     573                500              1,073
Deferred income taxes                                   231                103                334
Other long-term liabilities                              48                179                227
                                                    -------            -------            -------
                                                               
TOTAL LONG-TERM LIABILITIES                           3,666              1,432              5,098
                                                               
MINORITY INTEREST                                       379                 48                427

COMPANY OBLIGATED MANDATORILY REDEEMABLE
PREFERRED SECURITIES OF AES TRUST II                    250                300                550

STOCKHOLDERS' EQUITY                                           
Common stock                                              2                 --                  2
Additional paid-in capital                            1,018                 --              1,018
Retained earnings                                       525                 --                525
Cumulative foreign currency translation
 adjustment                                            (100)                --               (100)
Less treasury stock at cost                              (1)                --                 (1)
                                                    -------            -------            -------
TOTAL STOCKHOLDERS' EQUITY                            1,444                 --              1,444
                                                    -------            -------            --------
TOTAL                                               $ 6,568            $ 1,859            $ 8,427
                                                    =======            =======            =======
</TABLE>
<PAGE>

(1) Basis of presentation:

         The Company's  acquisitions of the Destec international  assets, ESEBA,
CEEE D2 and the 13% economic  interest in CEMIG were accounted for as purchases.
The purchase price allocations have been prepared on a preliminary basis pending
completion of engineering,  environmental,  legal and valuation analyses, all of
which are  ongoing.  The excess of the  respective  purchase  price over the net
assets acquired will be amortized over 40 years. The Company intends to sell its
interest in the  Hazelwood  project,  which was  purchased as part of the Destec
acquisition, and as a result, the financing costs and equity in earnings related
to such  interest  are  treated  as  adjustments  to the Destec  purchase  price
allocation.  The Company's purchase of an economic interest of approximately 13%
in CEMIG,  which also represents an approximate voting interest of 30%, has been
recorded as an investment in subsidiaries,  and is being accounted for using the
equity method.

         The summary unaudited pro forma financial information has been prepared
based on the  Company's  estimates  of each  acquiree's  financial  position and
results of operations in conformity  with U.S.  GAAP. As such, the unaudited pro
forma financial  information  reflects  estimated changes in the basis of assets
and liabilities and the effects of such changes on depreciation and amortization
expense.

         The unaudited pro forma  statements of operations  have been translated
using the average exchange rates in effect during the periods. The unaudited pro
forma  balance sheet has been  translated  using the September 30, 1997 exchange
rates of approximately R$1.10 to US$1.00.  Income taxes have been recorded based
on the  historical  rates in  effect,  adjusted  as  necessary  to  reflect  any
incremental U.S. federal income taxes.


(2) Financing:

          (a) The  acquisition  of the  Destec  international  assets was funded
through the use of the  proceeds  from a $250 million  TECONS  offering in March
1997, the proceeds of a



<PAGE>

$150  million  offering of AES Common  Stock in March 1997,  and funds under the
Company's revolving bank loan ("Revolver").

         The  acquisition of the Company's  interest in CEMIG was funded through
the use of a $250  million  bridge  loan to AES  CEMIG  Funding  Corporation,  a
wholly-owned  subsidiary of AES("CEMIG  Bridge") at an interest rate of 8.25%, a
bridge  loan to AES of $200  million at an interest  rate of 7.75%,  and project
financing of $126 million at an interest  rate of 9.75%  provided by BNDES,  the
State  Development Bank of Brazil.  The remaining  portion of the purchase price
amounting to approximately $527 million is deferred,  by contract,  for a period
of one year. Such obligation  bears no interest and has been guaranteed by BNDES
for a fee of 1% per year which is included in  interest  expense.  Subsequently,
the CEMIG Bridge was reduced with a portion of the proceeds from the issuance of
the Company's common stock, as described  below, to  approximately  $40 million.
Included in the pro forma amounts is the interest  expense  associated  with the
refinanced amount of the CEMIG Bridge of $220 million at 8.25%.

         The ESEBA  acquisition  was funded  through the use of a bridge loan to
AESEBA Funding Corporation,  a wholly-owned subsidiary of AES of $200 million at
an interest  rate of 8.25%  ("ESEBA  Bridge"),  project  financing  debt of $148
million  at an  interest  rate of 7.4%  and the  drawdown  of  funds  under  the
Company's revolver. Subsequently, the ESEBA Bridge was reduced with a portion of
the  proceeds  from the issuance of the  Company's  common  stock,  as described
below, to  approximately  $32 million.  Included in the pro forma amounts is the
interest  expense  associated with the refinanced  amount of the CEMIG Bridge of
$180 million at 8.25%.

         The pro forma  adjustments also include the Company's  issuance of $325
million 8 3/8% Senior  Subordinated Notes due 2007 in July 1997 and the issuance
of 9.0 million  shares of the  Company's  common stock at a price of $39.875 per
share in July 1997, as if such offerings had occurred on January 1, 1996.

     (b) The  Acquisition  of  CEEE D2 was  funded  through  borrowings  of $250
million under the Company's  Revolver,  short-term loans of $550 million under a
bridge loan  facility to AES, and project  financing  debt of $630 million at an
interest rate of 7.5%.  Subsequently,  the borrowings under the Revolver and the
short-term  bridge loan were  refinanced with proceeds from $375 million of 8.5%
Senior  Subordinated Notes, $125 million of 8.875% of Senior Subordinated Notes,
and $300  million  Term  Convertible  Preferred  Securities  with a 5 1/2% yield
issued in October 1997. Interest expense associated with the above financing has
been reflected in the pro forma adjustments.

<PAGE>

(3) Weighted  average  shares used to calculate pro forma earnings per share for
the acquisition of the international assets of Destec include 5.1 million shares
of AES Common Stock issued to finance the acquisition as though they were issued
January 1, 1996.  Weighted average shares have also been adjusted to reflect the
issuance of  approximately  5.0 million shares of AES Common Stock in connection
with the Chigen Amalgamation in May 1997.

4) Includes  $384 million and $370 million of revenues and costs,  respectively,
in the fiscal year ended 1996,  related to services performed under construction
contracts for 2 Destec  projects,  Elsta and Kingston.  The Kingston project was
completed in early 1997 and, as a result, such revenue and costs were reduced to
$18 million and $17 million,  respectively,  for the nine months ended September
30, 1997.  The Company's  share of profits  (based on its ownership  interest in
each respective project) resulting from services performed under these contracts
is deferred and amortized over the life of the respective project.

<PAGE>

                                   SIGNATURES

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


                               THE AES CORPORATION


                             By: /s/ Barry J. Sharp

                                               Barry J. Sharp
                                               Vice President
                                               and Chief Financial Officer


Date:  January 9, 1998


<PAGE>




EXHIBIT INDEX


EXHIBIT NO.       DESCRIPTION


         23.1              Consent of Independent Public Accountants
[{"type": "8-K", "sequence": "1", "description": "THE AES CORPORATION FORM 8-K.", "secsgml_size_bytes": 82717}]
{"company-data": {"conformed-name": "AES CORPORATION", "cik": "0000874761", "assigned-sic": "4991", "irs-number": "541163725", "state-of-incorporation": "DE", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "8-K", "act": "34", "file-number": "001-12291", "film-number": "98503910"}, "business-address": {"street1": "1001 N 19TH ST", "street2": "STE 2000", "city": "ARLINGTON", "state": "VA", "zip": "22209", "phone": "7035221315"}}
UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 8-K

                                 CURRENT REPORT

                       PURSUANT TO SECTION 13 OR 15 (d) OF

                       THE SECURITIES EXCHANGE ACT OF 1934

        Date of report(Date of earliest event reported): October 27, 1997

                               THE AES CORPORATION
             (exact name of registrant as specified in its charter)

                 DELAWARE                0-19281                54-1163725
         (State of Incorporation)    (Commission File No.)    (I.R.S. Employer
                                                             Identification No.)

                             1001 North 19th Street
                               Arlington, Va 22209

          (Address of principal executive offices, including zip code)

               Registrant's telephone number, including area code:
                                 (703) 522-1315

                                 NOT APPLICABLE
          (Former Name or Former Address, if changed since last report)
ITEM 7.  Financial Statements and Exhibits

         a. (i)   Financial Statements of Businesses Acquired.

         In  connection  with AES's  acquisition  of Companhia  Centro-oeste  de
Distribuicao de Energia  Eletrica-CEEE D2 ("CEEE D2") as previously  reported in
the Company's  8-k dated  November 10, 1997,  the Company  submits the following
audited financial  statements.  The following  audited  financial  statements of
Companhia  Centro-oeste de  Distribuicao de Energia  Eletrica- CEEE D2 (formerly
Midwest Division of Companhia  Estadual de Energia Eletrica- CEEE) as of and for
the nine months ended September 30, 1997, together with the Auditors' report are
expressed  in  Brazilian  Reais  and  prepared  in  accordance  with  accounting
practices originating in Brazil's Corporation Law.
COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
   (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)

                              FINANCIAL STATEMENTS
                      NINE MONTHS ENDED SEPTEMBER 30, 1997
                       WITH REPORT OF INDEPENDENT AUDITORS
COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
   (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)

                              FINANCIAL STATEMENTS
                      Nine months ended September 30, 1997

                                    CONTENTS

Report of Independent Auditors.................................................1

Audited Financial Statements

Balance Sheet..................................................................2
Statement of Income............................................................4
Statement of Shareholders' Equity..............................................5
Statement of Changes in Financial Position.....................................6
Notes to Financial Statements..................................................7
REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders
Companhia Centro-Oeste de Distribuicao de Energia Eletrica

We have examined the  accompanying  balance sheet of Companhia  Centro-Oeste  de
Distribuicao de Energia Eletrica-CEEE D2 (formerly Midwest Division of Companhia
Estadual de Energia  Eletrica-CEEE)  as of September  30, 1997,  and the related
statements of income, shareholders' equity and changes in financial position for
the nine months then ended,  expressed in Brazilian currency and prepared on the
basis described in Note 2. These financial  statements are the responsibility of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements based on our audit.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the  financial  position of Companhia  Centro-Oeste  de
Distribuicao de Energia Eletrica-CEEE D2 (formerly Midwest Division of Companhia
Estadual de Energia  Eletrica-CEEE) as of September 30, 1997, and the results of
its operations,  and changes in its shareholders'  equity and financial position
for the nine months then ended,  in  accordance  with the  accounting  practices
originating in Brazil's Corporation Law.

                         Porto Alegre, December 30, 1997

                                  Ernst & Young
                          Auditores Independentes S.C.
                            CRC-2 SP/15,199/O-6/S/RS

                               Arnaldo C. Kurayama
                         Accountant CRC-SP/101,151/S/RS
A free translation from Portuguese into English of financial statements prepared
in Brazilian currency in accordance with the accounting practices originating in
Brazil's Corporation Law
-------------------------------------------------------------------------------

       COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
   (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)

                            BALANCE SHEET (NOTE 2.A)
                               September 30, 1997
                        (Expressed in thousands of reais)

ASSETS
CURRENT ASSETS
  Cash and cash equivalents                            20,318
  Customers accounts receivable                        59,834
  Allowance for doubtful accounts                      (3,000)
  Accounts receivable - CEEE                           11,191
  Other accounts receivable                             3,857
  Stores                                                1,424
  Prepaid expenses                                        139

                                                     --------
TOTAL CURRENT ASSETS                                   93,763

LONG-TERM ASSETS
  Deferred income and social contribution taxes        21,134
  Other credits                                            83

                                                     --------
TOTAL LONG-TERM ASSETS                                 21,217

PERMANENT ASSETS
  Investments                                           9,991
  Property, plant and equipment - net                 587,415

                                                     --------
TOTAL PERMANENT ASSETS                                597,406

                                                     ========
TOTAL ASSETS                                          712,386
                                                     ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
  Suppliers                                               34,237
  Taxes and social charges                                28,316
  Loans-Current portion                                    1,669
  Accrual for retirement benefits                          9,510
  Payroll accruals                                         7,609
  Other payables and accruals                              5,882

                                                        --------
TOTAL CURRENT LIABILITIES                                 87,223

LONG-TERM LIABILITIES
  Loans                                                   26,890
  Accrual for retirement benefits                         46,632
  Provision for contingencies                              4,700
  Other long-term liabilities                              3,039
                                                        --------
                                                          81,261

  Special obligations                                     21,795

                                                        --------
TOTAL LONG-TERM LIABILITIES                              103,056

SHAREHOLDERS' EQUITY
  Capital                                                536,344
  Capital reserves                                           335
  Accumulated loss                                       (14,572)

                                                        --------
TOTAL SHAREHOLDERS' EQUITY                               522,107

                                                        ========
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY               712,386
                                                        ========

See accompanying notes.
COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
   (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)

                         STATEMENT OF INCOME (NOTE 2.B)
                      Nine months ended September 30, 1997
                        (Expressed in thousands of reais)

GROSS OPERATING REVENUE
  Electricity sales to final consumers                   477,770
  Electricity sales to other concessionaires                 210
  Other revenue                                            5,779
                                                        --------
                                                         483,759
DEDUCTIONS FROM OPERATING REVENUE
  Regulatory charges                                     (20,653)
  Value - added sales tax (ICMS)                         (94,711)
  COFINS and PASEP taxes                                 (12,792)
                                                        --------
                                                        (128,156)

                                                        --------
NET OPERATING REVENUE                                    355,603

OPERATING EXPENSES
  Purchases of electricity                              (189,623)
  Personnel                                              (44,323)
  Third party materials and services                     (13,700)
  Depreciation                                           (24,279)
  Other expenses                                         (20,399)
                                                        --------
                                                        (292,324)

                                                        --------
OPERATING INCOME BEFORE FINANCIAL INCOME                  63,279

  Financial income, net                                    5,953

                                                        --------
OPERATING INCOME                                          69,232

NONOPERATING INCOME
  Extraordinary items                                    (50,786)
  Nonoperating income, net                                    22
                                                        --------
                                                          50,764)

                                                        --------
INCOME BEFORE TAXES                                       18,468

  Income and social contribution taxes                   (27,140)
  Deferred income and social contribution taxes           21,134

                                                        ========
NET INCOME FOR THE PERIOD                                 12,462
                                                        ========

See accompanying notes.
COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
   (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)

                  STATEMENT OF SHAREHOLDERS' EQUITY (NOTE 2.B)
                      Nine months ended September 30, 1997
                        (Expressed in thousands of reais)
CAPITAL   ACCUMULATED
                                                                                        CAPITAL   RESERVE    LOSS          TOTAL
BALANCE AT DECEMBER 31, 1996                                                            641,988       --           --     641,988
                                                                                                                         
Net assets and liabilities  included in CEEE-D2 on December 31, 1996 and capital                                         
reserve and net income  related to the period from January 1 to August 10, 1997,                                         
the  amounts  of  which  were  not  transferred  to the new  company  (Companhia                                         
Centro-Oeste de Distribuicao de Energia  Eletrica)  created on July 28, 1997 and                                         
which  started its  operations  on August 11,  1997 (See Note  2(b2)) 
    
                                                                                       (105,644)  (2,610)     (27,034)   (135,288)
                                                                                                                         
   Remuneration of construction in progress:
     Period from January 1 to August 10, 1997                                                --    2,610           --       2,610
     Period from August 11 to September 30, 1997                                             --      335           --         335
                                                                                                                         
   Net income (loss):                                                                                                    
     Period from January 1 to August 10, 1997                                                --       --        27,034      27,034
     Period from August 11 to September 30, 1997                                             --       --       (14,572)    (14,572)
                                                                                                                         
                                                                                       ========   ======      ========     =======
BALANCE AT SEPTEMBER 30, 1997                                                           536,344      335       (14,572)    522,107
                                                                                       ========   ======      ========     =======
See accompanying notes
COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
   (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)

              STATEMENT OF CHANGES IN FINANCIAL POSITION (NOTE 2.B)
                      Nine months ended September 30, 1997
                        (Expressed in thousands of reais)

SOURCES OF WORKING CAPITAL
  FROM OPERATIONS
  Net income for the period                                              12,462
  Items which do not affect working capital:
   Depreciation                                                          24,279
   Long-term monetary variations                                          2,194
   Provision for losses with investments                                    128
   Provision for contingencies                                            4,700
   Accrual for long-term retirement benefits                             46,632
   Deferred income and social contribution taxes                        (21,134)
   Cost of permanent assets disposed                                      1,705
                                                                       --------
                                                                         70,966
  FROM THIRD PARTIES                                     
   Reduction of long-term assets                                         10,531
   Increase in long-term liabilities                                      7,552
                                                                       --------
                                                                         18,083
                                                         
                                                                       --------
TOTAL FUNDS PROVIDED                                                     89,049
                                                         
USES OF WORKING CAPITAL                                  
  Property, plant and equipment                                          11,872
  Investments                                                               666
  Reduction  of net assets (see Note-2(b2))                             135,288
  Transfer of long-term liabilities to current liabilities                1,527

                                                                       --------
TOTAL FUNDS USED                                                        149,353

                                                                       ========
DECREASE IN WORKING CAPITAL                                             (60,304)
                                                                       ========

CURRENT ASSETS
  At beginning of period                                                135,200
  At end of period                                                       93,763
                                                                       --------
                                                                        (41,437)
CURRENT LIABILITIES
  At beginning of period                                                 68,356
  At end of period                                                       87,223
                                                                       --------
                                                                         18,867

                                                                       ========
DECREASE IN WORKING CAPITAL                                             (60,304)
                                                                       ========

See accompanying notes.
COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
   (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)

                          NOTES TO FINANCIAL STATEMENTS
                               September 30, 1997
                             (In thousands of reais)

1.   OPERATIONS

     Companhia   Estadual  de  Energia   Eletrica-CEEE   is  a  publicly  traded
     corporation  under Brazilian Law,  controlled by the State of Rio Grande do
     Sul Government,  and was included in the privatization program of the state
     government in 1996.  In accordance  with the model for sale approved by the
     State Government,  the main electric energy operating activities of CEEE in
     generation,  transmission and  distribution by region,  would be segregated
     and  transferred to new companies to be created for these  purposes.  These
     companies were to be sold separately to different  investor  groups.  Thus,
     CEEE formed six new companies,  which were: two energy generating companies
     (thermal and hydro electric),  one energy transmission  company,  and three
     energy    distribution    companies,    separated    by   state    regions:
     North-Northeast-D3, Midwest-D2 (CEEE-D2) and South-Southeast-D1. On October
     21, 1997, the companies  responsible for the  distribution of energy in the
     North-Northeast-D3  and in the Midwest-D2 regions were privatized by way of
     an auction.  Companies  for the latter two regions  were formed on July 28,
     1997 and their operating activities began on August 11,1997. On October 27,
     1997,  the new  shareholders  (private  sector)  assumed  their  respective
     management.

     AES Guaiba  Empreendimentos  Ltda.  (holding of  CEEE-D2)  acquired a share
     interest in the  distribution  operations of the Midwest  region,  known as
     CEEE-D2 (Companhia Centro-Oeste de Distribuicao de Energia Eletrica).

     The  Midwest  region  (D2)  concession  area  covers  125   municipalities,
     including three million inhabitants in the central west region of the State
     of Rio Grande do Sul.  On  September  30,  1997,  the  CEEE-D2  had 827,528
     registered customers.  Approximately 35% of its revenue is derived from the
     industrial sector, 39% from the residential sector, 15% from the commercial
     sector,  4% from the rural  sector and 7% from the public  sector.  CEEE-D2
     does not have any generating capabilities, so that all the necessary energy
     is supplied  by third  parties  (ELETROSUL-36%,  ITAIPU-38%,  CEEE-14%  and
     Companhia de Geracao Termica de Energia Eletrica - CGTEE - 12%).
COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
   (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                               September 30, 1997
                             (In thousands of reais)

2.   PRESENTATION OF THE FINANCIAL STATEMENTS

     In order to meet the requirements of the Securities and Exchange Commission
     of the  United  States  (SEC),  as to  the  presentation  of the  financial
     statements of the  businesses  being  acquired,  the  operations  are being
     treated as a business  division  for the  purposes  of this  report and are
     presented for the nine months ended September 30,1997  separately from CEEE
     as a whole.  Thus,  the  statements  of  income,  shareholders'  equity and
     changes in financial  position for the period January 1 to August 10, 1997,
     included in the official  books of CEEE,  are added to the positions in the
     official  books  of  Companhia  Centro-Oeste  de  Distribuicao  de  Energia
     Eletrica for the period August 11 to September 30, 1997.

     The principles  and  assumptions  used by CEEE  management to segregate the
     distribution operations by region within the state of Rio Grande do Sul and
     specifically, for the Midwest region, are described in Note 2(b).

     The financial  statements  of CEEE-D2 were prepared in accordance  with the
     accounting  practices  set out in Law No.  6,404/76  (Brazil's  Corporation
     Law), the standards  specified by the CVM - Comissao de Valores Mobiliarios
     (Brazilian  Securities  Commission),  and the  standards  used to  regulate
     public  utilities  established  by government  authorities  through DNAEE -
     Departamento  Nacional de Aguas e Energia Eletrica (National  Department of
     Waters and Electric Energy).

     A) BALANCE SHEET AT SEPTEMBER 30, 1997

        The balance sheet  accounts,  shown in the above  financial  statements,
        were prepared based on Companhia Centro-Oeste de Distribuicao de Energia
        Eletrica's  current  official  books as of  September  30, 1997 and duly
        adjusted for accruals as of that date,  identified  after the closing of
        the respective actual financial statements.  To improve the presentation
        of the  financial  statements,  the  effects of these  adjustments  were
        reflected  in  the  preparation  of the  September  30,  1997  financial
        statements, herein shown, conforming to the reconciliation shown below:
COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
   (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                               September 30, 1997
                             (In thousands of reais)

2.   PRESENTATION OF THE FINANCIAL STATEMENTS -- continued

     A) BALANCE SHEET AT SEPTEMBER 30, 1997 -- continued
SHAREHOLDERS'
          DESCRIPTION                                                                    EQUITY      NET INCOME
      ----------------------                                                         -------------  -----------
Net income for the period of January 1 to August 10,1997                             -       27,034
          Net income for the period of August 11 to September 30, 1997 before                  -       23,625
          adjustments                                                                   --------     --------

          BALANCE ON SEPTEMBER 30, 1997 BEFORE ADJUSTMENTS                               560,304       50,659

          Complement to the provision for PIS and COFINS                                  (1,937)     (1,937)
          Reversal of the provision for the reversion global reserve - RGR                 6,783        6,783
          Constitution of the allowance for doubtful accounts                             (3,000)     (3,000)
          Duplicate energy invoice to ELETROSUL                                            1,824        1,824
          Unrecorded energy invoices to CEEE and CGTEE                                    (2,652)     (2,652)
          Provision for labor contingencies                                               (1,200)     (1,200)
          Provision for contingencies related to the ELETROCEEE Foundation                (3,500)     (3,500)
          Provision for complementary retirement benefits                                (44,476)    (44,476)
          Provision for contributions to ELETROCEEE for retirements                       (8,503)     (8,503)
          Provision complement for income tax                                             (1,681)     (1,681)
          Provision complement for social contribution tax                                  (550)       (550)
          Constitution of deferred income tax                                             16,016       16,016
          Constitution of deferred social contribution tax                                 5,118        5,118
          Other adjustments                                                                 (439)       (439)
                                                                                        --------     -------
          TOTAL NET EFFECT                                                               (38,197)    (38,197)

                                                                                        ========     ========
          BALANCE ON SEPTEMBER 30, 1997 (ADJUSTED)                                       522,107       12,462
                                                                                        ========     ========
B) STATEMENTS OF INCOME, SHAREHOLDERS' EQUITY AND CHANGES IN FINANCIAL POSITION

     The conditions for the preparation of these financial statements, including
     the allocation of financial-statement  items to CEEE-D2, were based on: (i)
     the  fractions  of  property,  plant  and  equipment  transferred  to  each
     division; (ii) the sector in which each division operates; (iii) the number
     of employees  transferred  or allocated  to each  division;  and (iv) other
     information.  Below are the main criteria used for the  preparation of each
     statement:
COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
   (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                               September 30, 1997
                             (In thousands of reais)

2.   PRESENTATION OF THE FINANCIAL STATEMENTS -- continued

     B)  STATEMENTS  OF INCOME,  SHAREHOLDERS'  EQUITY AND CHANGES IN  FINANCIAL
     POSITION -- continued

        b.1)  Statement of income

              The  statement  of income  for the  period of  January 1 to August
              10,1997  was  prepared  based on the  statement  of income for the
              first six-month period of 1997 available from CEEE's privatization
              process  which  was  adjusted,  basically,  by the cost of  energy
              purchased for resale,  which had been increased by energy supplied
              by CEEE through water power  generation and by thermal energy from
              CGTEE,  using  the  tariffs  effectively   contracted  with  these
              companies. The statement of income for the period July 1 to August
              10, 1997 was prepared based on the same  assumptions  and criteria
              used for the first six-month period of 1997. The net income (loss)
              for the  periods of January 1 to August 10,  1997 and August 11 to
              September 30, 1997 (official  books of Companhia  Centro-Oeste  de
              Distribuicao  de  Energia  Eletrica)  amount to R$ 27,034  and (R$
              14,572),  respectively.  Below are described the criteria used for
              the segregation of the principal  income accounts  attributable to
              the CEEE-D2, originally recorded in the official books of CEEE:

               o    Electricity sales - Allocated in each division  according to
                    the operating region (municipalities);

               o    Deductions from operating  revenue - Allocated in proportion
                    to the billing attributable to each division;

               o    Purchases of  electricity - Allocated  between each division
                    in  accordance  with the  energy  volumes  required  to meet
                    billing,djusted  by the  volume to be  supplied  by CEEE and
                    CGTEE;

               o    Personnel - Allocated based on the employees attributable to
                    each division;

               o    Third party materials and services - All identified expenses
                    were attributed to each division based on their realization,
                    the remaining balance was maintained in CEEE;

               o    Depreciation  -  Proportional  to the  property,  plant  and
                    equipment attributed to each division;
COMPANHIA  CENTRO-OESTE DE DISTRIBUICAO  DE ENERGIA  ELETRICA-CEEE  D2 (FORMERLY
     MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA  ELETRICA-CEEE)  NOTES TO
     FINANCIAL STATEMENTS (CONTINUED) September 30, 1997 (In thousands of reais)

2.   PRESENTATION OF THE FINANCIAL STATEMENTS -- continued

     B)  STATEMENTS  OF INCOME,  SHAREHOLDERS'  EQUITY AND CHANGES IN  FINANCIAL
     POSITION -- continued

        b.1)  Statement of income -- continued

               o    Other  expenses - Allocated  in each  division  based on the
                    nature of each  account and origin of expense.  The accounts
                    that  could not be  attributed  to only one  division,  were
                    allocated based on information from the user;

               o    Financial income  (expenses) - Financial income derived from
                    overdue   accounts  was  allocated  to  each  division,   in
                    accordance   with  its  region   (municipality).   Financial
                    expenses  were  allocated in  accordance  with  interest and
                    restatement for each loan and note account;

               o    Provision  for  income  and  social   contribution  taxes  -
                    Calculated  using the rates in force on  taxable  income for
                    each division.

      b.2)    Statements of shareholders'  equity and changes in financial
               position

              For the purposes of this report,  the following  amounts are being
              shown as reduction in the statements of  shareholders'  equity and
              changes in financial position: a) the shareholders' equity balance
              for the distribution  operations in the CEEE-D2 region on December
              31,1996  in the  amount of R$  105,644;  b) the net income for the
              period  January 1 to August  10,  1997 in the amount of R$ 27,034;
              and c) the  capital  reserve  to be  added to net  equity  for the
              period January 1 to August 10,1997 in the amount of R$ 2,610.  The
              total  of  these  amounts  adds up to R$  135,288,  which  was not
              transferred  to  the  new  company   (Companhia   Centro-Oeste  de
              Distribuicao de Energia Eletrica) created to manage the operations
              in the Midwest region.
COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
   (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                               September 30, 1997
                             (In thousands of reais)

2.   PRESENTATION OF THE FINANCIAL STATEMENTS -- continued

     C) OPENING BALANCE SHEET - DECEMBER 31, 1996

        The December 31, 1996 balance sheet was prepared based on the statements
        shown  in  the   privatization   process   (Companhia   Centro-Oeste  de
        Distribuicao  de  Energia  Eletrica),  together  with the  criteria  for
        carve-out  of the  balance  sheet  items  of  CEEE  to be  given  to the
        Divisions,  which were as follows:  (i) the  fractions of the  property,
        plant and equipment  transferred  to each  division;  (ii) the sector in
        which each division operates;  (iii) the number of employees transferred
        or allocated to each division; and (iv) other information.

3.   PRINCIPAL ACCOUNTING PRACTICES

     A)  STATEMENT OF INCOME

         Income  and  expenses  are  calculated  based  on the  accrual  method,
         including  the  effects  of  monetary  adjustments  on the  assets  and
         liabilities, as applicable.

     B)  CASH AND CASH EQUIVALENTS

          Includes  the amount of R$ 10,000  relating  to short  term  financial
          investments which are monetarily corrected to their current values, as
          applicable.

     C)  CUSTOMER ACCOUNTS RECEIVABLE

          Includes  the  accounts  receivable  for billed and  unbilled  monthly
          electricity consumption and recognized on the accrual basis.

     D)  ALLOWANCE FOR DOUBTFUL ACCOUNTS

          An allowance  for doubtful  accounts is recorded by  management  to be
          sufficient to cover presently foreseeable losses.
COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
   (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                               September 30, 1997
                            (In thousands of reais)

3.   PRINCIPAL ACCOUNTING PRACTICES

     E)  STORES

         Refers  to  the  materials  used  for  the   maintenance  of  operating
         equipment,  recorded  at the  average  acquisition  cost which does not
         exceed their market value.

     F)  INVESTMENTS

         Are  recorded at  acquisition  cost and adjusted to market  value,  as
         applicable.

     G)  PROPERTY, PLANT AND EQUIPMENT

         Recorded at purchase or  construction  cost,  monetarily  corrected  to
         December 31, 1995. Depreciation was calculated on the balance of assets
         in service,  using the straight-line  method and the rates described in
         Note  6.   Material   destined  for   construction   is  classified  as
         construction  in  progress  and is  recorded  at the  aquisition  cost.
         Construction in progress is being remunerated at the Long-Term Interest
         Rate - TJLP,  limited to 10% per year, with the amount being attributed
         to capital and credited to  shareholders'  equity in a capital  reserve
         account.

     H)  SPECIAL OBLIGATIONS

         Special  obligations are contributions  received from customers,  which
         are to be used exclusively for investment in the  distribution  network
         to provide energy to the contribuitors.

     I)  INCOME AND SOCIAL CONTRIBUTION TAXES

         Income and social contribution taxes were calculated in accordance with
         the current legislation, especially Law 9,430 of December 27, 1996. The
         CEEE-D2  recorded  deferred  income  and  social  contributions  taxes,
         calculated  based  on  the  temporary   differences  presented  in  the
         financial statements.
COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
   (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                               September 30, 1997
                             (In thousands of reais)

3.   PRINCIPAL ACCOUNTING PRACTICES -- continued

     J)  RELATED PARTY TRANSACTIONS

         CEEE-D2  maintains a current  account  with the  Companhia  Estadual de
         Energia  Eletrica-CEEE,  for the expenses paid by CEEE-D2 which are the
         responsibility  of CEEE  and for  those  paid  by  CEEE  which  are the
         responsibility  of CEEE-D2.  Up to September 30, 1997 these amounts had
         not been  restated,  not  even  for  interest.  The  energy  purchased,
         supplied by CEEE and CGTEE, is supported by supply  contracts signed by
         all parts and  approved  by DNAEE and  totaled R$ 32,135,  recorded  as
         energy  purchased.  The amount for energy  purchased  from January 1 to
         September  30,  1997 from CEEE and  CGTEE was R$  73,574,  representing
         38.8% of the cost of energy purchased.

4.   TRADE ACCOUNTS RECEIVABLE

       DESCRIPTION                      BILLED      UNBILLED     TOTAL
       ------------------------------  --------    ----------  ------

         Residential                   16,471       10,505     26,976
         Industrial                     3,300        9,096     12,396
         Commercial and services        4,827        3,998      8,825
         Rural                          1,659        1,382      3,041
         Governments                    2,286          647      2,933
         Public lighting                2,401          259      2,660
         Public service                 1,969          574      2,543
         Others                           460            -        460

                                      ==========    =======   =======
       TOTAL                           33,373       26,461     59,834
                                      ==========    =======   =======

5.   DEFERRED INCOME AND SOCIAL CONTRIBUTION TAXES

     CEEE-D2  recorded  deferred income tax of R$16,016 and social  contribution
     tax of R$ 5,118,  calculated on the temporary  differences presented in the
     financial statements, which refer mainly to the nondeductible provision for
     retirement benefits.
COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
   (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                               September 30, 1997
                             (In thousands of reais)

6.   PROPERTY, PLANT AND EQUIPMENT
ACQUISITION OR
                                          PRECIATION  CONSTRUCTION  ACCUMULATED
       DESCRIPTION                          RATE         COST       DEPRECIATION       NET
       ---------------------------------------------------------------------------------------
IN SERVICE
         Land                                           2,831                 -       2,831

         Building and improvements           3%        22,935           (16,697)      6,238
         Machinery and equipment          3 and 4%    846,635          (298,846)    547,789
         Vehicles                            3%        10,947            (2,559)      8,388
         Office equipment and furnishings    3%         1,827              (949)        878
         Land use rights                                6,075                 -       6,075
                                                                                    
                                                    ---------------------------------------
         TOTAL  IN SERVICE                            891,250          (319,051)    572,199
                                                                                    
       CONSTRUCTION IN PROGRESS                                                     
         Construction in progress                      10,144                 -      10,144
         Material held in stock                         5,072                 -       5,072
                                                                                    
                                                    ---------------------------------------
         TOTAL IN PROGRESS                             15,216                 -      15,216
                                                                                    
                                                    =======================================
         TOTAL                                        906,466          (319,051)    587,415
                                                    =======================================
7.   SUPPLIERS

       DESCRIPTION
       -----------
Centrais Eletricas do Sul do Brasil S.A. - ELETROSUL                        11,993
        ELETROSUL - ITAIPU repass                                                    7,201
        Companhia Estadual de Energia Eletrica - CEEE                                9,120
        Companhia de Geracao Termica de Energia Eletrica - CGTEE                     2,886

                                                                                 ---------
        Total electricity suppliers                                                 31,200

        Other suppliers                                                              3,037

                                                                                ==========
        TOTAL                                                                       34,237
                                                                                ==========
COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
   (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                               September 30, 1997
                             (In thousands of reais)

8.   TAXES AND SOCIAL CHARGES

       DESCRIPTION
       -----------

        ICMS (State VAT)                              11,631
        COFINS (payroll tax)                           1,463
        PASEP (payroll tax)                              475
        INSS (social security)                           706
        FGTS (dismissal indemnity fund)                  171
        Social contribution tax based on income        3,370
        Income tax                                    10,491
        Other contributions                                9

                                                     =======
        TOTAL                                         28,316
                                                     =======

9.   LOANS

                                    INTEREST
       DESCRIPTION          INDEX    RATES(A)  SHORT-TERM  LONG-TERM    TOTAL
       -----------                  --------   ---------- -----------  ---------

       Fundacao ELETROCEEE  INPC     9% p.a.    1,669       23,195        24,864
       Customers             -         -            -        3,695         3,695

                                               =======     =======       =======
       TOTAL                                    1,669       26,890        28,559
                                               =======     =======       =======

          The amount of the loan from the ELETROCEEE  Pension fund refers todebt
     acceptance  contract,  assumed by CEEE-D2 as a result of the breaking up of
     the whole  contract with CEEE. The loan is amortized on a monthly basis and
     is guaranteed by customer invoice remittances held by several banks.

          Customers refers to refund agreements, amounts advanced from customers
     interested in electric  energy  supply and loans to finance their  electric
     connections,  all generally involved with the expansion of the distribution
     network. These amounts will be returned in four years after the date of the
     conclusion of the installation, without interest or monetary correction.
COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
   (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                               September 30, 1997
                             (In thousands of reais)

9.   LOANS -- continued

     The due dates and the  repayment  amounts of the  long-term  loans with the
ELETROCEEE Pension fund are as follows:

       DUE DATES
       --------------------------

         Oct.-Nov.-Dec.-1998               419
         1999                            1,676
         2000                            1,676
         2001                            1,676
         2002                            1,676
         From 2003 on                   16,072
                                        ======
       TOTAL                            23,195
                                        ======

10.  ACCRUAL FOR RETIREMENT BENEFITS

     In accordance  with the collective  agreement the CEEE-D2 is responsible to
     pay a  complementary  retirement  benefit for credit  service that had been
     conceded by the Previdencia  Oficial  (Official Social Security) to regular
     participants  in the ELETROCEEE  Pension Fund and who had not yet fulfilled
     all the  requirements  to receive  the  benefits  from the above  mentioned
     Pension  Fund.  Such  benefit  will  be  paid  by the  Sponsors  until  all
     requirements  are  met,  so  that  the  participant   would  be  considered
     definitively retired by the Pension Plan.

     An accrual  for these  future  payments  was  recorded  by CEEE-D2  and the
     calculation considered the average payment period of this benefit to be 132
     months,  representing  calendar  years of 13  months.  The  amount  of that
     provision  was adjusted to its present value using a rate of 12% per annum.
     The balances on September 30, 1997 are summarized below:
ADJUSTMENT
                                     ORIGINAL    TO PRESENT    NET       LONG         SHORT
      DESCRIPTION                  GROSS AMOUNT    VALUE      AMOUNT     TERM          TERM
      ------------------          -------------- ---------  --------    --------     -------
Retirement complement              84,618    (36,979)    47,639    39,539         8,100
      Contribution to Pension fund       14,730     (6,227)     8,503     7,093         1,410

                                   =============  ========= =========== ======== =============
      TOTAL                              99,348    (43,206)    56,142    46,632         9,510
                                   =============  ========= =========== ======== =============
COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
   (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                               September 30, 1997
                             (In thousands of reais)

11.  CONTINGENCIES

     Companhia   Estadual  de  Energia   Eletrica-CEEE,   formerly   controlling
shareholder of CEEE-D2,  is being cited in several lawsuits in the tax and civil
areas.  In the opinion of the  Company's  attorneys the  probability  of loss is
remote. Thus, it is not necessary to create any provision for losses. As for the
labor lawsuits against CEEE by employees up to August 11, 1997  subcontracted by
(transferred  to) Companhia  Centro-Oeste de  Distribuicao  de Energia  Eletrica
(CEEE-D2) on that date, the responsibility for any contingencies up to that date
is  CEEE's,  passing  subsequently  to  CEEE-D2.  Thus,  a  provision  for labor
contingencies  for the 475 lawsuits by employees of CEEE-D2 has been constituted
in the amount of R$ 1,200,  including the responsibility  period of CEEE-D2 from
August 11, 1997 on.

     The  ELETROCEEE  (Pension  fund) is being cited in two  lawsuits in the tax
area,  where the  collection  of income tax at source on the  earnings  on fixed
income  investments  (CDB, CDI, etc) and variable income (equity  securities) of
the Pension  Fund is being  questioned.  These  lawsuits are in the amount of R$
84,000.  CEEE-D2 is  constituting  a provision in the amount of R$ 3,500,  which
refers to the percentage of its participation of 4.21% in the Pension Fund.

12.  SHAREHOLDERS' EQUITY

     CEEE-D2's capital is R$ 536,344,  represented by 536,344,395 nominative, no
par value,  common shares.  Each common share entitles the holder to one vote at
shareholder meetings.

     CEEE-D2  corporate  bylaws do not foresee the  distribution of dividends to
the shareholders. As a result, the regulations laid out by Law 6,404/76 (article
202) prevail, which determine that 50% of net income, adjusted by the following,
be destined for dividends: (i) the amount destined for the creation of the legal
reserve; (ii) the amount destined for the creation of the contingency reserve.

     The  base  used for the  calculation  of  dividends  is the net  income  as
presented in the corporate books.
COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
   (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                               September 30, 1997
                             (In thousands of reais)

13.  PENSION FUND

     CEEE-D2  is  co-sponsor  of  the  Fundacao  CEEE  de  Seguridade  Social  -
ELETROCEEE  (Pension fund),  which has as its main objective  supplementing  the
social benefits of its participants.

     The annual cost to the CEEE-D2 is  estimated to be 7.5% for the normal cost
(amortization of future  service),  1.5% for  administrative  cost and 2.44% for
supplementary  cost with  amortization of past service (Reserve to be amortized)
of the payroll (SRC - real contribution salary).

     The sponsors are responsible for the coverage of any deficit  calculated in
the benefit plan of the Pension fund

     The benefits plan is of the "defined  benefit" type, using the capitalizing
method.  The  actuarial  review was  performed on the base date of September 30,
1997 which gives the following position:
TOTAL
                                                               BALANCE                 BALANCE
                                                             RECORDED BY            ATTRIBUTABLE TO
       DESCRIPTION                                            ELETROCEE                CEEE-D2
       ------------------------------------------------     ----------------        ---------------
MATHEMATICAL RESERVES
        Vested benefit obligation - retired employees           230,964                     -
        Non-Vested benefit obligation-current employees         666,908                47,260

        Reserve to be amortized                                (106,491)              (12,332)
                                                              ---------              --------
                                                                791,381                34,928
                                                                             
       TECHNICAL SURPLUS(DEFICIT)                                 3,908                  (836)
                                                              =========              ========
       TECHNICAL RESERVE                                        795,289                34,092
                                                              =========              ========
                                                                             
       TOTAL ASSETS AVAILABLE                                   811,793                34,092
                                                              =========              =========
COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
   (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                               September 30, 1997
                             (In thousands of reais)

14.  FINANCIAL INSTRUMENTS

     All the assets and liabilities,  which are considered financial instruments
(loans,  investments,  etc.),  included in the financial statements at September
30,  1997  do  not  represent  significant  changes  between  their  market  and
accounting values.

15.  EXTRAORDINARY ITEMS

     The following  adjustments to the September 30, 1997  financial  statements
are being included as set out in Note 2(a).  Among these  adjustments,  some are
considered  nonrecurring  as they are not  related to  Division  operations  and
because of their unusual and infrequent nature, and are shown below:

      DESCRIPTION
      -------------------------------------------------------

       Tax contingencies related to ELETROCEEE (Pension fund)            (3,500)
       Provision for retirement benefits                                (47,639)
       Contributions to the Pension fund for early retirements           (8,503)
       Net provision for RGR received by CEEE                             8,856
                                                                        --------
       TOTAL                                                            (50,786)
      --------------------------------------------------------          ========

16.  SUBSEQUENT EVENTS

     On  October  21,  1997,  by way of a Special  Auction  held by the Bolsa de
Valores do Extremo Sul (Extreme South Stock Exchange) - BVES, the  privatization
of Companhia  Centro-Oeste de Distribuicao  de Energia  Eletrica  (CEEE-D2) took
place,  whereby  100% of the  capital of  CEEE-D2,  which was held by  Companhia
Estadual de Energia Eletrica - CEEE, was sold for approximately R$ 1,510,000, at
a premium 93.55%. As was established under the privatization bid agreement,  the
winner of the auction (AES Guaiba  Empreendimentos  Ltda.) assumed the following
obligations:

     Submit to DNAEE ,  beforehand,  any  alterations to the Company bylaws that
would imply any changes in shareholder control;
COMPANHIA  CENTRO-OESTE DE DISTRIBUICAO  DE ENERGIA  ELETRICA-CEEE  D2
          (FORMERLY   MIDWEST   DIVISION  OF   COMPANHIA   ESTADUAL  DE  ENERGIA
          ELETRICA-CEEE) NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30,
          1997 (In thousands of reais)

16.  SUBSEQUENT EVENTS -- continued

o    Submit,  independently of the requirements of the concession contract,  the
     requested documents or any other information relative to the Company,  that
     has  been  asked  for by  monitoring,  controlling  or  auditing  State  or
     Government Concession entities;

o    Ensure that at least one member of the Company's  Administrative Council be
     freely  chosen by the  employees  if the shares they own,  including  those
     acquired  during the offer to employees,  are not  sufficient to ensure the
     election  of a  representative.  The  election  process  for  the  employee
     representative will be coordinated by the employee labor union representing
     the majority of employees;

o    Keep the  Company  as "a  publicly  traded  company"  for the period of the
     concession,  except as the result of legal requirements,  keeping the share
     register  open for the trading of Company  stock on the stock  exchange for
     the minimum of 360 days after the purchase or sale of shares.  If the stock
     register  for the trading of shares on the stock  exchange is not kept open
     for the above  mentioned  time, the  controlling  shareholders  must make a
     public offer to purchase the shares held by the  employees at the price per
     lot of one thousand shares set by the auction, restated by the IGPM, or any
     other index that has  substituted  it,  within the period of 13 months from
     the date of the signing of the purchase or sale contract for the shares;

o    Assume as sponsor,  relative to the  employees of the Company,  without the
     help of the Fundacao CEEE de Seguridade Social - ELETROCEEE (Pension fund),
     the guarantee for the current social security benefit plan for a three year
     minimum;

o    Be  responsible  for the financing of the  amortization  of the  ELETROCEEE
     (Pension fund)  reserve,  in the time taken to amortize this reserve at the
     rates  calculated  by the actuary  responsible  for setting the amount,  in
     proportion to the SRC (Real  Contribution  Salary) of the  participants who
     are covered by the plan;

o    Maintain up to August 31, 2004,  the current  assistance and medical health
     benefits  for the  employees  laid  out in the  agreement  signed  with the
     Sindicato dos Trabalhadores SENERGISUL (Labor Union);
COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
   (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                               September 30, 1997
                             (In thousands of reais)

16.  SUBSEQUENT EVENTS -- continued

O    Assume,  through  subcontracts,  the rights and obligations  established in
     energy supply  contracts,  including those with guarantees given by CEEE to
     the supplier of the above mentioned contracts

         a. (ii)  Pro forma Financial Information

                  The following  unaudited pro forma consolidated  statements of
operations information combine the results of AES's investment in CEMIG, Destec,
and ESEBA which were previously reported in the AES Corporation's Form 8-K dated
July  3,  1997,  and in  CEEE  D2,  which  was  previously  reported  in the AES
Corporation's  Form 8-K dated November 10, 1997, for the year ended December 31,
1996 and the nine months ended September 30, 1997 as if the acquisitions and the
associated financings had occurred on January 1, 1996.

                  The unaudited pro forma  adjustments  are based upon available
information and certain assumptions and estimates which the Company believes are
reasonable  under the  circumstances.  The  unaudited  pro forma  results do not
purport to be  indicative  of the results that would have been  obtained had the
acquisitions  and  the  financings  occurred  at the  beginning  of the  periods
presented,  nor are they  intended to be a  projection  of future  results.  The
unaudited pro forma financial information should be read in conjunction with the
notes herein.

YEAR ENDED DECEMBER 31, 1996(1)(2)
-----------------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)                                                          ADJUSTMENTS         PRO FORMA                                  
                                                                    FOR THE ESEBA,     FOR THE ESEBA,                    PRO FORMA 
                                                                    CEMIG & DESTEC     CEMIG & DESTEC     CEEE D2         FOR ALL  
                                                                     ACQUISITIONS      ACQUISITIONS     ACQUISITION    ACQUISITIONS
                                                       ACTUAL        & FINANCINGS      & FINANCINGS     & FINANCING     & FINANCINGS
-----------------------------------------------------------------------------------------------------------------------------------
($ in millions, except per share amounts)
TOTAL REVENUES(4)                                      $ 835            $ 702            $ 1,537            $ 398         $ 1,935
TOTAL OPERATING COSTS AND EXPENSES                       557              704              1,261              360           1,621
                                                       -----            -----            -------            -----          ------

OPERATING INCOME                                         278               (2)               276               38             314

OTHER INCOME AND (EXPENSE):
Interest expense                                        (144)            (102)              (246)            (121)           (367)
Interest income                                           24               --                 24               --              24
Equity in earnings of affiliates, net of tax              35               50                 85               --              85
                                                       -----            -----            -------            -----          ------

INCOME (LOSS) BEFORE INCOME TAX
     AND MINORITY INTEREST                               193              (54)               139              (83)             56

Income tax (Benefit)                                      60              (41)                19              (36)            (17)
Minority interest                                          8               (2)                 6                3               9
                                                       -----            -----            -------            -----          ------

NET INCOME (LOSS)                                      $ 125              (11)           $   114            $ (50)         $   64
                                                       =====            =====            =======            =====          ======
NET INCOME (LOSS) PER SHARE(3)                          0.72            (0.06)              0.66            (0.29)           0.37
                                                       =====            =====            =======            =====          ======
NINE MONTHS ENDED SEPTEMBER 30, 1997(1)(2)
-----------------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)                                                          ADJUSTMENTS         PRO FORMA                                  
                                                                    FOR THE ESEBA,     FOR THE ESEBA,                    PRO FORMA 
                                                                    CEMIG & DESTEC     CEMIG & DESTEC     CEEE D2         FOR ALL  
                                                                     ACQUISITIONS      ACQUISITIONS     ACQUISITION    ACQUISITIONS
                                                       ACTUAL        & FINANCINGS      & FINANCINGS     & FINANCING     & FINANCINGS
-----------------------------------------------------------------------------------------------------------------------------------
($ in millions, except per share amounts)
TOTAL REVENUES(4)                                        $   880        $   127         $ 1,007          $   320        $ 1,327
TOTAL OPERATING COSTS AND EXPENSES                           620            113             733              323          1,056
                                                         -------        -------         -------          -------        -------

OPERATING INCOME                                             260             14             274               (3)           271

OTHER INCOME AND (EXPENSE):
Interest expense                                            (154)           (44)           (198)             (87)          (285)
Interest income                                               28              8              36                5             41
Equity in earnings of affiliates, net of tax                  58             18              76               --             76
                                                         -------        -------         -------          -------        -------

INCOME (LOSS) BEFORE INCOME TAX MINORITY
     INTEREST,AND EXTRAORDINARY ITEM                         192             (4)            188              (85)           103

Income taxes                                                  50             (9)             41              (35)             6
Minority interest                                             10              4              14                1             15
                                                         -------        -------         -------          -------        -------

INCOME (LOSS) BEFORE EXTRAORDINARY ITEM                      132              1             133              (51)            82

EXTRAORDINARY ITEM - NET LOSS ON EXTINGUISHMENT OF
   DEBT (LESS APPLICABLE INCOME TAXES OF $2 MILLION)          (3)            --              (3)              --             (3)
                                                         -------        -------         -------          -------        -------

NET INCOME (LOSS)                                            129              1             130              (51)            79
                                                         =======        =======         =======          =======        =======
NET INCOME (LOSS) PER SHARE:
Before extraordinary loss                                   0.76           0.01            0.77            (0.30)          0.47
Extraordinary loss                                         (0.02)             -           (0.02)               -          (0.02)
                                                         -------        -------         -------           ------        -------
NET INCOME (LOSS) PER SHARE (3)                          $  0.74        $  0.01         $  0.75           $(0.30)       $  0.45
                                                         =======        =======         =======           ======        =======
The  following  unaudited  pro  forma  consolidated  balance  sheet  information
represents  AES's  financial  position at  September  30, 1997 as if the CEEE D2
acquisition and associated financing had occurred on that date.
AS OF SEPTEMBER 30, 1997(1)(2)
----------------------------------------------------------------------------------------------------
(UNAUDITED)                                                          ADJUSTMENTS         PROFORMA
                                                     ACTUAL        FOR THE CEEE D2    FOR THE CEEE D2
                                                                     ACQUISITION        ACQUISITION
                                                                     & FINANCING        & FINANCING
----------------------------------------------------------------------------------------------------
($ in millions)

ASSETS
CURRENT ASSETS:

Cash and cash equivalents                           $   358            $    50            $   408
Short-term investments                                   27                 --                 27
Accounts receivable, less provision to
 reduced contract receivable of $39                     206                 52                258
Inventory                                                69                  1                 70
Receivable from affiliates                               13                 --                 13
Deferred tax                                             49                  1                 50
Prepaid expenses and other current assets                77                 15                 92
                                                    -------            -------            -------
                                                               
TOTAL CURRENT ASSETS                                    799                119                918
                                                               
PROPERTY, PLANT, & EQUIPMENT:                                  
Land                                                     33                 --                 33
Electric generation and distribution assets           2,563              1,156              3,719
Accum depreciation, depletion, and amortization        (336)              (291)              (627)
Construction in progress                                800                 14                814
                                                    -------            -------            -------
                                                               
PROPERTY, PLANT AND EQUIPMENT, NET                    3,060                879              3,939
                                                               
OTHER ASSETS:                                                  
Electricity concession agreements                       229                765                994
Deferred costs, net                                      89                 37                126
Project development costs                               100                 --                100
Investments in and advances to affiliates             1,835                 --              1,835
Debt service reserves and other deposits                173                 --                173
Goodwill and other intangible assets, net                26                 --                 26
Other assets                                            257                 59                316
                                                    -------            -------            -------
                                                               
TOTAL OTHER ASSETS                                    2,709                861              3,570
                                                    -------            -------            -------
                                                               
TOTAL                                               $ 6,568            $ 1,859            $ 8,427
                                                    ========           =======            =======

LIABILITIES & STOCKHOLDERS' EQUITY                             
                                                               
CURRENT LIABILITIES:                                           
Accounts payable                                    $    74            $    31            $   105
Accrued interest                                         39                 --                 39
Accrued and other liabilities                           183                 48                231
Project financing debt - current portion                533                 --                533
                                                    --------           -------            -------
                                                               
TOTAL CURRENT LIABILITIES                               829                 79                908
                                                               
LONG-TERM LIABILITIES:                                         
Project financing debt                                2,814                650              3,464
Other notes payable                                     573                500              1,073
Deferred income taxes                                   231                103                334
Other long-term liabilities                              48                179                227
                                                    -------            -------            -------
                                                               
TOTAL LONG-TERM LIABILITIES                           3,666              1,432              5,098
                                                               
MINORITY INTEREST                                       379                 48                427

COMPANY OBLIGATED MANDATORILY REDEEMABLE
PREFERRED SECURITIES OF AES TRUST II                    250                300                550

STOCKHOLDERS' EQUITY                                           
Common stock                                              2                 --                  2
Additional paid-in capital                            1,018                 --              1,018
Retained earnings                                       525                 --                525
Cumulative foreign currency translation
 adjustment                                            (100)                --               (100)
Less treasury stock at cost                              (1)                --                 (1)
                                                    -------            -------            -------
TOTAL STOCKHOLDERS' EQUITY                            1,444                 --              1,444
                                                    -------            -------            --------
TOTAL                                               $ 6,568            $ 1,859            $ 8,427
                                                    =======            =======            =======
(1) Basis of presentation:

         The Company's  acquisitions of the Destec international  assets, ESEBA,
CEEE D2 and the 13% economic  interest in CEMIG were accounted for as purchases.
The purchase price allocations have been prepared on a preliminary basis pending
completion of engineering,  environmental,  legal and valuation analyses, all of
which are  ongoing.  The excess of the  respective  purchase  price over the net
assets acquired will be amortized over 40 years. The Company intends to sell its
interest in the  Hazelwood  project,  which was  purchased as part of the Destec
acquisition, and as a result, the financing costs and equity in earnings related
to such  interest  are  treated  as  adjustments  to the Destec  purchase  price
allocation.  The Company's purchase of an economic interest of approximately 13%
in CEMIG,  which also represents an approximate voting interest of 30%, has been
recorded as an investment in subsidiaries,  and is being accounted for using the
equity method.

         The summary unaudited pro forma financial information has been prepared
based on the  Company's  estimates  of each  acquiree's  financial  position and
results of operations in conformity  with U.S.  GAAP. As such, the unaudited pro
forma financial  information  reflects  estimated changes in the basis of assets
and liabilities and the effects of such changes on depreciation and amortization
expense.

         The unaudited pro forma  statements of operations  have been translated
using the average exchange rates in effect during the periods. The unaudited pro
forma  balance sheet has been  translated  using the September 30, 1997 exchange
rates of approximately R$1.10 to US$1.00.  Income taxes have been recorded based
on the  historical  rates in  effect,  adjusted  as  necessary  to  reflect  any
incremental U.S. federal income taxes.

(2) Financing:

          (a) The  acquisition  of the  Destec  international  assets was funded
through the use of the  proceeds  from a $250 million  TECONS  offering in March
1997, the proceeds of a
$150  million  offering of AES Common  Stock in March 1997,  and funds under the
Company's revolving bank loan ("Revolver").

         The  acquisition of the Company's  interest in CEMIG was funded through
the use of a $250  million  bridge  loan to AES  CEMIG  Funding  Corporation,  a
wholly-owned  subsidiary of AES("CEMIG  Bridge") at an interest rate of 8.25%, a
bridge  loan to AES of $200  million at an interest  rate of 7.75%,  and project
financing of $126 million at an interest  rate of 9.75%  provided by BNDES,  the
State  Development Bank of Brazil.  The remaining  portion of the purchase price
amounting to approximately $527 million is deferred,  by contract,  for a period
of one year. Such obligation  bears no interest and has been guaranteed by BNDES
for a fee of 1% per year which is included in  interest  expense.  Subsequently,
the CEMIG Bridge was reduced with a portion of the proceeds from the issuance of
the Company's common stock, as described  below, to  approximately  $40 million.
Included in the pro forma amounts is the interest  expense  associated  with the
refinanced amount of the CEMIG Bridge of $220 million at 8.25%.

         The ESEBA  acquisition  was funded  through the use of a bridge loan to
AESEBA Funding Corporation,  a wholly-owned subsidiary of AES of $200 million at
an interest  rate of 8.25%  ("ESEBA  Bridge"),  project  financing  debt of $148
million  at an  interest  rate of 7.4%  and the  drawdown  of  funds  under  the
Company's revolver. Subsequently, the ESEBA Bridge was reduced with a portion of
the  proceeds  from the issuance of the  Company's  common  stock,  as described
below, to  approximately  $32 million.  Included in the pro forma amounts is the
interest  expense  associated with the refinanced  amount of the CEMIG Bridge of
$180 million at 8.25%.

         The pro forma  adjustments also include the Company's  issuance of $325
million 8 3/8% Senior  Subordinated Notes due 2007 in July 1997 and the issuance
of 9.0 million  shares of the  Company's  common stock at a price of $39.875 per
share in July 1997, as if such offerings had occurred on January 1, 1996.

     (b) The  Acquisition  of  CEEE D2 was  funded  through  borrowings  of $250
million under the Company's  Revolver,  short-term loans of $550 million under a
bridge loan  facility to AES, and project  financing  debt of $630 million at an
interest rate of 7.5%.  Subsequently,  the borrowings under the Revolver and the
short-term  bridge loan were  refinanced with proceeds from $375 million of 8.5%
Senior  Subordinated Notes, $125 million of 8.875% of Senior Subordinated Notes,
and $300  million  Term  Convertible  Preferred  Securities  with a 5 1/2% yield
issued in October 1997. Interest expense associated with the above financing has
been reflected in the pro forma adjustments.
(3) Weighted  average  shares used to calculate pro forma earnings per share for
the acquisition of the international assets of Destec include 5.1 million shares
of AES Common Stock issued to finance the acquisition as though they were issued
January 1, 1996.  Weighted average shares have also been adjusted to reflect the
issuance of  approximately  5.0 million shares of AES Common Stock in connection
with the Chigen Amalgamation in May 1997.

4) Includes  $384 million and $370 million of revenues and costs,  respectively,
in the fiscal year ended 1996,  related to services performed under construction
contracts for 2 Destec  projects,  Elsta and Kingston.  The Kingston project was
completed in early 1997 and, as a result, such revenue and costs were reduced to
$18 million and $17 million,  respectively,  for the nine months ended September
30, 1997.  The Company's  share of profits  (based on its ownership  interest in
each respective project) resulting from services performed under these contracts
is deferred and amortized over the life of the respective project.
SIGNATURES

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

                               THE AES CORPORATION

                             By: /s/ Barry J. Sharp

                                               Barry J. Sharp
                                               Vice President
                                               and Chief Financial Officer

Date:  January 9, 1998
EXHIBIT INDEX

EXHIBIT NO.       DESCRIPTION

         23.1              Consent of Independent Public Accountants