Filed Pursuant to Rule 424b5
Registration No. 333-52204

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus supplement and the accompanying prospectus +
+is not complete and may be changed. This prospectus supplement and the +
+accompanying prospectus are not offers to sell these securities and we are +
+not soliciting offers to buy these securities in any state where the offer or +
+sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion

PROSPECTUS SUPPLEMENT Issued March 2, 2001
(To Prospectus dated December 26, 2000)

25,000,000 Shares

Common Stock

-----------

Duke Energy Corporation is offering 25,000,000 shares of common stock. Our
common stock is listed on the New York Stock Exchange, or NYSE, under the
trading symbol "DUK." On March 2, 2001, the last reported sale price of our
common stock on the NYSE was $40.49 per share.

Concurrently with this offering of common stock, we are also offering (by a
separate prospectus supplement) $500 million aggregate principal amount of
Equity Units consisting of senior notes of our wholly owned subsidiary, Duke
Capital Corporation, and contracts to purchase additional shares of our common
stock on , 2004. Neither offering is contingent upon the closing of the
other offering.

-----------

Price to Underwriting Proceeds to
Public Discount Duke Energy
-------- ------------ -----------

Per Share..................................... $ $ $
Total......................................... $ $ $

We have granted the underwriters a 30-day option to purchase up to 3,750,000
additional shares at the price to the public less the underwriting discount to
cover over-allotments.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus supplement or the accompanying prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.

Delivery of the shares of common stock is expected to be made on or about
March , 2001.

-----------

Joint Book-Running Managers

Morgan Stanley Dean Witter Merrill Lynch & Co.

-----------

Banc of America Securities LLC

Credit Suisse First Boston

Goldman, Sachs & Co.

JPMorgan
UBS Warburg LLC

-----------

The date of this prospectus supplement is March , 2001.

You should rely only on the information contained in or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We
have not authorized anyone to provide you with information that is different.
We are not making an offer of these securities in any state where the offer is
not permitted. You should not assume that the information provided by or
incorporated by reference in this prospectus supplement or the accompanying
prospectus is accurate as of any date other than the date of the document
containing the information.

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

TABLE OF CONTENTS

Prospectus Supplement

Page
----

About this Prospectus Supplement......................................... ii
Forward-Looking Statements............................................... S-1
Prospectus Supplement Summary............................................ S-2
Use of Proceeds.......................................................... S-7
Price Range of Common Stock.............................................. S-8
Dividends................................................................ S-8
Capitalization........................................................... S-9
Selected Financial Information........................................... S-10
Management's Discussion and Analysis of Results of Operations and
Financial Condition..................................................... S-11
Business................................................................. S-31
Management............................................................... S-37
United States Federal Tax Considerations for Non-U.S. Holders of Common
Stock................................................................... S-38
Underwriting............................................................. S-40
Experts.................................................................. S-43
Legal Matters............................................................ S-43
Index to Financial Statements ........................................... F-1

Prospectus

Page
----

About this Prospectus.................................................... 2
Duke Energy Corporation.................................................. 2
Use of Proceeds.......................................................... 4
The Trusts............................................................... 4
Accounting Treatment..................................................... 5
Description of the Senior Notes.......................................... 5
Description of the Junior Subordinated Notes............................. 15
Description of the First and Refunding Mortgage Bonds.................... 24
Description of the Common Stock.......................................... 28
Description of the Stock Purchase Contracts and the Stock Purchase
Units................................................................... 31
Description of the Preferred Securities.................................. 32
Description of the Guarantees............................................ 33
Plan of Distribution..................................................... 36
Experts.................................................................. 38
Validity of the Securities............................................... 38
Where You Can Find More Information...................................... 38

ABOUT THIS PROSPECTUS SUPPLEMENT

This document is in two parts. The first part is this prospectus supplement,
which describes the specific terms of this common stock offering. The second
part, the accompanying prospectus, gives more general information, some of
which may not apply to this offering.

If the description of the offering varies between this prospectus supplement
and the accompanying prospectus, you should rely on the information in this
prospectus supplement.

Unless we have indicated otherwise, or the context otherwise requires,
references in this prospectus supplement and the accompanying prospectus to
"Duke Energy," "we," "us" and "our" or similar terms are to Duke Energy
Corporation and its subsidiaries.

FORWARD-LOOKING STATEMENTS

This prospectus supplement and the accompanying prospectus contain or
incorporate by reference statements that do not directly or exclusively relate
to historical facts. Such statements are "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. You can
typically identify forward-looking statements by the use of forward-looking
words, such as "may," "will," "could," "project," "believe," "anticipate,"
"expect," "estimate," "continue," "potential," "plan," "forecast" and the like.
Those statements represent our intentions, plans, expectations, assumptions and
beliefs about future events and are subject to risks, uncertainties and other
factors. Many of those factors are outside our control and could cause actual
results to differ materially from the results expressed or implied by those
forward-looking statements. Those factors include:

. state, federal and foreign legislative and regulatory initiatives that
affect cost and investment recovery, have an impact on rate structures,
and affect the speed at and degree to which competition enters the
electric and natural gas industries;

. industrial, commercial and residential growth in our service territories
or the service territories of our subsidiaries;

. the weather and other natural phenomena;

. the timing and extent of changes in commodity prices, interest rates and
foreign currency exchange rates;

. changes in environmental and other laws and regulations to which we and
our subsidiaries are subject or other external factors over which we have
no control;

. the results of financing efforts, including our ability to obtain
financing on favorable terms, which can be affected by various factors,
including our credit ratings and general economic conditions;

. growth in opportunities for our business units; and

. the effect of accounting policies issued periodically by accounting
standard-setting bodies.

In light of these risks, uncertainties and assumptions, the forward-looking
events referred to in this prospectus supplement and the accompanying
prospectus might not occur. We undertake no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.

S-1

PROSPECTUS SUPPLEMENT SUMMARY

The following is qualified in its entirety by, and should be read together
with, the more detailed information and financial statements included or
incorporated by reference in this prospectus supplement and the accompanying
prospectus. Unless otherwise indicated, all of the following information
assumes that the underwriters have not exercised their option to purchase up to
an additional 3,750,000 shares of common stock within 30 days of the date of
this prospectus supplement.

Duke Energy Corporation

We are a leading integrated energy and energy services provider with the
ability to offer physical delivery and management of both electricity and
natural gas throughout the United States and abroad. We own and operate one of
the world's largest portfolios of generating plants, one of the nation's
largest natural gas pipeline systems and one of the most active energy trading
and marketing operations. We are also the largest producer of natural gas
liquids, or NGLs, in the United States. Our integrated approach to building
regional energy businesses allows us to leverage the strengths of these
businesses and allows us to earn both higher operating margins and greater
returns on our portfolio of energy assets. The services and products we provide
are offered through the following seven business segments:

. Franchised Electric generates, transmits, distributes and sells electric
energy in central and western North Carolina and the western portion of
South Carolina. Its operations are conducted primarily through Duke Power
and Nantahala Power and Light. We currently operate 17,755 net megawatts,
or MW, of generation capacity and serve approximately two million
customers in the Carolinas.

. Natural Gas Transmission provides interstate transportation and storage
of natural gas for customers primarily in the Mid-Atlantic, New England
and southeastern states. We currently have 12,000 miles of natural gas
pipelines and transport approximately 25% of the natural gas consumption
of the eastern United States. These operations are conducted primarily
through Duke Energy Gas Transmission Corporation.

. Field Services gathers, processes, transports, markets and stores natural
gas and produces, transports, markets and stores NGLs. Its operations are
conducted primarily through Duke Energy Field Services, LLC, which has a
presence in each of the major gas-producing regions of the United States.
We currently own and operate approximately 57,000 miles of natural gas
gathering systems and 68 natural gas processing plants in the United
States and Canada and one high-deliverability natural gas storage
facility in the United States.

. North American Wholesale Energy, or NAWE, is involved in the development,
operation and management of power generation facilities, primarily
through Duke Energy North America, LLC and commodity sales and services
related to natural gas and electricity, primarily through Duke Energy
Trading and Marketing, LLC. Our current merchant generation portfolio
totals approximately 6,200 MW, and we have under construction
approximately 3,200 MW for operation in 2001 and approximately 4,100 MW
for operation in 2002. In addition to our facilities in operation or
under construction, we have approximately 13,500 MW in advanced
development scheduled to begin operation between 2002 and 2004. NAWE also
includes Duke Energy Merchants, which develops new business lines in the
evolving energy commodity markets.

. International Energy is involved in the development, operation and
management of natural gas and power generation facilities and energy
trading and marketing of natural gas and electricity. Its operations are
conducted through Duke Energy International, LLC, and its activities are
targeted in Latin America, Asia Pacific and Europe. Our current operating
portfolio includes approximately 5,100 MW of power generation facilities
and approximately 1,700 miles of natural gas pipelines.

. Other Energy Services is a combination of businesses that provide
engineering, consulting, construction and integrated energy solutions
worldwide, primarily through Duke Engineering & Services, Inc.,
Duke/Fluor Daniel and DukeSolutions, Inc.

S-2

. Duke Ventures is comprised of other diverse businesses. Crescent
Resources, Inc. develops high-quality commercial, residential and multi-
family real estate projects and manages land holdings primarily in the
southeastern United States. DukeNet Communications, Inc. provides fiber
optic networks for industrial, commercial and residential customers. Duke
Capital Partners provides financing, investment banking and asset
management services to wholesale and commercial energy markets.

Business Strategy

Our strategy is to develop and actively manage integrated energy businesses
in targeted regions where our extensive capabilities in developing energy
assets, operating electric power, natural gas and NGLs plants, optimizing
commercial operations and managing risk can provide comprehensive energy
solutions for our customers and create value for our shareholders. The key
elements of our strategy include:

Pursue growth opportunities in deregulating and liberalizing markets. The
growth in and restructuring of global energy markets are providing
opportunities for our business segments to capitalize on their comprehensive
capabilities. Domestically, we are aggressively investing in new merchant power
facilities throughout the United States, expanding our natural gas pipeline
infrastructure in the eastern United States, rapidly increasing our leading
position in natural gas processing and NGLs marketing and developing our
trading, marketing and structured origination expertise across the energy
spectrum. Internationally, we are focusing on integrated electric and natural
gas opportunities in markets such as Latin America, Asia Pacific and Europe,
where deregulation, privatization and liberalization are opening energy markets
to competition.

Develop and integrate regional energy businesses in target markets. We
currently own and operate assets and provide services ranging from natural gas
gathering to trading and marketing of energy to the distribution of electricity
to customers. Through our integrated energy network of natural gas and electric
power assets coupled with trading and marketing, we are able to maximize the
returns of our energy portfolio. This is accomplished by creating an
environment that enables the more efficient flow of information between our
trading and marketing business and our merchant businesses that own and operate
these physical assets. These enhanced returns are achieved through timely
communication of information regarding dispatch and maintenance of generation
plants, commodity positions for natural gas and electricity, forward pricing
curves and other market knowledge. Our integrated approach to building regional
energy businesses enables us to choose the best times to enter or exit a market
and effectively manage and grow our business.

Actively manage our asset portfolio. We utilize a portfolio management
strategy, rather than focusing on stand-alone projects or assets, that strives
to capture the greatest value by seeking opportunities to invest in energy
assets in markets that have capacity needs and to divest other assets when
significant value can be realized. This strategy enables us to monetize certain
assets and redeploy the capital to higher-return assets in target markets.
Additionally, this strategy prevents the institutionalized ownership of any
asset by encouraging us to continually review our asset portfolio.

Mitigate exposure through disciplined risk management policies. Through our
enterprise risk management group, which is led by our Chief Risk Officer, a
newly created position, we actively manage the risks that our business segments
face. We believe managing risk at the corporate level is consistent with the
portfolio approach we use with our assets. Our risk management policies are
designed to help determine lines of business offering attractive risk returns,
assess current and future risk/return characteristics of the enterprise and
recommend appropriate strategic modifications. We actively manage our
commodity, interest rate, foreign currency and credit risks through established
policies that limit our exposure and require daily reporting to management of
potential financial exposure. Our risk management policies are designed to
mitigate our downside exposures while complementing the operations of each of
our business segments.

S-3

Recent Developments

California Wholesale Electricity Market

As a result of high prices in the western U.S. wholesale electricity markets
in 2000, several state and federal regulatory investigations and complaints
have commenced to determine the causes of the prices and potentially to
recommend remedial action. The Federal Energy Regulatory Commission (FERC)
concluded its investigation by issuing on December 15, 2000 an Order Directing
Remedies in the California Wholesale Electricity Markets. In its conclusion,
the FERC found no basis in allegations made by government officials in
California that specific electric generators artificially drove up power
prices. This conclusion is consistent with similar findings by the Compliance
Unit of the California Power Exchange (CalPX) and the Northwest Power Planning
Council. The FERC order is the subject of numerous rehearing requests.

At the state level, the California Public Utilities Commission, the
California Electricity Oversight Board, the California Bureau of State Audits
and the California Office of the Attorney General all have separate ongoing
investigations into the high prices and their causes. None of those
investigations has been completed, and no findings have been made in connection
with any of them.

California Litigation

Duke Energy North America and Duke Energy Trading and Marketing have been
named among 16 defendants in a class action lawsuit (the Gordon lawsuit) filed
against companies identified as "generators and traders" of electricity in
California markets. Duke Energy Trading and Marketing also was named as one of
numerous defendants in four additional lawsuits, including two class actions
(the Hendricks and Pier 23 Restaurant lawsuits), filed against generators,
marketers and traders and other unnamed providers of electricity in California
markets. These suits were brought either by or on behalf of electricity
consumers in the State of California. The Gordon and Hendricks class action
suits were filed in the Superior Court of the State of California, San Diego
County in November 2000. The other three suits were filed in January 2001, one
in the Superior Court of the State of California, San Diego County, and the
other two in the Superior Court of the State of California, County of San
Francisco. These suits generally allege that the defendants manipulated the
wholesale electricity markets in violation of state laws against unfair and
unlawful business practices and state antitrust laws. Plaintiffs in the Gordon
suit seek aggregate damages of over $4 billion, and the plaintiffs in the other
suits, to the extent damages are specified, allege damages in excess of $1
billion. The lawsuits each seek the disgorgement of alleged unlawfully obtained
revenues for sales of electricity and, in three suits, an award of treble
damages.

California Utilities Defaults and Other Proceedings

Two California electric utilities recently defaulted on many of their
obligations to suppliers and creditors. NAWE supplies electric power to these
utilities directly and indirectly through contracts through the California
Independent System Operator (CAISO) and the CalPX. NAWE also supplies natural
gas to these utilities under direct contracts. With respect to electric power
sales through the CAISO and CalPX, we quantified our exposures at December 31,
2000 to these utilities and recorded a $110 million provision. As a result of
these defaults and certain related government actions, we have taken a number
of steps, including initiating court actions, to mitigate our exposure.

While these matters referenced above are in their earliest stages, our
management does not believe, based on its analysis to date of the factual
background and the claims asserted in these matters, that their resolution will
have a material adverse effect on our consolidated results of operations, cash
flows or financial position.

S-4

The Offering

Common stock offered................................ 25,000,000 shares

Common stock to be outstanding immediately after the
offering........................................... 764,293,886 shares

Use of proceeds..................................... General corporate purposes, including
repayment of short-term indebtedness.

NYSE symbol......................................... DUK

The number of shares of common stock offered and to be outstanding
immediately after this offering does not include 3,750,000 shares of common
stock that the underwriters have an option to purchase from us within 30 days
of the date of this prospectus supplement.

The number of shares of common stock outstanding immediately after this
offering also does not include shares issuable upon the exercise of outstanding
stock options, which constituted 22,506,022 shares as of December 31, 2000.

Concurrently with this offering of common stock, we are also offering (by a
separate prospectus supplement) $500 million aggregate principal amount of
Equity Units consisting of senior notes of our wholly owned subsidiary, Duke
Capital Corporation, and contracts to purchase additional shares of our common
stock. We have not yet priced the Equity Units offering. Subject to market
conditions, we expect to price and close the Equity Units offering at the same
time this offering is priced and closed.

S-5

Summary Consolidated Financial Information

The summary of consolidated financial information set forth below should be
read in conjunction with our consolidated financial statements and the related
notes and with "Selected Financial Information" and "Management's Discussion
and Analysis of Results of Operations and Financial Condition" included
elsewhere in this prospectus supplement and with the documents incorporated by
reference in the accompanying prospectus.

Years Ended December
31,
--------------------------
2000(1) 1999(2) 1998
------- --------- -------
(in millions, except
per share data)

Consolidated Statements of Income Data:

Operating revenues................................. $49,318 $21,766 $17,662
Earnings before interest and taxes................. 4,014 2,043 2,647
Earnings available for common stockholders......... 1,757 1,487(3) 1,231
Weighted-average common shares outstanding(4)...... 736 729 722
Earnings per common share (before extraordinary
item)(4)
Basic............................................ $ 2.39 $ 1.13 $ 1.72
Diluted.......................................... 2.38 1.13 1.71
Earnings per common share(4)
Basic............................................ 2.39 2.04(3) 1.70
Diluted.......................................... 2.38 2.03(3) 1.70
Dividends per common share(4)...................... 1.10 1.10 1.10

As of
December 31, 2000
-----------------

Consolidated Balance Sheet Data:

Total assets................................................ $ 58,176
Short-term debt, including commercial paper................. 1,826
Long-term debt, including current maturities................ 11,456
Guaranteed preferred beneficial interests in subordinated
notes of Duke Energy or subsidiaries....................... 1,406
Minority interests.......................................... 2,435
Preferred and preference stock, including current sinking
fund obligations........................................... 280
Common stockholders' equity................................. 10,056

- --------
(1) Reflects a pre-tax $407 million gain on the sale of our investment in
BellSouth PCS. The effect per basic share of common stock of this gain was
$0.34.
(2) Reflects a pre-tax $800 million charge for estimated injury and damages
claims. The effect per basic share of common stock of this charge was
$0.67.
(3) Reflects a one-time after-tax extraordinary gain of approximately $660
million, or $0.91 per basic share of common stock, attributable to the sale
of certain pipeline operations on March 29, 1999.
(4) Restated to reflect the two-for-one common stock split effective January
26, 2001.

S-6

USE OF PROCEEDS

Our net proceeds from the sale of the 25,000,000 shares of our common stock
in this offering are estimated to be $ million ($ million if the
underwriters' over-allotment option is exercised in full) after deducting the
underwriting discount and estimated offering expenses. We expect to use the net
proceeds from the offering of common stock for general corporate purposes,
including repayment of short-term indebtedness.

Concurrently with this offering, we are offering $500 million aggregate
principal amount of Equity Units consisting of senior notes of our wholly owned
subsidiary, Duke Capital Corporation, and contracts to purchase additional
shares of our common stock. Neither offering is contingent upon the closing of
the other offering. The net proceeds from the sale of $500 million aggregate
principal amount of Equity Units in the concurrent offering will be $
million ($ million if the underwriters' over-allotment option is exercised
in full) after deducting the underwriting discount and estimated offering
expenses. Duke Capital expects to use the net proceeds from the offering of
Equity Units for general corporate purposes, including repayment of short-term
indebtedness.

S-7

PRICE RANGE OF COMMON STOCK

Our common stock trades on the NYSE under the symbol "DUK." The following
table sets forth on a per share basis the high and low closing sales prices for
our common stock for the periods indicated as reported on the NYSE composite
transactions reporting system. We effected a two-for-one common stock split on
January 26, 2001 payable to holders of record on January 3, 2001. The prices
set forth below reflect adjustment for that stock split.

High Low
------ ------

1999
First Quarter............................................. $32.34 $27.41
Second Quarter............................................ 30.59 26.06
Third Quarter............................................. 29.25 26.22
Fourth Quarter............................................ 28.44 23.53
2000
First Quarter............................................. 28.94 23.19
Second Quarter............................................ 31.25 26.16
Third Quarter............................................. 42.88 28.31
Fourth Quarter............................................ 44.97 40.22
2001
First Quarter (through March 2, 2001)..................... 42.90 32.41

The last reported sale price of our common stock on March 2, 2001 on the
NYSE is set forth on the cover page of this prospectus supplement. As of
February 28, 2001, there were approximately 148,000 holders of record of our
common stock.

DIVIDENDS

We have paid cash dividends on our common stock without interruption
since 1926. We paid a quarterly dividend of $0.275 per share in each of 1999
and 2000 and expect to pay a quarterly dividend of $0.275 per share on March
16, 2001 to holders of record on February 16, 2001. Purchasers of the common
stock offered hereby will not be entitled to receive that quarterly dividend.
Future dividends will depend upon our future earnings, financial condition and
other factors affecting dividend policy.

We have an InvestorDirect Choice Plan pursuant to which holders of our
common stock may automatically reinvest their common stock dividends in shares
of our common stock. Holders who become participants in the plan may also make
optional cash payments (not more than $100,000 per calendar year) to be
invested in shares of our common stock. For information concerning the
InvestorDirect Choice Plan, write us at Duke Energy Corporation, Investor
Relations Department, P.O. Box 1005, Charlotte, NC 28201-1005.

S-8

CAPITALIZATION

The following table sets forth our capitalization as of December 31, 2000:

. on an actual basis; and

. on an as adjusted basis to give effect to the sale of the 25,000,000
shares of our common stock offered by this prospectus supplement at a
public offering price of $ per share and the $500 million aggregate
principal amount of Equity Units consisting of senior notes of Duke
Capital Corporation and contracts to purchase additional shares of our
common stock in the concurrent offering and the application of the net
proceeds from these sales, after deducting the underwriting discount and
estimated offering expenses.

You should read the information in this table together with our consolidated
financial statements and the related notes and with "Selected Financial
Information" and "Management's Discussion and Analysis of Results of Operations
and Financial Condition" included elsewhere in this prospectus supplement.

December 31, 2000
-----------------
As
Actual Adjusted
------- --------
(in millions)

Short-term debt, including commercial paper............. $ 1,826 $
------- -----

Long-term debt, including current maturities:
First and refunding mortgage bonds.................... 1,451 1,451
Other long-term debt.................................. 2,468 2,468
Long-term debt of subsidiaries........................ 7,537 7,537
Senior notes of Duke Capital due 2006 (component of
Equity Units)........................................ --
------- -----
Total long-term debt................................ 11,456
------- -----
Guaranteed preferred beneficial interests in
subordinated notes of Duke Energy or subsidiaries...... 1,406 1,406
------- -----
Minority interests...................................... 2,435 2,435
------- -----
Preferred and preference stock, including current
sinking fund obligations:
With sinking fund requirements........................ 71 71
Without sinking fund requirements..................... 209 209
------- -----
280 280
------- -----
Common stockholders' equity:
Common stock, no par; 1 billion shares authorized;
739 million shares outstanding, actual and
764 million shares outstanding, as adjusted.......... 4,797
Retained earnings..................................... 5,379 5,379
Accumulated other comprehensive income................ (120) (120)
------- -----
Total common stockholders' equity................... 10,056
------- -----
Total capitalization.............................. $27,459 $
======= =====

S-9

SELECTED FINANCIAL INFORMATION

The following table sets forth selected consolidated financial
information for each of the periods indicated. You should read the information
in this table together with our consolidated financial statements and the
related notes and "Management's Discussion and Analysis of Results of
Operations and Financial Condition" included elsewhere in this prospectus
supplement and with the documents incorporated by reference in the accompanying
prospectus.

Years Ended December 31,
-----------------------------------
2000(1) 1999(2) 1998
---------- ---------- ----------
(in millions, except per share data)

Consolidated Statements of Income Data:
Operating revenues........................ $ 49,318 $ 21,766 $ 17,662
Operating expenses........................ 45,505 19,947 15,177
---------- ---------- ----------
Operating income........................ 3,813 1,819 2,485
Other income, net......................... 201 224 162
---------- ---------- ----------
Earnings before interest and taxes........ 4,014 2,043 2,647
Interest expense.......................... 911 601 514
Minority interest expense................. 307 142 96
Income before extraordinary item.......... 1,776 847 1,260
Net income................................ 1,776 1,507(3) 1,252
Earnings available for common
stockholders............................. 1,757 1,487(3) 1,231
Earnings per share of common stock (before
extraordinary item)(4)
Basic................................... $ 2.39 $ 1.13 $ 1.72
Diluted................................. 2.38 1.13 1.71
Earnings per share of common stock(4)
Basic................................... 2.39 2.04(3) 1.70
Diluted................................. 2.38 2.03(3) 1.70
- --------
(1) Reflects a pre-tax $407 million gain on the sale of our investment in
BellSouth PCS. The effect per basic share of common stock of this gain was
$0.34.
(2) Reflects a pre-tax $800 million charge for estimated injury and damages
claims. The effect per basic share of common stock of this charge was
$0.67.
(3) Reflects a one-time after-tax extraordinary gain of approximately $660
million, or $0.91 per basic share of common stock, attributable to the sale
of certain pipeline operations on March 29, 1999.
(4) Restated to reflect the two-for-one common stock split effective January
26, 2001.

As of December 31,
-----------------------------------
2000 1999 1998
---------- ----------- ----------
(in millions)

Consolidated Balance Sheet Data:
Current assets............................ $ 22,155 $ 6,171 $ 4,843
Investments and other assets.............. 10,082 4,710 3,232
Property, plant and equipment, net........ 24,469 20,995 16,875
Regulatory assets and deferred debits..... 1,470 1,533 1,856
Total assets.............................. 58,176 33,409 26,806

Years Ended December 31,
------------------------------
2000 1999 1998 1997(1) 1996(1)
---- ---- ---- ------- -------

Financial Ratios:
Ratio of earnings to fixed charges............... 3.8 2.9 4.7 4.1 4.3

- --------
(1) Data reflects accounting for the combination with PanEnergy Corp on June
18, 1997 as a pooling of interests. As a result, the data gives effect to
the combination as if it had occurred as of January 1, 1996.

S-10

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

Introduction

Management's Discussion and Analysis should be read in conjunction with the
Consolidated Financial Statements.

Business Segments. Duke Energy Corporation (collectively with its
subsidiaries, "Duke Energy") is an integrated energy and energy services
provider with the ability to offer physical delivery and management of both
electricity and natural gas throughout the U.S. and abroad. Duke Energy
provides these and other services through seven business segments.

Franchised Electric generates, transmits, distributes and sells electric
energy in central and western North Carolina and the western portion of South
Carolina. Its operations are conducted primarily through Duke Power and
Nantahala Power and Light. These electric operations are subject to the rules
and regulations of the Federal Energy Regulatory Commission (FERC), the North
Carolina Utilities Commission (NCUC) and the Public Service Commission of South
Carolina (PSCSC).

Natural Gas Transmission provides interstate transportation and storage of
natural gas for customers primarily in the Mid-Atlantic, New England and
southeastern states. Its operations are conducted primarily through Duke Energy
Gas Transmission Corporation. The interstate natural gas transmission and
storage operations are subject to the rules and regulations of the FERC.

Field Services gathers, processes, transports, markets and stores natural
gas and produces, transports, markets and stores natural gas liquids (NGLs).
Its operations are conducted primarily through Duke Energy Field Services, LLC
(DEFS), a limited liability company that is approximately 30% owned by Phillips
Petroleum. Field Services operates gathering systems in western Canada and 11
contiguous states that serve major natural gas-producing regions in the Rocky
Mountain, Permian Basin, Mid-Continent, East Texas-Austin Chalk-North
Louisiana, as well as onshore and offshore Gulf Coast areas.

North American Wholesale Energy's (NAWE's) activities include asset
development, operation and management, primarily through Duke Energy North
America, LLC (DENA), and commodity sales and services related to natural gas
and power, primarily through Duke Energy Trading and Marketing, LLC (DETM).
DETM is a limited liability company that is approximately 40% owned by Exxon
Mobil Corporation. NAWE also includes Duke Energy Merchants, which develops new
business lines in the evolving energy commodity markets. NAWE conducts its
business throughout the U.S. and Canada. The operations of the previously
segregated Trading and Marketing segment were combined by management into NAWE
during 2000. Previous periods have been restated to conform to current period
presentation.

International Energy conducts its operations through Duke Energy
International, LLC. International Energy's activities include asset
development, operation and management of natural gas and power facilities and
energy trading and marketing of natural gas and electric power. This activity
is targeted in the Latin American, Asia Pacific and European regions.

Other Energy Services is a combination of businesses that provide
engineering, consulting, construction and integrated energy solutions
worldwide, primarily through Duke Engineering & Services, Inc. (DE&S),
Duke/Fluor Daniel (D/FD) and DukeSolutions, Inc. (DukeSolutions). D/FD is a
50/50 partnership between Duke Energy and Fluor Enterprises, Inc.

Duke Ventures is comprised of other diverse businesses, primarily operating
through Crescent Resources, Inc. (Crescent), DukeNet Communications, LLC
(DukeNet) and Duke Capital Partners (DCP). Crescent develops high-quality
commercial, residential and multi-family real estate projects and manages land
holdings

S-11

primarily in the southeastern U.S. DukeNet provides fiber optic networks for
industrial, commercial and residential customers. DCP, a newly formed, wholly
owned merchant finance company, provides financing, investment banking and
asset management services to wholesale and commercial energy markets.

Business Strategy. Duke Energy is one of the world's leading integrated
energy companies. The company's business strategy is to develop integrated
energy businesses in targeted regions where Duke Energy's extensive
capabilities in developing energy assets, operating electric power, natural gas
and NGL plants, optimizing commercial operations and managing risk can provide
comprehensive energy solutions for customers and create superior value for
shareholders. The growth in and restructuring of global energy markets are
providing opportunities for Duke Energy's competitive business segments to
capitalize on their comprehensive capabilities. Domestically, Duke Energy is
aggressively investing in new merchant power plants throughout the U.S.,
expanding its natural gas pipeline infrastructure in the eastern U.S., rapidly
increasing its leading position in natural gas gathering and processing and NGL
marketing, and developing its trading and marketing structured origination
expertise across the energy spectrum. Internationally, Duke Energy is currently
focusing on integrated electric and natural gas opportunities in Latin America,
Asia Pacific and Europe.

Franchised Electric continues to add customers, maintain low costs and
deliver high-quality customer service. Franchised Electric is expected to grow
moderately, consistent with historical trends. Expansion will primarily result
from continued economic growth in its service territory.

Natural Gas Transmission has increased its earnings growth rate by executing
a comprehensive strategy of selected acquisitions and expansions and by
developing expanded services and incremental projects that meet changing
customer needs.

Field Services has developed market-leading size, scope and reliability of
supply in natural gas gathering, processing and NGL marketing. Field Services
plans to make additional investments in gathering, processing and NGL
infrastructure. Field Services' interconnected natural gas processing
operations provide an opportunity to capture fee-based investment opportunities
in certain NGL assets, including pipelines, fractionators and terminals.

NAWE plans to continue increasing earnings through acquisitions,
divestitures, construction of greenfield projects and expansion of existing
facilities as regional opportunities are identified, evaluated and realized
throughout the North American marketplace. To capture the greatest value in the
U.S., DENA, through its portfolio management strategy, seeks opportunities to
invest in energy assets in markets that have capacity needs and to divest other
assets, in whole or in part, when significant value can be realized. Commodity
sales and services related to natural gas and power continue to expand as NAWE
provides energy supply, structured origination, trading and marketing, risk
management and commercial optimization services to large energy customers,
energy aggregators and other wholesale companies.

International Energy plans to continue expanding through acquisitions,
divestitures, construction of greenfield projects and expansion of existing
facilities in selected international regions. International Energy's
combination of assets and capabilities and close working relationships with
other subsidiaries of Duke Energy allow it to efficiently deliver natural gas
pipeline, power generation, energy marketing and other services.

Other Energy Services plans to grow by providing an expanding customer base
with a variety of engineering and energy efficiency services that allow
customers to more effectively deal with rapidly changing conditions in the
energy marketplace.

Duke Ventures plans to expand earnings capabilities in its real estate,
telecommunications and capital financing business units by developing regional
opportunities and by applying extensive experience to new project development.

Duke Energy's business strategy and growth expectations can vary
significantly depending on many factors, including, but not limited to, the
pace and direction of industry restructuring, regulatory constraints,
acquisition opportunities, market volatility and economic trends. However, Duke
Energy's growth expectations do not rely on industry restructuring in North
Carolina and South Carolina.

S-12

Results of Operations

In 2000, earnings available for common stockholders were $1,757 million, or
$2.39 per basic share, including a pre-tax gain of $407 million, or an after-
tax gain of $0.34 per basic share, on the sale of Duke Energy's 20% interest in
BellSouth Carolina PCS (BellSouth PCS). In 1999, earnings available for common
stockholders were $1,487 million, or $2.04 per basic share, including an after-
tax extraordinary gain of $660 million, or $0.91 per basic share resulting from
the sale of the Panhandle Eastern Pipe Line Company (PEPL), Trunkline Gas
Company (Trunkline) and additional storage related to those systems, which
substantially comprised the Midwest Pipelines along with Trunkline LNG Company.
The increase in earnings available for common stockholders in 2000 was
primarily due to a 96% increase in segment earnings as described below,
including the BellSouth PCS gain. Partially offsetting this increase was the
1999 extraordinary gain and higher interest and minority interest expense in
the current year.

Earnings available for common stockholders increased $256 million in 1999
from 1998 earnings of $1,231 million, or $1.70 per basic share. The increase in
earnings available for common stockholders was primarily due to the 1999
extraordinary gain resulting from the sale of the Midwest Pipelines. This gain,
along with the factors described below that affect segment earnings, was
partially offset by a pre-tax $800 million charge for estimated injury and
damages claims (see Note 14 to the Consolidated Financial Statements) and
higher interest and minority interest expense.

Earnings per share information provided above has been restated to reflect
the two-for-one common stock split effective January 26, 2001. See Note 15 to
the Consolidated Financial Statements for additional information.

Operating income for 2000 was $3,813 million compared to $1,819 million in
1999 and $2,485 million in 1998. Earnings before interest and taxes (EBIT) were
$4,014 million, $2,043 million and $2,647 million for 2000, 1999 and 1998,
respectively. Management evaluates each business segment based on an internal
measure of EBIT, after deducting minority interests. Operating income and EBIT
are affected by the same fluctuations for Duke Energy and each of its business
segments. The only notable difference between operating income and EBIT is the
inclusion in EBIT of certain non-operating activities. See Note 3 to the
Consolidated Financial Statements for additional information on business
segments. EBIT is summarized in the following table and is discussed by
business segment thereafter.

EBIT by Business Segment

Years Ended December
31,
----------------------
2000 1999 1998
------ ------ ------
(in millions)

Franchised Electric..................................... $1,704 $ 856 $1,513
Natural Gas Transmission................................ 534 627 702
Field Services.......................................... 296 144 76
North American Wholesale Energy......................... 418 209 133
International Energy.................................... 331 42 12
Other Energy Services................................... (61) (94) 10
Duke Ventures........................................... 563 162 122
Other Operations........................................ (2) 5 22
EBIT attributable to minority interests................. 231 92 57
------ ------ ------
Consolidated EBIT....................................... $4,014 $2,043 $2,647
====== ====== ======

Other Operations primarily include certain unallocated corporate costs.
Included in the amounts discussed hereafter are intercompany transactions that
are eliminated in the Consolidated Financial Statements.

S-13

Franchised Electric

Years Ended December
31,
--------------------
2000 1999 1998
------ ------ ------
(In millions, except
where noted)

Operating revenues........................................ $4,946 $4,700 $4,626
Operating expenses........................................ 3,316 3,966 3,228
------ ------ ------
Operating income.......................................... 1,630 734 1,398
Other income, net of expenses............................. 74 122 115
------ ------ ------
EBIT...................................................... $1,704 $ 856 $1,513
====== ====== ======
Sales--GWh(a)............................................. 84,766 81,548 82,011

- --------
(a) Gigawatt-hours.

Franchised Electric's EBIT increased $848 million in 2000 when compared to
1999, primarily due to an $800 million charge in 1999 for estimated injury and
damages claims (see Note 14 to the Consolidated Financial Statements). Overall
favorable weather and growth in customers, partially offset by increased
operating costs, also contributed to this increase in EBIT. The average number
of customers in Franchised Electric's service territory increased 2.5% during
2000. Total gigawatt-hour sales to customers increased by 3.9% for 2000. Sales
to general service and residential customers increased 4.7% and 4.4%,
respectively, while total industrial sales decreased 0.5%.

In 1999, Franchised Electric's EBIT decreased $657 million compared to 1998,
primarily due to the above-mentioned charge for estimated injury and damages
claims. Partially offsetting this decrease was a 2.8% increase in the number of
customers in Franchised Electric's service territory during 1999, and the
absence of 1998 severance and other costs related to closing Franchised
Electric's merchandising business.

Natural Gas Transmission

Years Ended December
31,
--------------------
2000 1999 1998
------ ------ ------
(In millions, except
where noted)

Operating revenues........................................ $1,131 $1,230 $1,542
Operating expenses........................................ 609 615 864
------ ------ ------
Operating income.......................................... 522 615 678
Other income, net of expenses............................. 12 12 24
------ ------ ------
EBIT...................................................... $ 534 $ 627 $ 702
====== ====== ======
Throughput--TBtu(a)....................................... 1,717 1,893 2,593

- --------
(a) Trillion British thermal units.

In 2000, EBIT for Natural Gas Transmission decreased $93 million compared to
1999, primarily due to $132 million of EBIT in 1999 that did not reoccur in
2000. These items consisted of $70 million of EBIT related to the Midwest
Pipelines, which were sold to CMS Energy Corporation (CMS) in March 1999; a $24
million gain resulting from the sale of Duke Energy's interest in the Alliance
Pipeline project; and benefits totaling $38 million related to the completion
of certain environmental cleanup programs below estimates. These items were
partially offset by increased earnings from market-expansion projects and joint
ventures such as the Maritimes & Northeast Pipeline, which was placed into
service in December 1999, and earnings from East Tennessee Natural Gas Company
and Market Hub Partners (MHP), which were acquired in March and September 2000,
respectively. See Note 2 to the Consolidated Financial Statements for
additional information on the sale of the Midwest Pipelines and the
acquisitions of East Tennessee Natural Gas Company and MHP.

S-14

EBIT for Natural Gas Transmission decreased $75 million in 1999 compared to
1998. As a result of the sale of the Midwest Pipelines in March 1999, EBIT for
the Midwest Pipelines decreased $156 million compared to 1998's full year of
operation. For the remainder of Natural Gas Transmission, EBIT increased $81
million compared to 1998, primarily as a result of increased earnings from
market-expansion projects and joint ventures, higher throughput and lower
operating expenses. A $24 million gain resulting from the sale of Duke Energy's
interest in the Alliance Pipeline project and benefits totaling $38 million
related to the completion of certain environmental cleanup programs below
estimates also increased EBIT in 1999. Partially offsetting these contributions
to EBIT were the favorable impacts in 1998 in connection with the resolution of
regulatory issues related to natural gas supply realignment costs and a refund
from a state property tax ruling.

Field Services

Years Ended December
31,
---------------------
2000 1999 1998
------ ------ ------
(In millions, except
where noted)

Operating revenues..................................... $9,060 $3,590 $2,677
Operating expenses..................................... 8,635 3,444 2,598
------ ------ ------
Operating income....................................... 425 146 79
Other income, net of expenses.......................... 6 (2) (3)
Minority interest expense.............................. 135 -- --
------ ------ ------
EBIT................................................... $ 296 $ 144 $ 76
====== ====== ======
Natural gas gathered and processed/transported,
TBtu/d(a)............................................. 7.6 5.1 3.6
NGL production, MBbl/d(b).............................. 358.5 192.4 110.2
Natural gas marketed, TBtu/d........................... 0.7 0.5 0.4
Average natural gas price per MMBtu(c)................. $ 3.89 $ 2.27 $ 2.11
Average NGL price per gallon(d)........................ $ 0.53 $ 0.34 $ 0.26

- --------
(a) Trillion British thermal units per day.
(b) Thousand barrels per day.
(c) Million British thermal units.
(d) Does not reflect results of commodity hedges.

Field Services' EBIT increased $152 million in 2000 from 1999. The increase
in EBIT and volume activity was primarily due to the combination of Field
Services' natural gas gathering, processing and marketing business with
Phillips Petroleum's Gas Gathering, Processing and Marketing unit (Phillips) in
March 2000; the acquisition of the natural gas gathering, processing,
fractionation and NGL pipeline business from Union Pacific Resources (UPR)
(collectively, the "UPR acquisition") in April 1999; and other recent
acquisitions and plant expansions. For additional information on the Phillips
combination and the UPR acquisition, see Note 2 to the Consolidated Financial
Statements. Improved average NGL prices, which increased 56% over 1999 prices,
also contributed significantly to the increase in EBIT.

In 1999, Field Services' EBIT increased $68 million compared to 1998. A
significant portion of the increase resulted from earnings from the UPR
acquisition. Improved average NGL prices, which were up 31% from the prior
year, also contributed to the increase in EBIT. Partially offsetting these
increases were $34 million of asset sale gains in 1998.

S-15

North American Wholesale Energy

Years Ended December
31,
----------------------
2000 1999 1998
------- ------- ------
(In millions, except
where noted)

Operating revenues...................................... $33,874 $11,801 $8,783
Operating expenses...................................... 33,386 11,591 8,619
------- ------- ------
Operating income........................................ 488 210 164
Other income, net of expenses........................... 3 60 20
Minority interest expense............................... 73 61 51
------- ------- ------
EBIT.................................................... $ 418 $ 209 $ 133
======= ======= ======
Natural gas marketed, TBtu/d............................ 11.9 10.5 8.0
Electricity marketed, GWh............................... 275,258 109,634 98,991
Proportional megawatt capacity owned(a)................. 8,984 5,799 5,098

- --------
(a) Includes under construction or under contract.

NAWE's EBIT increased $209 million in 2000 compared to 1999. The increase
was the result of increased earnings from asset positions, increased trading
margins due to price volatility in natural gas and power and a $47 million
increase in income from the sale of interests in generating facilities as a
result of NAWE executing its portfolio management strategy. Operating revenues
and expenses increased as the volumes of natural gas and power marketed
increased 13% and 151%, respectively. These increases were partially offset by
a $110 million charge related to receivables for energy sales in California,
and increased operating and development costs associated with business
expansion. See the Current Issues, California Issues section of Management's
Discussion and Analysis, and Note 14 to the Consolidated Financial Statements
for further information.

In 1999, EBIT for NAWE increased $76 million from 1998. The increase
included $99 million in income from the sale of partial interests in four
generating facilities as a result of NAWE executing its portfolio management
strategy. Partially offsetting these increases were lower natural gas trading
margins, partially offset by higher power trading margins as well as margins
associated with other trading activities and sales of natural gas interests
associated with drilling activities. Higher operating expenses and increased
development costs associated with business expansion also partially offset the
earnings increases.

International Energy

Years Ended December 31,
---------------------------
2000 1999 1998
--------- -------- --------
(In millions, except
where noted)

Operating revenues................................. $ 1,067 $ 357 $ 159
Operating expenses................................. 755 292 145
--------- -------- -------
Operating income................................... 312 65 14
Other income, net of expenses...................... 42 8 4
Minority interest expense.......................... 23 31 6
--------- -------- -------
EBIT............................................... $ 331 $ 42 $ 12
========= ======== =======
Proportional megawatt capacity owned(a)............ 4,876 2,974 943
Proportional maximum pipeline capacity(a),
MMcf/d(b)......................................... 416 321 124

- --------
(a) Includes under construction or under contract.
(b) Million cubic feet per day.

S-16

International Energy's EBIT increased $289 million in 2000 when compared to
1999. The increase was primarily attributable to increased earnings in Latin
America, mainly resulting from new investments (see Note 2 to the Consolidated
Financial Statements for a discussion of significant acquisitions). The
increase also included $54 million from the February 2000 sale of certain
assets relating to the transportation of liquefied natural gas.

In 1999, International Energy's EBIT increased $30 million compared to 1998.
Earnings from new investments in Latin America and Australia contributed $63
million to the increase. Partially offsetting these increases were higher
operating expenses and increased development costs associated with business
expansion.

Other Energy Services

Years Ended December 31,
--------------------------
2000 1999 1998
------- ------- --------
(In millions)

Operating revenues................................ $ 695 $ 989 $ 521
Operating expenses................................ 756 1,083 511
------- ------- --------
EBIT.............................................. $ (61) $ (94) $ 10
======= ======= ========

In 2000, EBIT for Other Energy Services improved $33 million compared to
1999. New business activity and decreased operating expenses at DukeSolutions,
and earnings related to new projects at D/FD were responsible for current year
improved EBIT. The results for 2000 also include Duke Energy's portion of an
estimated project loss recorded by D/FD of approximately $62 million, partially
offset by 1999 charges of $38 million and $35 million at DE&S and
DukeSolutions, respectively. The 1999 charges primarily related to expenses for
severance and office closings associated with repositioning the companies for
growth.

EBIT for Other Energy Services decreased $104 million in 1999 compared to
1998. The decrease was primarily due to the above-mentioned charges of $38
million and $35 million at DE&S and DukeSolutions, respectively. Increased
development costs at DukeSolutions and decreased earnings from projects of DE&S
also contributed to lower EBIT.

Duke Ventures

Years Ended December 31,
--------------------------
2000 1999 1998
-------- -------- --------
(In millions)

Operating revenues................................ $ 642 $ 232 $ 171
Operating expenses................................ 79 70 49
------- -------- --------
EBIT.............................................. $ 563 $ 162 $ 122
======= ======== ========

EBIT for Duke Ventures increased $401 million in 2000 when compared to 1999.
This increase is primarily attributable to the sale by DukeNet of its 20%
interest in BellSouth PCS to BellSouth Corporation for a pre-tax gain of $407
million. Slightly offsetting this increase in EBIT was a decrease in commercial
project sales and land sales at Crescent.

In 1999, EBIT for Duke Ventures increased $40 million compared to 1998. The
increase was primarily due to Crescent's increased residential developed lot
sales, land sales and commercial project sales, partially offset by decreased
lake lot sales. Increased fiber optic revenues at DukeNet and decreased losses
related to its interest in BellSouth PCS also contributed to increased EBIT.

S-17

Other Impacts on Earnings Available for Common Stockholders

Interest expense increased $310 million in 2000 compared to 1999, and $87
million in 1999 compared to 1998 due to higher average debt balances
outstanding, resulting from acquisitions and expansion.

Minority interest expense increased $165 million in 2000 compared to 1999
and $46 million in 1999 compared to 1998. Included in minority interest expense
is expense related to regular distributions on issuances of Duke Energy's trust
preferred securities (see Note 12 to the Consolidated Financial Statements).
This expense increased $21 million for 2000 and $43 million for 1999 due to
additional issuances of Duke Energy's trust preferred securities during 1999
and 1998.

In addition, the increase for 2000 includes minority interest expense
related to Field Services' combination with Phillips Petroleum, and increased
minority interest expense at NAWE related to its joint venture with Exxon Mobil
Corporation, partially offset by decreased minority interest expense at
International Energy related to its 1999 and 2000 acquisitions. The 1999
increase in minority interest expense over 1998 related primarily to
International Energy's 1999 investments and NAWE's joint venture with Exxon
Mobil Corporation. For additional information regarding acquisitions and new
joint venture projects, see Notes 2 and 8 to the Consolidated Financial
Statements.

Duke Energy's effective income tax rate was approximately 37%, 35% and 38%
for 2000, 1999 and 1998, respectively. The decrease in 1999 was primarily due
to the favorable resolution of several income tax issues and the utilization of
certain capital loss carryforwards due to the sale of the Midwest Pipelines.

The sale of the Midwest Pipelines to CMS closed in March 1999 and resulted
in a $660 million extraordinary gain, net of income tax of $404 million (see
Note 2 to the Consolidated Financial Statements).

In January 1998, TEPPCO Partners, LP, in which Duke Energy has a 21.1%
ownership interest, redeemed certain First Mortgage Notes. This resulted in a
non-cash extraordinary loss of $8 million, net of income tax of $5 million,
related to Duke Energy's share of costs of the early retirement of debt.

Liquidity and Capital Resources

Operating Cash Flows

Net cash provided by operations was $2,225 million in 2000, $2,684 million
in 1999 and $2,331 million in 1998. Cash flows from operations decreased in
2000 compared to 1999 primarily due to tax payments made in 2000 related to the
sale of the Midwest Pipelines. The increase in cash flows from operations in
1999 from 1998 was primarily due to net income resulting from business
expansion.

In 1999, Duke Energy established an accrual for estimated injury and damages
claims. During 2000, Duke Energy paid approximately $253 million for the
related insurance premium. Management believes that the long-term cash
requirements of the projected liability will not have a material effect on Duke
Energy's liquidity or cash flows. See Note 14 to the Consolidated Financial
Statements for further discussion.

Investing Cash Flows

Capital and investment expenditures were approximately $5.6 billion in 2000
compared to $5.9 billion in 1999. The primary use of cash in investing
activities for capital and investment expenditures reflects development and
expansion expenditures, upgrades to existing assets and the acquisitions of
various businesses and assets. The change in Natural Gas Transmission's capital
expenditures is primarily due to business expansion related to the
approximately $390 million acquisition of East Tennessee Natural Gas Company
and the approximately $250 million of cash for the acquisition of MHP. In 2000,
NAWE began construction of a number of power generation plants in the U.S. and
continued capital expenditures on projects initiated prior to 2000.
International Energy's business expansion included the completion of a tender
offer to the minority

S-18

shareholders of Companhia de Geracao de Energia Eletrica Paranapanema
(Paranapanema) for approximately $280 million and the completion of the
approximately $405 million acquisition of Dominion Resources, Inc.'s portfolio
of hydroelectric, natural gas and diesel power generation businesses in Latin
America. Offsetting the capital and investing expenditures were cash proceeds
of $400 million from the 2000 sale of Duke Energy's 20% interest in BellSouth
PCS to BellSouth Corporation. For additional information concerning significant
acquisitions and dispositions, see Note 2 to the Consolidated Financial
Statements.

Capital and Investment Expenditures by Business Segment

Years Ended December
31,
--------------------
2000 1999 1998
------ ------ ------
(in millions)

Franchised Electric....................................... $ 661 $ 759 $ 586
Natural Gas Transmission.................................. 973 261 290
Field Services............................................ 376 1,630 304
North American Wholesale Energy........................... 1,937 1,028 796
International Energy...................................... 980 1,779 239
Other Energy Services..................................... 28 94 41
Duke Ventures............................................. 643 382 232
Other Operations.......................................... 36 3 12
------ ------ ------
Total consolidated...................................... $5,634 $5,936 $2,500
====== ====== ======

Capital and investment expenditures in 1999 increased approximately $3.4
billion from 1998 capital and investment expenditures of approximately $2.5
billion. The increase primarily resulted from business expansion for the Field
Services, NAWE and International Energy business segments. Business expansion
for Field Services included the $1.35 billion UPR acquisition. In 1999, NAWE
began construction of multiple power generation plants in the U.S. and
continued capital expenditures on projects initiated prior to 1999.
International Energy's business expansion included $1.7 billion for multiple
acquisitions in Latin America, western Australia and New Zealand. Expenditures
related to these activities were partially funded by $1.9 billion in cash
proceeds from the sale of the Midwest Pipelines. For additional information
concerning significant acquisitions and dispositions, see Note 2 to the
Consolidated Financial Statements.

Projected 2001 capital and investment expenditures for Duke Energy are
approximately $7.9 billion, of which over 75% is planned to be for competitive
business segments which are not subject to state rate regulation. This
projection includes approximately $6.5 billion for acquisitions and other
expansion opportunities and $1.4 billion for existing plant upgrades. Duke
Energy's projected capital expenditures also include $800 million in
expenditures over the next three years for its Gulfstream pipeline project.

All projected capital and investment expenditures are subject to periodic
review and revision and may vary significantly depending on a number of factors
including, but not limited to, industry restructuring, regulatory constraints,
acquisition opportunities, market volatility and economic trends.

Financing Cash Flows

Duke Energy's consolidated capital structure at December 31, 2000, including
short-term debt, was 48% debt, 46% common equity and minority interests, 5%
trust preferred securities and 1% preferred stock. Fixed charges coverage,
calculated using the Securities and Exchange Commission (SEC) method, was 3.8
times, 2.9 times and 4.7 times for 2000, 1999 and 1998, respectively.

Duke Energy's business expansion opportunities, along with dividends, debt
repayments and operating requirements, are expected to be funded by cash from
operations, external financing, common stock issuances and the proceeds from
certain asset sales. Funding requirements met by external financing, common
stock

S-19

issuances and proceeds from the sale of assets are dependent upon the
opportunities presented and favorable market conditions. Management believes
Duke Energy has adequate financial resources to meet its future needs.

During 2000, Duke Energy issued a total of $550 million of Senior Notes at
rates of approximately 7.250%. The proceeds were used for general corporate
purposes. In April 2000, DEFS issued approximately $2.75 billion of commercial
paper associated with the Phillips combination of which $1.22 billion was
distributed to Phillips Petroleum. In August 2000, DEFS issued $1.7 billion of
notes at rates from 7.50% to 8.125% and reduced the outstanding balance of its
commercial paper. In December 2000, Texas Eastern Transmission Corporation
(TETCO) issued $300 million of 7.30% notes due 2010. For additional information
regarding debt, see Note 10 to the Consolidated Financial Statements.

During 2000, Duke Energy formed Catawba River Associates, LLC, and third-
party, non-controlling, preferred interest holders invested approximately
$1,025 million. The preferred interest receives a preferred return equal to an
adjusted floating reference rate (approximately 7.847% at December 31, 2000).
See Note 2 to the Consolidated Financial Statements for further discussion.

During 2000, Duke Energy repaid $380 million of 8.0% notes, $200 million of
7.0% notes, $200 million of 10.375% notes and made $323 million in scheduled
debt repayments. In addition, Duke Energy made a tender offer for $115 million
of the notes assumed with the acquisition of MHP. As of December 31, 2000,
approximately $88 million of these notes had been retired.

Under its commercial paper facilities and extendible commercial note
programs (ECNs), Duke Energy had the ability to borrow up to $5.7 billion and
$3.3 billion at December 31, 2000 and 1999, respectively. A summary of the
available commercial paper and ECNs as of December 31, 2000, is as follows:

Duke Energy
Duke Duke Capital Field Duke Energy
Energy Corporation(a) Services International Total
------ -------------- ----------- ------------- -----
(in billions)

Commercial paper......... $1.25 $1.55 $1.00(b) $0.41(c) $4.21
ECNs..................... 0.50 1.00 -- -- 1.50
----- ----- ----- ----- -----
Total.................. $1.75 $2.55 $1.00 $0.41 $5.71
===== ===== ===== ===== =====

- --------
(a) Duke Capital Corporation is a wholly owned subsidiary of Duke Energy that
provides financing and credit enhancement services for its subsidiaries.
(b) Original availability of $2.8 billion was reduced to $1.0 billion upon
DEFS' issuance of $1.7 billion in notes in August 2000.
(c) Includes ability to issue medium-term notes.

The amount of Duke Energy's bank credit and construction facilities
available at December 31, 2000 and 1999, was approximately $4.2 billion and
$3.7 billion, respectively. Certain of the bank credit facilities support the
issuance of commercial paper; therefore, the issuance of commercial paper
reduces the amount available under these credit facilities. At December 31,
2000, approximately $3.2 billion was outstanding under the commercial paper
facilities and ECNs, and approximately $44 million was outstanding under bank
credit and construction facilities.

As of December 31, 2000, Duke Energy and its subsidiaries had the ability to
issue up to $4.5 billion aggregate public offering price of debt and other
securities under shelf registrations filed with the SEC. Such securities may be
issued as Senior Notes, First and Refunding Mortgage Bonds, Subordinated Notes,
Trust Preferred Securities, Duke Energy Common Stock, Stock Purchase Contracts
or Stock Purchase Units.

S-20

To maintain financial flexibility and reduce the amount of financing needed
for growth opportunities, Duke Energy's Board of Directors adopted a dividend
policy in December 2000 that maintains dividends at the current quarterly rate
of $0.275 per share, subject to declarations from time to time by the Board of
Directors. This policy is consistent with Duke Energy's growth profile and
strikes a balance between providing a competitive dividend yield and ensuring
that cash is available to fund Duke Energy's growth. Duke Energy has paid
quarterly cash dividends for 74 consecutive years. Dividends on common and
preferred stocks in 2001 are expected to be paid on March 16, June 18,
September 17 and December 17, subject to the discretion of the Board of
Directors.

Duke Energy's InvestorDirect Choice Plan, a stock purchase and dividend
reinvestment plan, allows investors to reinvest dividends in new issuances of
common stock and to purchase common stock directly from Duke Energy. Issuances
under this plan were not material in 2000, 1999 or 1998.

Duke Energy used authorized but unissued shares of its common stock to meet
2000 and 1999 employee benefit plan contribution requirements. This practice is
expected to continue in 2001.

Quantitative and Qualitative Disclosures About Market Risk

Risk Policies

Duke Energy is exposed to market risks associated with interest rates,
commodity prices, equity prices and foreign currency exchange rates.
Comprehensive risk management policies have been established by management to
monitor and manage these market risks. Duke Energy's Policy Committee is
responsible for the overall approval of market risk management policies and the
delegation of approval and authorization levels. The Policy Committee is
comprised of senior executives who receive periodic updates from the Chief Risk
Officer (CRO) on market risk positions, corporate exposures, credit exposures
and overall results of Duke Energy's risk management activities. The CRO has
responsibility for the overall management of interest rate risk, foreign
currency risk, credit risk and energy risk, including monitoring of exposure
limits.

Interest Rate Risk

Duke Energy is exposed to risk resulting from changes in interest rates as a
result of its issuance of variable-rate debt, fixed-rate securities, commercial
paper and auction market preferred stock, as well as interest rate swaps and
interest rate lock agreements. Duke Energy manages its interest rate exposure
by limiting its variable-rate and fixed-rate exposures to certain percentages
of total capitalization, as set by policy, and by monitoring the effects of
market changes in interest rates. Duke Energy may also enter into financial
derivative instruments, including, but not limited to, swaps, options and
treasury lock agreements to manage and mitigate interest rate risk exposure.
See Notes 1, 7, 10, 12 and 13 to the Consolidated Financial Statements for
additional information.

Based on a sensitivity analysis as of December 31, 2000, it was estimated
that if market interest rates average 1% higher (lower) in 2001 than in 2000,
earnings before income taxes would decrease (increase) by approximately $53
million. Comparatively, based on a sensitivity analysis as of December 31,
1999, had interest rates averaged 1% higher (lower) in 2000 than in 1999, it
was estimated that earnings before income taxes would have decreased
(increased) by approximately $24 million. These amounts were determined by
considering the impact of the hypothetical interest rates on the variable-rate
securities outstanding as of December 31, 2000 and 1999. The increase in
interest rate sensitivity is primarily the result of the increase in
outstanding variable-rate commercial paper. In the event of a significant
change in interest rates, management would likely take actions to manage its
exposure to the change. However, due to the uncertainty of the specific actions
that would be taken and their possible effects, the sensitivity analysis
assumes no changes in Duke Energy's financial structure.

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Commodity Price Risk

Duke Energy, substantially through its subsidiaries, is exposed to the
impact of market fluctuations in the price of natural gas, electricity and
other energy-related products marketed and purchased. Duke Energy employs
established policies and procedures to manage its risks associated with these
market fluctuations using various commodity derivatives, including forward
contracts, futures, swaps and options. See Notes 1 and 7 to the Consolidated
Financial Statements for additional information.

The risk in the commodity trading portfolio is measured and monitored on a
daily basis utilizing a Value-at-Risk model to determine the maximum potential
one-day favorable or unfavorable Daily Earnings at Risk (DER). The DER is
monitored daily in comparison to established thresholds. Other measures are
also utilized to limit and monitor the risk in the commodity trading portfolio
on monthly and annual bases.

The DER computations are based on a historical simulation, which utilizes
price movements over a specified period to simulate forward price curves in the
energy markets to estimate the favorable or unfavorable impact of one day's
price movement on the existing portfolio. The historical simulation emphasizes
the most recent market activity, which is considered the most relevant
predictor of immediate future market movements for natural gas, electricity and
other energy-related products. The DER computations utilize several key
assumptions, including a 95% confidence level for the resultant price movement
and the holding period specified for the calculation. Duke Energy's DER
calculation includes commodity derivative instruments held for trading
purposes. Duke Energy's DER amounts are depicted in the table below. The
increase in DER amounts as compared to 1999 is a result of Duke Energy's
expanding portfolio of energy-related products both domestically and
internationally.

Daily Earnings at Risk

Estimated One-Day Estimated One-Day Estimated Average Estimated Average
Operational Impact on EBIT at Impact on EBIT at One-Day Impact on One-Day Impact on
Locations December 31, 2000 December 31, 1999 EBIT for 2000 EBIT for 1999
----------- ----------------- ----------------- ----------------- -----------------
(in millions) (a)

North American.. $20 $10 $16 $11
Other
international.. 11 -- 2 --

- --------
(a) Changes in markets inconsistent with historical trends could cause actual
results to exceed predicted limits.

Certain subsidiaries of Duke Energy are also exposed to market fluctuations
in the prices of various commodities related to their ongoing power generating,
natural gas gathering, processing and marketing activities. Duke Energy closely
monitors the risks associated with these commodities' price changes on its
future operations, and where appropriate, uses various commodity instruments,
such as electricity, natural gas, crude oil and NGLs to hedge these price
risks. Based on a sensitivity analysis as of December 31, 2000, it was
estimated that if NGL prices average one cent per gallon less in 2001, EBIT
would decrease by approximately $8 million, after considering the effect of
Duke Energy's commodity hedge positions. Comparatively, the same sensitivity
analysis as of December 31, 1999, estimated that EBIT would have decreased by
approximately $6 million. Based on the sensitivity analyses associated with
other commodities' price changes, net of Duke Energy's commodity hedge
positions, the effect on EBIT was not material as of December 31, 2000 or 1999.

Credit Risk

Duke Energy's principal markets for power and natural gas marketing services
are industrial end-users and utilities located throughout the U.S., Canada,
Asia Pacific and Latin America. Duke Energy has concentrations of receivables
from natural gas and electric utilities and their affiliates, as well as
industrial customers throughout these regions. These concentrations of
customers may affect Duke Energy's overall credit risk in that certain
customers may be similarly affected by changes in economic, regulatory or other
factors. On all transactions where Duke Energy is exposed to credit risk, Duke
Energy analyzes the counterparties' financial

S-22

condition prior to entering into an agreement, establishes credit limits and
monitors the appropriateness of these limits on an ongoing basis. As of
December 31, 2000, Duke Energy had approximately $400 million in receivables
related to energy sales in California. Duke Energy quantified its exposures
with regard to those receivables and recorded a provision of $110 million. See
the Current Issues, California Issues section of Management's Discussion and
Analysis, and Note 14 to the Consolidated Financial Statements for further
information regarding credit exposure.

The change in market value of New York Mercantile Exchange-traded futures
and options contracts requires daily cash settlement in margin accounts with
brokers. Physical forward contracts and financial derivatives are generally
settled at the expiration of the contract term or each delivery period;
however, these transactions are also generally subject to margin agreements
with the majority of Duke Energy's counterparties.

Equity Price Risk

Duke Energy maintains trust funds, as required by the Nuclear Regulatory
Commission, to fund certain costs of nuclear decommissioning (see Note 11 to
the Consolidated Financial Statements). As of December 31, 2000 and 1999, these
funds were invested primarily in domestic and international equity securities,
fixed-rate, fixed-income securities and cash and cash equivalents. Management
believes that its exposure to fluctuations in equity prices or interest rates
will not materially affect consolidated results of operations, cash flows or
financial position. See further discussion in the Current Issues, Nuclear
Decommissioning Costs section of Management's Discussion and Analysis.

Foreign Currency Risk

Duke Energy is exposed to foreign currency risk that arises from investments
in international affiliates and businesses owned and operated in foreign
countries. To mitigate risks associated with foreign currency fluctuations,
when possible, contracts are denominated in or indexed to the U.S. dollar, or
investments may be hedged through debt denominated in the foreign currency.
Duke Energy also uses foreign currency derivatives, where possible, to manage
its risk related to foreign currency fluctuations. To monitor its currency
exchange rate risks, Duke Energy uses sensitivity analysis, which measures the
impact of a devaluation of the foreign currencies to which it has exposure.

At December 31, 2000, Duke Energy's primary foreign currency exchange rate
exposures were the Brazilian real, the Peruvian nuevo sol, the Australian
dollar, the El Salvadoran colon, the Argentine peso, the European euro and the
Canadian dollar. Based on a sensitivity analysis as of December 31, 2000, a 10%
devaluation in the currency exchange rates in Brazil would reduce Duke Energy's
financial position by approximately $91 million and would not significantly
affect Duke Energy's consolidated results of operations, cash flows or
financial position over the next 12 months. Based on a sensitivity analysis as
of December 31, 1999, a 10% devaluation in the Brazilian currency exchange
rates would have reduced Duke Energy's financial position by approximately $65
million. The increase in sensitivity to the Brazilian real is primarily due to
the increased investment in Paranapanema as a result of Duke Energy's tender
offer in 2000. See Note 2 to the Consolidated Financial Statements for further
information. Based on these sensitivity analyses, a 10% devaluation in other
foreign currencies was insignificant to Duke Energy's consolidated results of
operations, cash flows or financial position.

Current Issues

Electric Competition. Wholesale Competition. The Energy Policy Act of 1992
and the FERC's subsequent rulemaking activities opened the wholesale energy
market to competition.

Open-access transmission for wholesale customers as defined by the FERC's
final rules provides energy suppliers, including Duke Energy, with
opportunities to sell and deliver capacity and energy at market-based prices.
Franchised Electric obtained from the FERC's open-access rule the rights to
sell capacity and energy at

S-23

market-based rates from its own assets, which allows Franchised Electric to
purchase, at attractive rates, a portion of its capacity and energy
requirements resulting in lower overall costs to customers. Open access also
provides Franchised Electric's existing wholesale customers with competitive
opportunities to seek other suppliers for their capacity and energy
requirements.

On December 20, 1999 and February 25, 2000, the FERC issued its Order 2000
and Order 2000-A regarding Regional Transmission Organizations (RTOs). In these
orders, the FERC stressed the voluntary nature of RTO participation by
utilities and set minimum characteristics and functions that must be met by
utilities that participate in an RTO, including exclusive and independent
authority to propose rates, terms and conditions of transmission service
provided over the facilities it operates. The order provides for an open,
flexible structure for RTOs to meet the needs of the market and provides for
the possibility of incentive ratemaking and other benefits for utilities that
participate in an RTO.

As a result of these rulemakings, on October 16, 2000, Duke Energy and two
other investor-owned utilities, Progress Energy and South Carolina Electric &
Gas, filed with the FERC to establish GridSouth Transco, LLC (GridSouth), as an
RTO. If approved, GridSouth will be a for-profit, independent transmission
company, responsible for operating and planning the companies' combined
transmission systems. The target date for formation of GridSouth is December
15, 2001. However, the actual date that GridSouth becomes operational will
depend upon the resolution of all necessary regulatory approvals and resolving
all technical issues. Management believes that the establishment of GridSouth
will not have a material adverse effect on Duke Energy's future consolidated
results of operations, cash flows or financial position.

Retail Competition. Currently, Franchised Electric operates as a vertically
integrated, investor-owned utility with exclusive rights to supply electricity
in a franchised service territory--a 22,000-square-mile service territory in
the Carolinas. In its retail business, the NCUC and the PSCSC regulate
Franchised Electric's service and rates.

Electric industry restructuring is being addressed in all 50 states and in
the District of Columbia. These restructurings will likely impact all entities
owning electric generating assets. The NCUC and the PSCSC are studying the
merits of restructuring the electric utility industry in the Carolinas. During
1999, three electric utility restructuring bills were filed in South Carolina's
House of Representatives. All three bills addressed competition while allowing
utilities to recover stranded costs, and have transition and phase-in periods
ranging from five to six years. A task force formed by the South Carolina
Senate is also examining issues related to deregulation of the state's electric
utility business. Legislators anticipate that legislation is likely to be
introduced during 2001. This task force will prepare a report for review,
discussion and possible legislative action by the state's Senate Judiciary
Committee and General Assembly as a whole.

In May 1997, North Carolina passed a bill that established a study
commission to examine whether competition should be implemented in the state.
Members of this commission include legislators, customers, utilities and a
member of an environmental group. The study commission unanimously approved a
set of recommendations on electric restructuring in April 2000. The
commission's report to the legislature containing these recommendations was
submitted to the General Assembly in May. The report basically recommended
retail deregulation beginning partially in 2005 and fully in 2006. However,
recent events in California's power market have led the study commission to
evaluate whether, and to what extent, proposed legislation should be introduced
in 2001. In general, the commission has expressed interest in ensuring that a
viable wholesale electric market is in place prior to opening the state's
retail electric market.

Currently, the electric utility industry is predominantly regulated on a
basis designed to recover the cost of providing electric power to customers. If
cost-based regulation were to be discontinued in the industry for any reason,
including competitive pressure on the cost-based prices of electricity, profits
could be reduced and electric utilities might be required to reduce their asset
balances to reflect a market basis less than cost. Discontinuance of cost-based
regulation would also require affected utilities to write off their associated
regulatory assets. Duke Energy's regulatory assets are included in the
Consolidated Balance Sheets. The portion

S-24

of these regulatory assets related to Franchised Electric is approximately $1.2
billion, including primarily purchased capacity costs, deferred debt expense
and deferred taxes related to regulatory assets. Duke Energy is recovering
substantially all of these regulatory assets through its current wholesale and
retail electric rates and may attempt to continue to recover these assets
during a transition to competition. In addition, Duke Energy would seek to
recover the costs of its electric generating facilities in excess of the market
price of power at the time of transition.

Duke Energy supports a properly managed and orderly transition to
competitive generation and retail services in the electric industry. However,
transforming the current regulated industry into efficient, competitive
generation and retail electric markets is a complex undertaking, which will
require a carefully considered transition to a restructured electric industry.
The key to effective retail competition is fairness among customers, service
providers and investors. Duke Energy intends to continue to work with
customers, legislators and regulators to address all the important issues.
Management currently cannot predict the impact, if any, of these competitive
forces on future consolidated results of operations, cash flows or financial
position.

Natural Gas Competition. Wholesale Competition. On February 9, 2000, the
FERC issued Order 637, which sets forth revisions to its regulations governing
short-term natural gas transportation services and policies governing the
regulation of interstate natural gas pipelines. "Short-term" has been defined
as all transactions of less than one year. Among the significant actions taken
are the lifting of the price cap for short-term capacity release by pipeline
customers for an experimental 2 1/2-year period ending September 1, 2002, and
requiring that interstate pipelines file pro forma tariff sheets to (i) provide
for nomination equality between capacity release and primary pipeline capacity;
(ii) implement imbalance management services (for which interstate pipelines
may charge fees) while at the same time reducing the use of operational flow
orders and penalties; and (iii) provide segmentation rights if operationally
feasible. Order 637 also narrows the right of first refusal to remove economic
biases perceived in the current rule. Order 637 imposes significant new
reporting requirements for interstate pipelines that were implemented by Duke
Energy during the third quarter of 2000. Additionally, Order 637 permits
pipelines to propose peak/off-peak rates and term-differentiated rates, and
encourages pipelines to propose experimental capacity auctions. By Order 637-A,
issued in February 2000, the FERC generally denied requests for rehearing and
several parties, including Duke Energy, have filed appeals in the District of
Columbia Court of Appeals seeking court review of various aspects of the Order.
During the third quarter of 2000, Duke Energy's interstate pipelines made the
required pro forma tariff sheet filings. These filings are currently subject to
review and approval by the FERC.

Management does not believe the effects of these matters will have a
material effect on Duke Energy's future consolidated results of operations,
cash flows or financial position.

Retail Competition. Changes in regulation to allow retail competition could
affect Duke Energy's natural gas transportation contracts with local natural
gas distribution companies. Natural gas retail deregulation is in the very
early stages of development and management cannot estimate the effects of this
matter on future consolidated results of operations, cash flows or financial
position.

The balance of the external fund as of December 31, 2000 and 1999, was $717
million and $703 million, respectively. The balance of the internal reserve as
of December 31, 2000 and 1999, was $231 million and $223 million, respectively,
and is reflected in the Consolidated Balance Sheets as Accumulated Depreciation
and Amortization.

Both the NCUC and the PSCSC have granted Duke Energy recovery of estimated
decommissioning costs through retail rates over the expected remaining service
periods of its nuclear plants. Management believes that

S-25

funding of the decommissioning costs will not have a material adverse effect on
consolidated results of operations, cash flows or financial position. See Note
11 to the Consolidated Financial Statements for additional information.

The external decommissioning trust fund is invested primarily in domestic
and international equity securities, fixed-rate, fixed-income securities and
cash and cash equivalents. These investments are exposed to price fluctuations
in equity markets, and changes in interest rates. Because the accounting for
nuclear decommissioning recognizes that costs are recovered through Franchised
Electric's rates, fluctuations in equity prices or interest rates do not affect
consolidated results of operations, cash flows or financial position.

Nuclear Re-licensing. In May 2000, the Nuclear Regulatory Commission renewed
the operating license for Duke Energy's three Oconee nuclear units through 2033
to 2034. Licenses for Duke Energy's other nuclear units expire between 2021 and
2026 and are also available for renewal.

Environmental. Duke Energy is subject to international, federal, state and
local regulations regarding air and water quality, hazardous and solid waste
disposal and other environmental matters.

Manufactured Gas Plants and Superfund Sites. Duke Energy was an operator of
manufactured gas plants until the early 1950s and has entered into a
cooperative effort with the State of North Carolina and other owners of certain
former manufactured gas plant sites to investigate and, where necessary,
remediate these contaminated sites. Duke Energy is considered by regulators to
be a potentially responsible party and may be subject to future liability at
eight federal Superfund sites and three state Superfund sites. While the cost
of remediation of these sites may be substantial, Duke Energy will share in any
liability associated with remediation of contamination at such sites with other
potentially responsible parties. Management believes that resolution of these
matters will not have a material adverse effect on consolidated results of
operations, cash flows or financial position.

PCB (Polychlorinated Biphenyl) Assessment and Cleanup Programs. In June
1999, the Environmental Protection Agency (EPA) certified that TETCO, a wholly
owned subsidiary of Duke Energy, had completed cleanup of PCB-contaminated
sites under conditions stipulated by a U.S. Consent Decree in 1989. TETCO was
required to continue groundwater monitoring on a number of sites for two years.
This required monitoring was completed as of the end of 2000, pending EPA
concurrence. TETCO will be evaluating and discussing with the EPA, appropriate
state authorities or both the need for additional remediation or monitoring.

Under terms of the sales agreement with CMS discussed in Note 2 to the
Consolidated Financial Statements, Duke Energy is obligated to complete cleanup
of previously identified contamination resulting from the past use of PCB-
containing lubricants and other discontinued practices at certain sites on the
PEPL and Trunkline systems. Based on Duke Energy's experience to date and costs
incurred for cleanup operations, management believes the resolution of matters
relating to the environmental issues discussed above will not have a material
adverse effect on consolidated results of operations, cash flows or financial
position.

Air Quality Control. The Clean Air Act (CAA) Amendments of 1990 required a
two-phase reduction by electric utilities in aggregate annual emissions of
sulfur dioxide and nitrogen oxide by 2000. All projects associated with these
requirements have been completed and Duke Energy currently meets all
requirements of Phase I and Phase II.

In October 1998, the EPA issued a final rule on regional ozone control that
required 22 eastern states and the District of Columbia to revise their State
Implementation Plans (SIPs) to significantly reduce emissions of nitrogen oxide
by May 1, 2003. The EPA's rule was challenged in court by various states,
industry and other interests, including the states of North Carolina and South
Carolina, and Duke Energy. In March 2000, the court upheld most aspects of the
EPA's rule. The same court subsequently issued a decision that extended the
compliance deadline for implementation of emission reductions to May 31, 2004.
In January 2000, the EPA

S-26

finalized another ozone-related rule under Section 126 of the CAA that has
virtually identical emission control requirements as its October 1998 action,
but with a May 1, 2003 compliance date. The EPA's 2000 rule has been challenged
in court. The court is expected to issue its decision during the spring of
2001.

In response to the EPA's October 1998 rule, both North Carolina and South
Carolina are in the process of finalizing the SIP revisions to implement the
EPA rule's emission reduction requirements. Additionally, North Carolina has
adopted a separate rule that caps nitrogen oxide emissions from coal-fired
power plants in the event the EPA's SIP rule is eventually overturned.

Depending on the resolution of these and related matters, management
anticipates that costs to Duke Energy may range from $500 million to $900
million in capital costs for additional emission controls over an estimated
time period which continues through 2007. Emission control retrofits of this
type are large technical, design and construction projects. These projects will
be managed closely to ensure the continuation of reliable electric service to
Duke Energy's customers throughout the projects and upon their completion.

On December 22, 2000, the U.S. Justice Department, acting on behalf of the
EPA, filed a complaint against Duke Energy in the U.S. District Court in
Greensboro, North Carolina, for alleged violations of the New Source Review
(NSR) provisions of the CAA. The EPA is claiming that 29 projects performed at
25 of Duke Energy's coal-fired units were major modifications as defined in the
CAA and that Duke Energy violated the CAA's NSR requirements when it undertook
those projects without obtaining permits and installing emission controls for
sulfur dioxide, nitrogen oxide and particulate matter. The complaint requests,
among other things, that the court enjoin Duke Energy from operating the coal-
fired units identified in the complaint, and order Duke Energy to install
additional emission controls and pay unspecified civil penalties. This
complaint appears to be part of the EPA's NSR enforcement initiative, in which
the EPA claims that utilities and others have committed widespread violations
of the CAA permitting requirements for the past 25 years. The EPA has sued or
issued notices of violation of investigative information requests, to at least
48 other electric utilities and cooperatives.

The EPA's allegations run counter to previous EPA guidance regarding the
applicability of the NSR permitting requirements. Duke Energy, along with other
utilities, has routinely undertaken the type of repair, replacement, and
maintenance projects that the EPA now claims are illegal. Duke Energy believes
that all of its electric generation units are properly permitted and have been
properly maintained, and intends to defend itself vigorously against these
alleged violations. However, because these matters are in a preliminary stage,
management cannot estimate the effects of these matters on Duke Energy's future
consolidated results of operations, cash flows or financial position. The CAA
authorizes civil penalties of up to $27,500 per day per violation at each
generating unit. Civil penalties, if ultimately imposed by the court, and the
cost of any required new pollution control equipment, if the court accepts the
EPA's contentions, could be substantial.

Global Climate Change. In 1997, the United Nations held negotiations in
Kyoto, Japan to determine how to minimize global warming. The resulting Kyoto
Protocol prescribed, among other greenhouse gas emission reduction tactics,
carbon dioxide emission reductions from fossil-fueled electric generating
facilities in the U.S. and other developed nations, as well as methane emission
reductions from natural gas operations. Several subsequent meetings have been
held attempting to resolve operational details to clear the way for
multinational ratification and implementation without resolution. If the Kyoto
Protocol were to be adopted in its current form, it could have far-reaching
implications for Duke Energy and the entire energy industry. However, the
outcome and timing of these implications are highly uncertain, and Duke Energy
cannot estimate the effects on future consolidated results of operations, cash
flows or financial position. Duke Energy remains engaged with those developing
public policy initiatives and continuously assesses the commercial implications
for its markets around the world.

California Issues. California Litigation. Duke Energy's subsidiaries, DENA
and DETM, have been named among 16 defendants in a class action lawsuit (the
Gordon lawsuit) filed against companies identified as "generators and traders"
of electricity in California markets. DETM also was named as one of numerous

S-27

defendants in four additional lawsuits, including two class actions (the
Hendricks and Pier 23 Restaurant lawsuits), filed against generators, marketers
and traders and other unnamed providers of electricity in California markets.
These suits were brought either by or on behalf of electricity consumers in the
State of California. The Gordon and Hendricks class action suits were filed in
the Superior Court of the State of California, San Diego County, in November
2000. The other three suits were filed in January 2001, one in the Superior
Court of the State of California, San Diego County, and the other two in the
Superior Court of the State of California, County of San Francisco. These suits
generally allege that the defendants manipulated the wholesale electricity
markets in violation of state laws against unfair and unlawful business
practices and state antitrust laws. Plaintiffs in the Gordon suit seek
aggregate damages of over $4 billion, and the plaintiffs in the other suits, to
the extent damages are specified, allege damages in excess of $1 billion. The
lawsuits each seek the disgorgement of alleged unlawfully obtained revenues for
sales of electricity and, in three suits, an award of treble damages.

California Wholesale Electricity Markets. As a result of high prices in the
western U.S. wholesale electricity markets in 2000, several state and federal
regulatory investigations and complaints have commenced to determine the causes
of the prices and potentially to recommend remedial action. The FERC concluded
its investigation by issuing on December 15, 2000, an Order Directing Remedies
in California Wholesale Electricity Markets. In this conclusion, the FERC found
no basis in allegations made by government officials in California that
specific electric generators artificially drove up power prices. This
conclusion is consistent with similar findings by the Compliance Unit of the
California Power Exchange (CalPX) and the Northwest Power Planning Council.
That Order is the subject of numerous rehearing requests.

At the state level, the California Public Utilities Commission, the
California Electricity Oversight Board, the California Bureau of State Audits
and the California Office of the Attorney General all have separate ongoing
investigations into the high prices and their causes. None of those
investigations have been completed and no findings have been made in connection
with any of them.

California Utilities Defaults and Other Proceedings. Two California electric
utilities recently defaulted on many of their obligations to suppliers and
creditors. NAWE supplies electric power to these utilities directly and
indirectly through contracts through the California Independent System Operator
(CAISO) and the CalPX. NAWE also supplies natural gas to these utilities under
direct contracts. With respect to electric power sales through the CAISO and
CalPX, Duke Energy quantified its exposures at December 31, 2000 to these
utilities and recorded a $110 million provision. As a result of these defaults
and certain related government actions, Duke Energy has taken a number of
steps, including initiating court actions, to mitigate its exposure.

While these matters referenced above are in their earliest stages,
management does not believe, based on its analysis to date of the factual
background and the claims asserted in these matters, that their resolution will
have a material adverse effect on Duke Energy's consolidated results of
operations, cash flows or financial position.

Litigation and Contingencies. Exxon Mobil Corporation Arbitration. In
December 2000, three subsidiaries of Duke Energy initiated binding arbitration
against three subsidiaries of the Exxon Mobil Corporation (collectively, the
"Exxon Mobil entities") concerning the parties' joint ownership of DETM and
certain related affiliates (collectively, the "Ventures"). At issue is a buy-
out right provision in the parties' agreement. The agreements governing the
ownership of the Ventures contain provisions giving Duke Energy the right to
purchase the Exxon Mobil entities' 40% interest in the Ventures in the event
material business disputes arise between the Ventures' owners. Such disputes
have arisen, and consequently, Duke Energy exercised its right to buy the Exxon
Mobil entities' interest. Duke Energy claims that refusal by the Exxon Mobil
entities to honor the exercise is a breach of the buy-out right provision, and
seeks specific performance of the provision. Duke Energy also complains of the
Exxon Mobil entities' lack of use of, and contributions to, the Ventures.

S-28

In January 2001, the Exxon Mobil entities asserted counterclaims in the
arbitration and claims in a separate Texas state court action alleging that
Duke Energy breached its obligations to the Ventures and to the Exxon Mobil
entities. The Exxon Mobil entities also claim that Duke Energy violated a
Guaranty Agreement. While this matter is in its early stages, management
believes that the final disposition of this action will not have a material
adverse effect on Duke Energy's consolidated results of operations, cash flows
or financial position.

For information concerning litigation and other commitments and
contingencies, see Note 14 to the Consolidated Financial Statements.

New Accounting Standard. In June 1998, Statement of Financial Accounting
Standard (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued. Duke Energy was required to adopt this standard by
January 1, 2001. SFAS No. 133 requires that all derivatives be recognized as
either assets or liabilities and measured at fair value, and changes in the
fair value of derivatives are reported in current earnings, unless the
derivative is designated and effective as a hedge. If the intended use of the
derivative is to hedge the exposure to changes in the fair value of an asset, a
liability or a firm commitment, then changes in the fair value of the
derivative instrument will generally be offset in the income statement by
changes in the hedged item's fair value. However, if the intended use of the
derivative is to hedge the exposure to variability in expected future cash
flows, then changes in the fair value of the derivative instrument will
generally be reported in Other Comprehensive Income (OCI). The gains and losses
on the derivative instrument that are reported in OCI will be reclassified to
earnings in the periods in which earnings are impacted by the hedged item.

Duke Energy has determined the effect of implementing SFAS No. 133 and
recorded a net-of-tax cumulative-effect adjustment of $96 million as a
reduction in earnings. The net-of-tax cumulative-effect adjustment reducing OCI
and Common Stockholders' Equity is estimated to be $921 million on January 1,
2001.

Currently, there are ongoing discussions surrounding the implementation and
interpretation of SFAS No. 133 by the Financial Accounting Standards Board's
Derivatives Implementation Group. Duke Energy implemented SFAS No. 133 based on
current rules and guidance in place as of January 1, 2001. However, if the
definition of derivative instruments is altered, this may impact Duke Energy's
transition adjustment amounts and subsequent reported operating results.

Forward-Looking Statements. From time to time, Duke Energy's reports,
filings and other public announcements may include assumptions, projections,
expectations, intentions or beliefs about future events. These statements are
intended as "forward-looking statements" under the Private Securities
Litigation Reform Act of 1995. Duke Energy cautions that assumptions,
projections, expectations, intentions or beliefs about future events may and
often do vary from actual results and the differences between assumptions,
projections, expectations, intentions or beliefs and actual results can be
material. Accordingly, there can be no assurance that actual results will not
differ materially from those expressed or implied by the forward-looking
statements. Some of the factors that could cause actual achievements and events
to differ materially from those expressed or implied in such forward-looking
statements include state, federal and foreign legislative and regulatory
initiatives that affect cost and investment recovery, have an impact on rate
structures and affect the speed and degree at which competition enters the
electric and natural gas industries; industrial, commercial and residential
growth in the service territories of Duke Energy and its subsidiaries; the
weather and other natural phenomena; the timing and extent of changes in
commodity prices, interest rates and foreign currency exchange rates; changes
in environmental and other laws and regulations to which Duke Energy and its
subsidiaries are subject or other external factors over which Duke Energy has
no control; the results of financing efforts, including Duke Energy's ability
to obtain financing on favorable terms, which can be affected by Duke Energy's
credit rating and general economic conditions; growth in opportunities for Duke
Energy's business units; and the effect of accounting policies issued
periodically by accounting standard-setting bodies.

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Selected Financial Data

2000(a) 1999(b) 1998 1997(c) 1996(c)
------- ------- ------- ------- -------
(in millions, except per share amounts)

Income Statement
Operating revenues.................. $49,318 $21,766 $17,662 $16,309 $12,302
Operating expenses.................. 45,505 19,947 15,177 14,339 10,143
------- ------- ------- ------- -------
Operating income.................... 3,813 1,819 2,485 1,970 2,159
Other income and expenses........... 201 224 162 138 135
------- ------- ------- ------- -------
Earnings before interest and taxes.. 4,014 2,043 2,647 2,108 2,294
Interest expense.................... 911 601 514 472 499
Minority interest expense........... 307 142 96 23 6
------- ------- ------- ------- -------
Earnings before income taxes........ 2,796 1,300 2,037 1,613 1,789
Income taxes........................ 1,020 453 777 639 698
------- ------- ------- ------- -------
Income before extraordinary item.... 1,776 847 1,260 974 1,091
Extraordinary gain (loss), net of
tax................................ -- 660 (8) -- (17)
------- ------- ------- ------- -------
Net income.......................... 1,776 1,507 1,252 974 1,074
Dividends on preferred and
preference stock................... 19 20 21 72 44
------- ------- ------- ------- -------
Earnings available for common
stockholders....................... $ 1,757 $ 1,487 $ 1,231 $ 902 $ 1,030
======= ======= ======= ======= =======
Common Stock Data(d)
Shares of common stock outstanding
Year-end.......................... 739 733 726 720 718
Weighted average.................. 736 729 722 720 722
Earnings per share (before
extraordinary item)
Basic............................. $ 2.39 $ 1.13 $ 1.72 $ 1.26 $ 1.45
Diluted........................... 2.38 1.13 1.71 1.25 1.44
Earnings per share
Basic............................. $ 2.39 $ 2.04 $ 1.70 $ 1.26 $ 1.43
Diluted........................... 2.38 2.03 1.70 1.25 1.42
Dividends per share................. 1.10 1.10 1.10 0.95 0.79
Balance Sheet
Total assets........................ $58,176 $33,409 $26,806 $24,029 $22,366
Long-term debt, less current
maturities......................... 11,019 8,683 6,272 6,530 5,485

Common Stock Data by Quarter(c)

2000 1999
----------------------- -----------------------
Stock Price Stock Price
Range Range
Dividends ------------- Dividends -------------
Per Share High Low Per Share High Low
--------- ------ ------ --------- ------ ------

First quarter................... $0.275 $28.94 $23.19 $0.275 $32.34 $27.41
Second quarter.................. 0.55 31.25 26.16 0.55 30.59 26.06
Third quarter................... -- 42.88 28.31 -- 29.25 26.22
Fourth quarter.................. 0.275 44.97 40.22 0.275 28.44 23.53

- --------
(a) Financial information reflects a pre-tax $407 million gain on the sale of
Duke Energy's investment in BellSouth PCS. The earnings-per-share effect of
this gain was $0.34 per share. See Note 2 to the Consolidated Financial
Statements for further information.
(b) Financial information reflects a pre-tax $800 million charge for estimated
injury and damages claims. The earnings-per-share effect of this charge was
$0.67 per share. See Note 14 to the Consolidated Financial Statements for
further information.
(c) Financial information reflects accounting for the 1997 merger with
PanEnergy Corp as a pooling of interests. As a result, the financial
information gives effect to the merger as if it had occurred January 1,
1996.
(d) Restated to reflect the two-for-one common stock split effective January
26, 2001.

S-30

BUSINESS

Overview

We are a Fortune 100 Company that is an integrated energy and energy
services provider with the ability to offer physical delivery and management of
both electricity and natural gas throughout the United States and abroad. We
provide these and other services through our seven business segments:

. Franchised Electric

. Natural Gas Transmission

. Field Services

. North American Wholesale Energy

. International Energy

. Other Energy Services

. Duke Ventures

Through these business segments we utilize our technical expertise,
extensive market knowledge, sophisticated risk management skills and our
financial strength and flexibility to develop and actively manage a multi-
national portfolio of strategic energy assets.

In 2000, we generated $49.3 billion of revenue, $4.0 billion in earnings
before interest and taxes (EBIT) and $1.8 billion of net income. The following
chart illustrates the contribution to EBIT by our primary business segments:

[Graphic: Contribution of 2000 EBIT]

- --------
(1) Includes a pre-tax gain of $407 million attributable to the sale by DukeNet
of its 20% interest in BellSouth PCS.
(2) Includes Other Energy Services, other operations and minority interests.

Business Segment Overview

Franchised Electric

Franchised Electric generates, transmits, distributes and sells electric
energy over a service area covering 22,000 square miles with an estimated
population of 5.3 million people in central and western portions of North
Carolina and the western portion of South Carolina. Franchised Electric
supplies electric service directly to approximately 2 million residential,
commercial and industrial customers over 66,200 miles of distribution lines and
a 12,700-mile transmission system. Three nuclear generating stations with a
combined net capacity of 5,409 MW, eight coal-fired stations with a combined
capacity of 7,572 MW, 31 hydroelectric stations with a combined capacity of
2,693 MW and six combustion turbine stations with a combined capacity of
2,081 MW

S-31

comprise our Franchised Electric generation portfolio. In sum, these plants
represent a combined net capacity of approximately 17,755 MW. In addition,
energy and capacity are supplied through contracts with other generators of
electricity and purchased on the open market. The following charts illustrate
our sources of electric energy and revenues by customer type in 2000.

[2 Graphics: 2000 Sources of Franchised Electric Energy; 2000 Franchised
Electric Revenues]

Our operations are conducted primarily through Duke Power and Nantahala
Power and Light. Franchised Electric is subject to the rules and regulations of
the North Carolina Utilities Commission, The Public Service Commission of South
Carolina and the Federal Energy Regulatory Commission (FERC). Demand for
electricity from Franchised Electric's system is seasonal, with the highest
output occurring in the summer cooling and winter heating seasons.

Electric Industry Restructuring. We continue to monitor progress toward a
more competitive environment and have actively participated in regulatory
reform deliberations in North Carolina and South Carolina. Currently, however,
movement toward retail deregulation in these states seems to be slowing as a
consequence of recent developments related to deregulation of the electric
industry in California.

Legislation. In May 1997, North Carolina passed a bill that established a
study commission to examine whether competition should be implemented in the
state. Members of this commission include legislators, customers, utilities and
a member of an environmental group. The study commission unanimously approved a
set of recommendations on electric restructuring in April 2000. The
commission's report to the legislature containing these recommendations was
submitted to the General Assembly in May. The report basically recommended
retail deregulation beginning partially in 2005 and fully in 2006. However,
recent events in California's power market have led the study commission to
evaluate whether, and to what extent, proposed legislation should be introduced
in 2001. In general, the commission has expressed interest in ensuring that a
viable wholesale electric market is in place prior to opening the state's
retail electric market.

A task force formed by the South Carolina Senate is also examining issues
related to deregulation of the state's electric utility business. Legislators
anticipate that legislation is likely to be introduced during 2001. This task
force will prepare a report for review, discussion and possible legislative
action by the state's Senate Judiciary Committee and General Assembly as a
whole.

Regional Transmission Organizations. On December 20, 1999 and February 25,
2000, FERC issued its Order 2000 and Order 2000-A regarding Regional
Transmission Organizations (RTOs). In these orders, FERC stressed the voluntary
nature of RTO participation by utilities and set minimum characteristics and
functions that must be met by utilities that participate in an RTO, including
exclusive and independent authority to propose rates, terms and conditions of
transmission service provided over the facilities the RTO operates. The order
provides for an open, flexible structure for RTOs to meet the needs of the
market and provides for the possibility of incentive rate making and other
benefits for utilities that participate in an RTO.

As a result of these rulemakings, on October 16, 2000, we and two other
investor-owned utilities, Progress Energy and South Carolina Electric & Gas,
filed with FERC to establish GridSouth Transco, LLC (GridSouth),

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as an RTO. If approved, GridSouth will be a for-profit, independent
transmission company, responsible for operating and planning the companies'
combined transmission systems. The target date for formation of GridSouth is
December 15, 2001. However, the actual date that GridSouth becomes operational
will depend upon the resolution of all necessary regulatory approvals and all
technical issues.

Natural Gas Transmission

Natural Gas Transmission provides interstate transportation and storage of
natural gas for customers through 12,000 miles of pipeline connecting the Gulf
Coast, mid-continent and Canadian natural gas supplies to markets in the
rapidly growing northeastern and southeastern regions. Natural Gas
Transmission's pipeline operations consist of Texas Eastern Transmission
Corporation, Algonquin Gas Transmission Company and East Tennessee Natural Gas
Company. Last year these pipelines transported 1,717 TBtu, representing
approximately 25% of eastern U.S. natural gas consumption. Additionally, Duke
Energy owns 37.5% of Maritimes & Northeast pipeline, which is the first
pipeline to transport natural gas from offshore Nova Scotia to the Maritimes
Provinces of Canada and New England. Consistent with our growth strategy, Duke
Energy and The Williams Companies, Inc. announced the closing on February 1,
2001 of their joint purchase of Coastal Corporation's Gulfstream Natural Gas
System L.L.C. The planned 744-mile Gulfstream gas pipeline will originate near
Mobile, Alabama, and cross the Gulf of Mexico to Manatee County, Florida.

Additionally, through Market Hub Partners, a wholly owned subsidiary, we own
natural gas salt cavern facilities in Texas and Louisiana with a total storage
capacity of 23 billion cubic feet. The interstate natural gas transmission and
storage operations are subject to the rules and regulations of FERC.

A majority of the delivered volumes of Natural Gas Transmission's interstate
pipelines represents gas transported under long-term firm service agreements
with local distribution company (LDC) customers in the pipelines' market areas.
Firm transportation services are also provided under contract to gas marketers,
producers, other pipelines, electric power generators and a variety of end-
users. In addition, the pipelines provide both firm and interruptible
transportation to customers on a short-term or seasonal basis. Demand for gas
transmission of Natural Gas Transmission's interstate pipeline systems is
seasonal, with the highest throughput occurring during the winter heating
season.

Duke Energy's interstate pipeline subsidiaries compete with other interstate
and intrastate pipeline companies in the transportation and storage of natural
gas. The principal elements of competition among pipelines are rates, terms of
service, and flexibility and reliability of service.

Natural gas competes with other forms of energy available to Duke Energy's
customers and end-users, including electricity, coal and fuel oils. The primary
competitive factor is price. Changes in the availability or price of natural
gas and other forms of energy, the level of business activity, conservation,
legislation and governmental regulations, the capability to convert to
alternative fuels, and other factors, including weather, affect the demand for
natural gas in the areas served by Duke Energy.

Field Services

Field Services gathers, processes, transports, markets and stores natural
gas and produces, transports, markets and stores natural gas liquids (NGLs).
Its operations are conducted primarily through Duke Energy Field Services, LLC
(DEFS), a limited liability company that is approximately 30% owned by Phillips
Petroleum. DEFS has become one of the nation's largest natural gas gatherers,
the largest NGLs producer and one of the largest NGLs marketers. We currently
own and operate approximately 57,000 miles of natural gas gathering systems, 68
natural gas processing plants in the United States and Canada and one high-
deliverability natural gas storage facility.

Field Services gathers raw natural gas from production wellheads through
gathering pipelines in western Canada and 11 contiguous states that serve major
gas-producing regions in the Rocky Mountains, Permian

S-33

Basin, East Texas-Austin Chalk-North Louisiana, Mid-Continent and onshore and
offshore Gulf Coast areas. Our geographically diverse operations have a
critical mass that allows us to take advantage of opportunities in
strategically located areas. Natural gas processing operations involve the
extraction of NGLs into their individual components (ethane, propane, butane
and natural gasoline). Field Services sells NGLs to a variety of customers
ranging from large, multi-national petrochemical and refining companies to
small, family-owned retail propane distributors. DEFS currently gathers and
transports approximately 7.9 billion cubic feet of raw natural gas, produces
approximately 415,000 barrels of NGLs and markets and trades approximately
500,000 barrels of NGLs each day.

Field Services competes with major integrated oil companies, major
interstate pipelines, national and local natural gas gatherers, brokers,
marketers and distributors for natural gas supplies, in gathering and processing
natural gas and in marketing and transporting natural gas and NGLs. Competition
for natural gas supplies is based primarily on the efficiency and reliability of
operations, the availability of transportation to high-demand markets and the
ability to obtain a satisfactory price for the producer's natural gas.
Competition for customers is based primarily upon reliability and price of
delivered natural gas and NGLs.

North American Wholesale Energy

North American Wholesale Energy's activities include:

. asset development, operation, management and divestiture, primarily
through Duke Energy North America, LLC (DENA);

. commodity sales and services related to natural gas and electricity,
primarily through Duke Energy Trading and Marketing, LLC (DETM), a
limited liability company that is approximately 40% owned by Exxon Mobil
Corporation; and

. development of new business lines in the evolving energy commodity
markets through Duke Energy Merchants.

DENA is an integrated energy business that develops, owns and manages a
portfolio of merchant generation facilities. To capture the greatest value,
DENA, through its portfolio management strategy, seeks opportunities to invest
in markets which have capacity needs and to divest assets when significant
value can be realized. We are able to more efficiently build and manage power
projects by combining our project development, commercial and risk management
expertise with the technical and operational skills of other Duke Energy
business units. The DENA portfolio includes:

Ownership
Name MW Fuel Location Interest
- --------------------------------- ----- --------------- -------------- ---------

Moss Landing..................... 1,478 Natural gas CA 100%
Morro Bay........................ 1,002 Natural gas CA 100
South Bay........................ 700 Natural gas CA 100
Madison.......................... 640 Natural gas OH 50
Vermillion....................... 640 Natural gas IN 50
Maine Independence............... 520 Natural gas ME 100
Bridgeport....................... 480 Natural gas CT 67
American Ref-Fuel................ 286 Waste-to-energy CT, MA, NJ, NY 37
St. Francis...................... 247 Natural gas MO 50
Oakland.......................... 165 Oil CA 100
Fort Drum........................ 50 Coal NY 10
-----
Total............................ 6,208

DENA has approximately 7,300 MW under construction in various high-growth
markets, which are slated for completion to meet summer peak demand: 3,200 MW
in 2001 and 4,100 MW in 2002. In addition to our

S-34

facilities in operation or under construction, we have approximately 13,500 MW
in advanced development scheduled to begin operation between 2002 and 2004.
DENA also supplies competitively priced energy, integrated logistics and asset
optimization services as well as risk management products to wholesale energy
customers. Integration with trading and marketing operations provides seamless
management of operations and trading optimization of Duke Energy's merchant
generation facilities.

DENA's generation portfolio experiences substantial competition from
existing utility companies as well as other merchant electric generation
companies in the United States.

DETM markets natural gas, electricity and other energy-related products to
electric power generators, municipalities, large industrial end-users,
investor-owned utilities and energy marketing companies across North America.
DETM is the second-ranked gas marketer and the third-ranked power marketer in
the United States.

DETM has a portfolio of short-term and long-term sales agreements with
customers, the vast majority of which incorporate market-sensitive pricing
terms. Long-term gas purchase agreements with producers, principally entered
into in connection with on-system supplies, also generally include market-
sensitive pricing provisions. Purchases and sales of off-system gas and
electricity supplies are normally made under short-term contracts. Purchase and
sales commitments involving significant price and location risk are generally
hedged with offsetting commitments and commodity futures, swaps and options.

Duke Energy Merchants provides energy, financial and asset management
services to producers, transporters and users of global energy commodities and
derivative products in the major focus regions of the Gulf of Mexico shelf,
onshore Gulf Coast region and Canada. This also includes certain other trading
activities and limited hydrocarbon exploration and production activities that
are wholly owned by Duke Energy.

We are able to enhance our returns on our physical assets by creating a
working environment that enables the more efficient flow of information between
our trading and marketing business and our merchant businesses that own and
operate the physical assets. These enhanced returns are achieved through the
timely communication of information regarding dispatch and maintenance of
generation plants, commodity positions for gas and electricity, forward pricing
curves and other market knowledge.

Our trading and marketing businesses compete with major integrated oil
companies, major interstate pipelines and their marketing affiliates, electric
utilities, brokers, marketers and distributors for natural gas supplies and in
marketing natural gas, electricity and other energy commodities. Competition in
the energy marketing business is driven by the price of commodities and
services delivered, along with the quality and reliability of services
provided.

International Energy

International Energy conducts its operations through Duke Energy
International, LLC (DEI). Through our combination of electric power and natural
gas capabilities, we have the commercial expertise, technical skills and
financial strength to take advantage of opportunities in today's rapidly
changing international markets. DEI's activities are focused on building
regional energy businesses that include development, operation, management and
divestiture of natural gas and electric power facilities and energy trading and
marketing of natural gas and electricity. We continue to focus on regional
markets in Latin America and Asia Pacific for further expansion, where
deregulation, privatization and liberalization are opening energy markets to
competition. We are evaluating opportunities to implement these same strategies
in Europe.

Latin America is one of the fastest-growing energy markets in the world
today. Market liberalization and privatization are leading to increased
investments in infrastructure and the emergence of competitive energy markets
throughout Latin America. DEI targets growth opportunities in natural gas
transmission, greenfield generation and privatization of generation. We
currently own and operate energy facilities in six countries:

S-35

Argentina, Bolivia, Brazil, Ecuador, El Salvador and Peru. With 26 facilities
representing approximately 4,800 MW of generation in operation or under
construction, we are actively building a trading and marketing business to
optimize our energy asset positions and pursuing opportunities to open energy
markets to further competition.

Converging worldwide energy markets are creating investment opportunities in
Australia and other parts of the Asia Pacific region. Since entering Australia
in 1998, we have provided our customers the integrated energy services needed
to meet the demands of newly competitive wholesale energy markets. We have five
facilities, totaling 824 MW of generation in operation or under construction
and approximately 1,700 miles of natural gas pipelines.

In 2000 DEI established itself in Europe as an energy trading and marketing
company with the purchase of an independent gas marketing company in the
Netherlands. We intend to build upon this initial platform through other
commodity-trading opportunities and offer additional energy and risk management
services to meet the changing needs of energy customers throughout Europe. We
continue to evaluate opportunities to buy or develop energy asset positions to
enhance our trading and marketing portfolio.

Competitors in these markets are other multi-national energy companies and
local private and public utilities.

Other Energy Services

Other Energy Services is a combination of businesses that provide
engineering, consulting, construction and integrated energy solutions
worldwide, primarily through Duke/Fluor Daniel, Duke Engineering & Services,
Inc. and DukeSolutions, Inc.

Duke/Fluor Daniel, operating through several entities, provides full service
siting, permitting, licensing, engineering, procurement, construction, start-
up, operating and maintenance services for fossil-fired plants, both
domestically and internationally. Subsidiaries of Duke Energy and Fluor
Corporation each own 50% of Duke/Fluor Daniel.

Duke Engineering & Services specializes in energy and environmental projects
worldwide and provides comprehensive engineering, construction, management and
operations services for all phases of power generation, transmission and
distribution projects.

DukeSolutions provides energy consulting services to large end users of
energy offering strategic solutions to reduce costs when customers buy energy,
convert it into a usable form, use it to manufacture products and dispose of
any waste.

Other Energy Services experiences substantial competition from utilities and
independent companies in the United States and abroad.

Duke Ventures

Duke Ventures is comprised of other diverse businesses, primarily operating
through Crescent Resources, DukeNet Communications, and Duke Capital Partners.
Crescent Resources develops high-quality commercial, residential and multi-
family real estate projects and manages land holdings primarily in the
southeastern United States. DukeNet Communications is the telecommunications
arm of Duke Energy. It provides fiber optic networks for industrial, commercial
and residential customers and, in the future, enabling networks for energy
services applications. It owns and operates a 700-mile fiber optic
communications network centered in the Carolinas that is interconnected with a
15,500-mile, fiber optic communications network, through affiliate agreements
with third parties, that stretches from Maine to Texas. Duke Capital Partners,
a merchant finance company, provides financing, investment banking and asset
management services to wholesale and commercial energy markets.

S-36

MANAGEMENT

The following table provides information regarding our executive officers.

Name Age Position
- ---- --- --------

Richard B. Priory....... 54 Chairman, President and Chief Executive Officer

William A. Coley........ 57 Group President, Duke Power

Fred J. Fowler.......... 55 Group President, Energy Transmission

Harvey J. Padewer....... 53 Group President, Energy Services

Richard W. Blackburn.... 58 Executive Vice President, General Counsel and Secretary

Robert P. Brace......... 50 Executive Vice President and Chief Financial Officer

Richard J. Osborne...... 50 Executive Vice President and Chief Risk Officer

Ruth G. Shaw............ 53 Executive Vice President and Chief Administrative Officer

Michael S. Tuckman...... 56 Executive Vice President, Nuclear Generation, Duke Power

David L. Hauser......... 49 Senior Vice President and Treasurer

Sandra P. Meyer......... 46 Senior Vice President and Corporate Controller

Richard B. Priory, Chairman, President and Chief Executive Officer. Mr.
Priory was President and Chief Operating Officer from 1994 to 1997 when he was
elected to his present position.

William A. Coley, Group President, Duke Power. Mr. Coley served as President
of Duke Energy's Associated Enterprises Group from 1994 to 1997 when he was
named to his present position.

Fred J. Fowler, Group President, Energy Transmission. Before assuming his
present position in 1997, Mr. Fowler had been Group Vice President of PanEnergy
Corp since 1996.

Harvey J. Padewer, Group President, Energy Services. Prior to joining Duke
Energy in 1999, Mr. Padewer served as Senior Vice President and General Manager
of Utilicorp Energy Group from 1995 through 1998.

Richard W. Blackburn, Executive Vice President, General Counsel and
Secretary. Before being named to his present position in 1997, Mr. Blackburn
was President and Group Executive of NYNEX Corporation's Worldwide
Communications and Media Group from 1995 to 1997.

Robert P. Brace, Executive Vice President and Chief Financial Officer. Mr.
Brace joined Duke Energy in 2000. He had served as group finance director of
British Telecommunications plc from 1993 until that time.

Richard J. Osborne, Executive Vice President and Chief Risk Officer. Mr.
Osborne served as Executive Vice President and Chief Financial Officer from
1997 to 2000 before being named to his present position.

Ruth G. Shaw, Executive Vice President and Chief Administrative Officer. Ms.
Shaw was Senior Vice President, Corporate Resources, from 1994 to 1997 when she
was elected to her present position.

Michael S. Tuckman, Executive Vice President, Nuclear Generation, Duke
Power. Mr. Tuckman assumed his present position in 1997. He had been Senior
Vice President, Nuclear Generation, Duke Power, since 1993.

David L. Hauser, Senior Vice President and Treasurer. Mr. Hauser held
various positions, including Controller, at Duke Power before being named
Senior Vice President, Global Asset Development, in 1997 and to his current
position in 1998.

Sandra P. Meyer, Senior Vice President and Corporate Controller. Ms. Meyer
assumed her present position in 1999. She had served as Vice President, Duke
Power Planning and Finance, since 1997.

S-37

UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF COMMON STOCK

Overview

The following general discussion summarizes the material U.S. federal income
and estate tax aspects of the ownership and disposition of our common stock
applicable to beneficial owners that are non-U.S. holders of such stock. In
general, a "non-U.S. holder" is an individual or entity other than:

. a citizen or resident of the United States;

. a corporation (including any entity taxable as a corporation) or
partnership created or organized in or under the laws of the United
States or any of its political subdivisions;

. an estate the income of which is subject to U.S. federal income taxation
regardless of its source;

. a trust if a U.S. court is able to exercise primary supervision over
administration of the trust and one or more of the individuals or
entities described above have authority to control all substantial
decisions of the trust; or

. a trust that has a valid election in effect under applicable U.S.
Treasury regulations to be treated as a U.S. person.

This discussion is based upon the Internal Revenue Code of 1986, as amended
(the "Code"), U.S. Treasury regulations, Internal Revenue Service rulings and
pronouncements and judicial decisions now in effect, all of which are subject
to change, possibly on a retroactive basis. The discussion does not address all
aspects of U.S. federal taxation, including the fact that in the case of a non-
U.S. holder that is a partnership, the U.S. tax consequences of holding and
disposing of shares of common stock may be affected by determinations made at
the partner level and the activities of the partnership. The discussion does
not consider any specific facts or circumstances that may apply to a particular
non-U.S. holder and does not address all aspects of U.S. federal income tax law
that may be important to non-U.S. holders subject to special treatment under
such law, such as insurance companies, tax-exempt organizations, financial
institutions, dealers in securities or currencies, holders whose "functional
currency" is not the U.S. dollar, holders of securities held as part of a
straddle, hedge or conversion transaction, some U.S. expatriates, controlled
foreign corporations, passive foreign investment companies or foreign personal
holding companies. The discussion also does not address any U.S. state, local
or foreign tax consequences.

Dividends

A distribution on our common stock will constitute a dividend for U.S.
federal income tax purposes to the extent of our current or accumulated
earnings and profits as determined under U.S. federal income tax principles. In
general, the gross amount of dividends paid to a non-U.S. holder will be
subject to U.S. withholding tax at a 30% rate or a lower rate prescribed by an
applicable tax treaty. A non-U.S. holder of our common stock who wishes to
claim the benefit of an applicable treaty will be required to satisfy
applicable certification requirements. In addition, in the case of common stock
held by a foreign partnership, this requirement may be applied to the partners,
and not to the partnership, and the partnership must provide some required
information. A look-through rule applies in the case of tiered partnerships.

Disposition of Common Stock

A non-U.S. holder of our common stock will not be subject to U.S. federal
income tax on gains realized on the sale, exchange or other disposition of such
stock unless (1) such non-U.S. holder is an individual who is present in the
United States for 183 days or more in the taxable year of the sale, exchange or
other disposition, and other required conditions are met, (2) such gain is
effectively connected with the conduct by the non-U.S. holder of a trade or
business in the United States and, if an applicable income tax treaty requires,
is attributable to a U.S. permanent establishment maintained by the non-U.S.
holder, (3) the non-U.S. holder is subject to

S-38

Code provisions applicable to some U.S. expatriates, or (4) in the case of
common stock held by a person who holds (or held at any time within the shorter
of the five-year period preceding such sale or other disposition or the period
such non-U.S. holder held the common stock) more than 5% of such stock, we are
or have been at any such time a U.S. real property holding corporation within
the meaning of the Code.

Income or Gains Effectively Connected With A U.S. Trade or Business

If a non-U.S. holder of our common stock is engaged in a trade or business
in the United States and if dividends on the common stock or gain realized on
the sale, exchange or other disposition of the common stock is effectively
connected with the conduct of such trade or business and, if an applicable tax
treaty requires, is attributable to a U.S. permanent establishment maintained
by the non-U.S. holder in the United States, the non-U.S. holder will generally
be subject to U.S. federal income tax on such dividends or gain on a net income
basis in the same manner as if the non-U.S. holder were a U.S. holder. Such a
non-U.S. holder will be required to provide us with a properly executed
Internal Revenue Service Form W-8ECI in order to claim an exemption from U.S.
withholding tax. In addition, if such non-U.S. holder is a foreign corporation,
it may be subject to a branch profits tax equal to 30%, or such lower rate
provided by an applicable U.S. income tax treaty, of a portion of its
effectively connected earnings and profits for the taxable year.

Estate Tax

Common stock owned, or treated as owned, by an individual holder that is not
a citizen or resident of the United States at the time of death will be
includible in the individual's gross estate for U.S. federal estate tax
purposes and may be subject to U.S. federal estate tax, unless an applicable
treaty provides otherwise. Estates of non-resident aliens are generally allowed
a statutory credit which has the effect of offsetting the U.S. estate tax
imposed on the first $60,000 of the taxable estate.

Backup Withholding and Information Reporting

A non-U.S. holder may need to comply with certification procedures in order
to avoid backup withholding tax with respect to our payments of dividends on
the common stock. We must report annually to the Internal Revenue Service and
to each non-U.S. holder the amount of dividends paid to, and the tax withheld
with respect to, such holder. Copies of these information returns may also be
made available under the provisions of a specific treaty or agreement to the
tax authorities of a country in which the non-U.S. holder resides. Any amounts
withheld under the backup withholding rules from a payment to a non-U.S. holder
of common stock will be allowed as a refund or credit against such holder's
U.S. federal income tax provided that the required information is furnished to
the Internal Revenue Service in a timely manner.

In addition, information reporting and backup withholding will apply to the
proceeds of a disposition of our common stock paid to or through a U.S. office
of a broker unless the non-U.S. holder certifies under penalties of perjury as
to such holder's non-U.S. status or otherwise establishes an exemption.
Information reporting and backup withholding will generally not apply to a
payment of disposition proceeds outside the United States through a non-U.S.
office of a non-U.S. broker. Information reporting, but not backup withholding,
will apply to a payment of proceeds outside the United States if the payment is
made through an office of a broker that is (i) a U.S. person, (ii) a foreign
person that derives 50% or more of its gross income for certain periods from
the conduct of a trade or business in the United States, (iii) a controlled
foreign corporation for U.S. federal income tax purposes, or (iv) a foreign
partnership that at any time during its taxable year is 50% or more owned by
U.S. persons or is engaged in a U.S. trade or business, unless the broker
maintains documentary evidence that the holder is a non-U.S. person and other
conditions are met.

S-39

UNDERWRITING

Under the terms and subject to the conditions contained in an underwriting
agreement dated March , 2001, the underwriters named below, for whom Morgan
Stanley & Co. Incorporated, Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Banc of America Securities LLC, Credit Suisse First Boston Corporation,
Goldman, Sachs & Co., J.P. Morgan Securities Inc. and UBS Warburg LLC are
acting as representatives, have severally agreed to purchase, and we have
agreed to sell to them, the number of shares of common stock listed opposite
their names below.

Underwriter Number of Shares
----------- ----------------

Morgan Stanley & Co. Incorporated............................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated........................................
Banc of America Securities LLC...............................
Credit Suisse First Boston Corporation.......................
Goldman, Sachs & Co. ........................................
J.P. Morgan Securities Inc. .................................
UBS Warburg LLC..............................................
-----------
Total................................................... 25,000,000
===========

The underwriters have agreed to purchase all of the shares of common stock
sold under the underwriting agreement if any of these shares are purchased. If
an underwriter defaults, the underwriting agreement provides that the purchase
commitments of the nondefaulting underwriters may be increased or the
underwriting agreement may be terminated.

The underwriters are offering the shares of common stock, subject to prior
sale, when, as and if issued to and accepted by them, subject to approval of
legal matters by their counsel, including the validity of the shares, and other
conditions contained in the underwriting agreement, such as the receipt by the
underwriters of officers' certificates and legal opinions. The underwriters
reserve the right to withdraw, cancel or modify offers to the public and to
reject orders in whole or in part.

We have granted an option to the underwriters to purchase up to 3,750,000
additional shares of common stock at the public offering price less the
underwriting discount. The underwriters may exercise this option for 30 days
from the date of this prospectus supplement solely to cover any over-
allotments. If the underwriters exercise this option, each will be obligated,
subject to conditions contained in the underwriting agreement, to purchase
approximately the same percentage of additional shares of common stock as the
number set forth next to the underwriter's name in the preceding table bears to
the total number of shares of common stock set forth next to the names of all
underwriters in the preceding table. If the underwriters' over-allotment option
is exercised in full, the total price to the public would be $ , the total
underwriting discount would be $ and the total proceeds, before expenses,
to us would be $ .

The expenses of the offering, not including the underwriting discount, are
estimated at $ . The underwriters have agreed to pay a portion of such
expenses.

The representatives have advised us that the underwriters propose initially
to offer the shares of common stock to the public at the initial public
offering price on the cover page of this prospectus supplement and to dealers
at that price less a concession not in excess of $ per share. The
underwriters may allow, and the dealers may reallow, a discount not in excess
of $ per share to other dealers. After the public offering, the public
offering price, concession and discount may be changed.

We and our executive officers have each agreed that, subject to certain
exceptions, without the prior written consent of Morgan Stanley & Co.
Incorporated and Merrill Lynch, Pierce, Fenner & Smith Incorporated

S-40

on behalf of the underwriters, we will not, during the 90-day period after the
date of this prospectus supplement:

.offer, pledge, sell or contract to sell any shares of common stock,

.sell any option or contract to purchase any shares of common stock,

.purchase any option or contract to sell any shares of common stock,

.grant any option, right or warrant for the sale of any shares of common
stock,

.lend or otherwise dispose of or transfer any shares of common stock, or

. enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of any shares of common
stock, whether any such swap or transaction is to be settled by delivery
of shares or other securities, in cash or otherwise.

This lock-up provision applies to shares of common stock and to securities
convertible into or exchangeable or exercisable for or repayable with shares of
common stock. It also applies to shares of common stock owned now or acquired
later by the person executing the agreement or for which the person executing
the agreement later acquires the power of disposition. This agreement does not
apply to issuances under our employee or director compensation plans or our
employee or shareholder investment plans. Morgan Stanley & Co. Incorporated and
Merrill Lynch, Pierce, Fenner & Smith Incorporated, in their sole discretion,
may release any of the securities subject to these lock-up agreements at any
time without notice.

Until the distribution of the shares offered hereby is completed, SEC rules
may limit the underwriters and selling group members from bidding for or
purchasing shares of common stock. However, the representatives may engage in
transactions that stabilize the price of shares of common stock, such as bids
or purchases that peg, fix or maintain that price.

In connection with the offering, the underwriters may make short sales of
our shares of common stock. Short sales involve the sale by the underwriters,
at the time of the offering, of a greater number of shares than they are
required to purchase in the offering. Covered short sales are sales made in an
amount not greater than the over-allotment option. The representatives may
close out any covered short position by either exercising the over-allotment
option or purchasing shares in the open market. In determining the source of
shares to close out the covered short position, the representatives will
consider, among other things, the price of shares available for purchase in the
open market as compared to the price at which they may purchase the shares
through the over-allotment option. Naked short sales are sales in excess of the
over-allotment option. The representatives must close out any naked short
position by purchasing shares in the open market. A naked short position is
more likely to be created if the representatives are concerned that there may
be downward pressure on the price of the shares in the open market after
pricing that could adversely affect investors who purchase in the offering.
Similar to other purchase transactions, the purchases by the representatives to
cover syndicate short positions may have the effect of raising or maintaining
the market price of the common stock or preventing or retarding a decline in
the market price of the common stock. As a result, the price of the common
stock may be higher than it would otherwise be in the absence of these
transactions.

Neither we nor any of the underwriters make any representation or prediction
as to the direction or magnitude of any effect that the transactions described
above may have on the price of the common stock. In addition, neither we nor
any of the underwriters make any representation that the representatives will
engage in these transactions or that these transactions, once commenced, will
not be discontinued without notice.

A prospectus in electronic format may be made available on the websites
maintained by one or more of the underwriters participating in this offering.
The representatives may agree to allocate a number of shares to underwriters
for sale to their online brokerage account holders. Internet distributions will
be allocated by the underwriters that will make internet distributions on the
same basis as other allocations. Morgan Stanley Dean Witter Online, Inc. and
Merrill Lynch will be facilitating distribution for this offering to certain of
their internet

S-41

subscription customers. Morgan Stanley & Co. Incorporated and Merrill Lynch,
Pierce, Fenner & Smith Incorporated intend to allocate a limited number of
shares for sale to their online brokerage customers. An electronic preliminary
prospectus supplement is available on the internet website maintained by Morgan
Stanley Dean Witter Online, Inc. and on the internet website maintained by
Merrill Lynch. Other than the preliminary prospectus supplement in electronic
format, the information on the Morgan Stanley Dean Witter Online, Inc. website
and on the Merrill Lynch website is not intended to be part of this prospectus
supplement.

We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933.

In the ordinary course of business, certain of the underwriters and their
affiliates have provided financial advisory, investment banking and general
financing and banking services to us and certain of our affiliates for
customary fees.

S-42

EXPERTS

The consolidated financial statements included in this prospectus supplement
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report, included herein, and are included in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.

LEGAL MATTERS

The validity of the common stock offered hereby will be passed on for us by
Dewey Ballantine LLP and for the underwriters by Brown & Wood LLP.

S-43

INDEX TO FINANCIAL STATEMENTS

Duke Energy Corporation

Independent Auditors' Report............................................... F-2
Consolidated Statements of Income for the years ended December 31, 2000,
1999 and 1998............................................................. F-3
Consolidated Statements of Cash Flows for the years ended December 31,
2000, 1999 and 1998....................................................... F-4
Consolidated Balance Sheets as of December 31, 2000 and 1999............... F-5
Consolidated Statements of Common Stockholders' Equity and Comprehensive
Income for the years ended December 31, 2000, 1999 and 1998............... F-7
Notes to Consolidated Financial Statements................................. F-8

F-1

Independent Auditors' Report

To the Board of Directors and Stockholders of Duke Energy Corporation

We have audited the accompanying consolidated balance sheets of Duke Energy
Corporation and subsidiaries (Duke Energy) as of December 31, 2000 and 1999,
and the related consolidated statements of income, common stockholders' equity
and comprehensive income, and cash flows for each of the three years in the
period ended December 31, 2000. These financial statements are the
responsibility of Duke Energy's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Duke Energy as of December 31,
2000 and 1999, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America.

Deloitte & Touche LLP
Charlotte, North Carolina
January 18, 2001

F-2

DUKE ENERGY CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

Years Ended December
31,
----------------------
2000 1999 1998
------- ------- ------
(in millions, except
per share amounts)

Operating Revenues
Sales, trading and marketing of natural gas and
petroleum products (Notes 1 and 7).................. $28,310 $10,922 $7,854
Trading and marketing of electricity (Notes 1 and
7).................................................. 13,060 3,610 2,788
Generation, transmission and distribution of
electricity (Notes 1 and 4)......................... 5,315 4,934 4,586
Transportation and storage of natural gas (Notes 1
and 4).............................................. 1,045 1,139 1,450
Gain on sale of equity investment (Notes 2 and 8).... 407 -- --
Other (Note 8)....................................... 1,181 1,161 984
------- ------- ------
Total operating revenues........................... 49,318 21,766 17,662
------- ------- ------
Operating Expenses
Natural gas and petroleum products purchased (Note
1).................................................. 27,670 10,636 7,497
Net interchange and purchased power (Notes 1, 4 and
5).................................................. 12,000 3,507 2,916
Fuel used in electric generation (Notes 1 and 11).... 781 764 767
Other operation and maintenance (Notes 4, 11 and
14)................................................. 3,469 3,701 2,738
Depreciation and amortization (Notes 1 and 5)........ 1,167 968 909
Property and other taxes............................. 418 371 350
------- ------- ------
Total operating expenses........................... 45,505 19,947 15,177
------- ------- ------
Operating Income....................................... 3,813 1,819 2,485
------- ------- ------
Other Income and Expenses
Deferred returns and allowance for funds used during
construction (Note 1)............................... 63 82 88
Other, net........................................... 138 142 74
------- ------- ------
Total other income and expenses.................... 201 224 162
------- ------- ------
Earnings Before Interest and Taxes..................... 4,014 2,043 2,647
Interest Expense (Notes 7 and 10)...................... 911 601 514
Minority Interest Expense (Notes 2 and 12)............. 307 142 96
------- ------- ------
Earnings Before Income Taxes........................... 2,796 1,300 2,037
Income Taxes (Notes 1 and 6)........................... 1,020 453 777
------- ------- ------
Income Before Extraordinary Item....................... 1,776 847 1,260
Extraordinary Gain (Loss), net of tax.................. -- 660 (8)
------- ------- ------
Net Income............................................. 1,776 1,507 1,252
Dividends on Preferred and Preference Stock (Note 13).. 19 20 21
------- ------- ------
Earnings Available For Common Stockholders............. $ 1,757 $ 1,487 $1,231
======= ======= ======
Common Stock Data (Note 1)
Weighted average shares outstanding.................. 736 729 722
Earnings per share (before extraordinary item)
Basic.............................................. $ 2.39 $ 1.13 $ 1.72
Diluted............................................ $ 2.38 $ 1.13 $ 1.71
Earnings per share
Basic.............................................. $ 2.39 $ 2.04 $ 1.70
Diluted............................................ $ 2.38 $ 2.03 $ 1.70
Dividends per share.................................. $ 1.10 $ 1.10 $ 1.10

See Notes to Consolidated Financial Statements.

F-3

DUKE ENERGY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December
31,
----------------------
2000 1999 1998
------ ------ ------
(in millions)

CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................ $1,776 $1,507 $1,252
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization......................... 1,348 1,151 1,055
Net mark-to-market gain............................... (464) (24) (75)
Extraordinary (gain) loss, net of tax................. -- (660) 8
Gain on sale of equity investment..................... (407) -- --
Provision on NAWE receivables......................... 110 -- --
Injury and damages accrual............................ -- 800 --
Deferred income taxes................................. 152 (210) (35)
Purchased capacity levelization....................... 138 104 88
Transition cost recoveries (payments), net............ 82 95 (28)
(Increase) decrease in
Receivables.......................................... (4,812) (659) (18)
Inventory............................................ (97) (89) (104)
Other current assets................................. (796) (138) (39)
Increase (decrease) in
Accounts payable..................................... 4,509 477 72
Taxes accrued........................................ (439) (57) (6)
Interest accrued..................................... 64 32 (2)
Other current liabilities............................ 1,116 73 84
Other, net............................................ (55) 282 79
------ ------ ------
Net cash provided by operating activities........... 2,225 2,684 2,331
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital and investment expenditures................... (5,634) (5,936) (2,500)
Proceeds from sale of subsidiaries and equity
investment........................................... 400 1,900 --
Decommissioning, retirements and other................ 204 236 24
------ ------ ------
Net cash used in investing activities............... (5,030) (3,800) (2,476)
------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of
Long-term debt........................................ 3,206 3,221 1,357
Guaranteed preferred beneficial interests in
subordinated notes of Duke Energy Corporation or
Subsidiaries......................................... -- 484 581
Common stock and stock options........................ 230 162 176
Payments for the redemption of
Long-term debt........................................ (1,191) (1,505) (698)
Preferred and preference stock........................ (33) (20) (180)
Net change in notes payable and commercial paper...... 1,484 58 (350)
Distributions to minority interests................... (1,216) -- --
Contributions from minority interests................. 1,116 -- --
Dividends paid........................................ (828) (822) (814)
Other................................................. (54) 22 6
------ ------ ------
Net cash provided by financing activities........... 2,714 1,600 78
------ ------ ------
Net (decrease) increase in cash and cash equivalents.. (91) 484 (67)
Cash received from business acquisitions.............. 100 49 38
Cash and cash equivalents at beginning of period...... 613 80 109
------ ------ ------
Cash and cash equivalents at end of period............ $ 622 $ 613 $ 80
====== ====== ======
Supplemental Disclosures
Cash paid for interest, net of amount capitalized..... $ 817 $ 541 $ 490
Cash paid for income taxes............................ $1,177 $ 732 $ 733

See Notes to Consolidated Financial Statements.

F-4

DUKE ENERGY CORPORATION

CONSOLIDATED BALANCE SHEETS

December 31,
---------------
2000 1999
------- -------
(in millions)

ASSETS
------

Current Assets (Note 1)
Cash and cash equivalents (Note 7)........................... $ 622 $ 613
Receivables (Notes 1 and 7).................................. 8,293 3,248
Inventory.................................................... 736 599
Current portion of natural gas transition costs (Note 4)..... -- 81
Current portion of purchased capacity costs (Note 5)......... 149 146
Unrealized gains on mark-to-market transactions (Note 7)..... 11,038 1,131
Other (Note 7)............................................... 1,317 353
------- -------
Total current assets....................................... 22,155 6,171
------- -------
Investments and Other Assets
Investments in affiliates (Notes 8 and 14)................... 1,370 1,299
Nuclear decommissioning trust funds (Note 11)................ 717 703
Pre-funded pension costs (Note 17)........................... 304 315
Goodwill, net (Notes 1 and 2)................................ 1,566 844
Notes receivable............................................. 462 154
Unrealized gains on mark-to-market transactions (Notes 1 and
7).......................................................... 4,218 690
Other........................................................ 1,445 705
------- -------
Total investments and other assets......................... 10,028 4,710
------- -------
Property, Plant and Equipment (Notes 1, 5, 9, 10 and 11)
Cost......................................................... 34,615 30,436
Less accumulated depreciation and amortization............... 10,146 9,441
------- -------
Net property, plant and equipment.......................... 24,469 20,995
------- -------
Regulatory Assets and Deferred Debits (Note 1)
Purchased capacity costs (Note 5)............................ 356 497
Deferred debt expense (Note 7)............................... 208 223
Regulatory asset related to income taxes..................... 506 500
Other (Notes 4 and 14)....................................... 400 313
------- -------
Total regulatory assets and deferred debits................ 1,470 1,533
------- -------
Total Assets............................................... $58,176 $33,409
======= =======

See Notes to Consolidated Financial Statements.

F-5

DUKE ENERGY CORPORATION

CONSOLIDATED BALANCE SHEETS--(Continued)

December 31,
----------------
2000 1999
------- -------
(in millions)

LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
-------------------------------------------

Current Liabilities
Accounts payable........................................... $ 7,375 $ 2,312
Notes payable and commercial paper (Notes 7 and 10)........ 1,826 267
Taxes accrued (Note 1)..................................... 261 685
Interest accrued........................................... 208 139
Current maturities of long-term debt and preferred stock
(Notes 10 and 13)......................................... 470 515
Unrealized losses on mark-to-market transactions (Notes 1
and 7).................................................... 11,070 1,241
Other (Notes 1 and 14)..................................... 1,769 717
------- -------
Total current liabilities................................ 22,979 5,876
------- -------
Long-term Debt (Notes 7 and 10).............................. 11,019 8,683
------- -------
Deferred Credits and Other Liabilities (Note 1)
Deferred income taxes (Note 6)............................. 3,851 3,402
Investment tax credit (Note 6)............................. 211 225
Nuclear decommissioning costs externally funded (Note 11).. 717 703
Environmental cleanup liabilities (Note 14)................ 100 101
Unrealized losses on mark-to-market transactions (Note 7).. 3,581 438
Other (Note 14)............................................ 1,574 2,099
------- -------
Total deferred credits and other liabilities............. 10,034 6,968
------- -------
Commitments and Contingencies (Notes 5, 11 and 14)
Guaranteed Preferred Beneficial Interests in Subordinated
Notes of Duke Energy Corporation or Subsidiaries (Notes 7
and 12)................................................... 1,406 1,404
------- -------
Minority Interests (Note 2).................................. 2,435 1,200
------- -------
Preferred and Preference Stock (Notes 7 and 13)
Preferred and preference stock with sinking fund
requirements.............................................. 38 71
Preferred and preference stock without sinking fund
requirements.............................................. 209 209
------- -------
Total preferred and preference stock..................... 247 280
------- -------
Common Stockholders' Equity (Notes 1, 15 and 16)
Common stock, no par, 1 billion shares authorized; 739
million and 733 million shares outstanding at December 31,
2000 and 1999, respectively............................... 4,797 4,603
Retained earnings.......................................... 5,379 4,397
Accumulated other comprehensive income..................... (120) (2)
------- -------
Total common stockholders' equity........................ 10,056 8,998
------- -------
Total Liabilities and Common Stockholders' Equity........ $58,176 $33,409
======= =======

See Notes to Consolidated Financial Statements.

F-6

DUKE ENERGY CORPORATION

CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME

Accumulated
Other Total
Common Retained Comprehensive Comprehensive
Stock Earnings Income Total Income
------ -------- ------------- ------- -------------
(in millions)

Balance December 31,
1997.................... $4,284 $3,256 $ -- $ 7,540
Net income............... 1,252 1,252 $1,252
------
Total comprehensive
income.............. $1,252
======
Dividend reinvestment and
employee benefits (Note
16)..................... 165 165
Common stock dividends... (794) (794)
Preferred and preference
stock dividends
(Note 13)............... (21) (21)
Other capital stock
transactions, net....... 8 8
------ ------ ----- -------
Balance December 31,
1998.................... $4,449 $3,701 $ -- $ 8,150
------ ------ ----- -------
Net income............... 1,507 1,507 $1,507
Other comprehensive
income:
Foreign currency
translation
adjustments (Note 1).. (2) (2) (2)
------
Total comprehensive
income.............. $1,505
======
Dividend reinvestment and
employee benefits (Note
16)..................... 154 154
Common stock dividends... (802) (802)
Preferred and preference
stock dividends
(Note 13)............... (20) (20)
Other capital stock
transactions, net....... 11 11
------ ------ ----- -------
Balance December 31,
1999.................... $4,603 $4,397 $ (2) $ 8,998
------ ------ ----- -------
Net income............... 1,776 1,776 $1,776
Other comprehensive
income:
Foreign currency
translation
adjustments (Note 1).. (118) (118) (118)
------
Total comprehensive
income.............. $1,658
======
Dividend reinvestment and
employee benefits (Note
16)..................... 194 194
Common stock dividends... (809) (809)
Preferred and preference
stock dividends
(Note 13)............... (19) (19)
Other capital stock
transactions, net....... 34 34
------ ------ ----- -------
Balance December 31,
2000.................... $4,797 $5,379 $(120) $10,056
====== ====== ===== =======

See Notes to Consolidated Financial Statements.

F-7

DUKE ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2000, 1999 and 1998

1. Summary of Significant Accounting Policies

Consolidation. The Consolidated Financial Statements include the accounts of
all of Duke Energy Corporation's majority-owned subsidiaries after the
elimination of significant intercompany transactions and balances. Investments
in other entities that are not controlled by Duke Energy Corporation, but where
it has significant influence over operations, are accounted for using the
equity method.

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Although these estimates are based on management's best
available knowledge of current and expected future events, actual results could
differ from those estimates.

"Duke Energy" is used in these Notes as a collective reference to Duke
Energy Corporation and its subsidiaries.

Cash and Cash Equivalents. All liquid investments with maturities at date of
purchase of three months or less are considered cash equivalents.

Inventory. Inventory consists primarily of materials and supplies, natural
gas and natural gas liquid (NGL) products held in storage for transmission,
processing and sales commitments, and coal held for electric generation.
Inventory is recorded at the lower of cost or market, primarily using the
average cost method.

Accounting for Risk Management and Commodity Trading Activities. Commodity
derivatives utilized for trading purposes are accounted for using the mark-to-
market method. Under this methodology, these instruments are adjusted to market
value, and the unrealized gains and losses are recognized in current period
income and are included in the Consolidated Statements of Income as Natural Gas
and Petroleum Products Purchased or Net Interchange and Purchased Power, and in
the Consolidated Balance Sheets as Unrealized Gains or Losses on Mark-to-Market
Transactions.

Commodity derivatives such as futures, forwards, over-the-counter swap
agreements and options are also utilized for non-trading purposes to hedge the
impact of market fluctuations in the price of natural gas, electricity and
other energy-related products. To qualify as a hedge, the price movements in
the commodity derivatives must be highly correlated with the underlying hedged
commodity. Under the deferral method of accounting, gains and losses related to
commodity derivatives that qualify as hedges are recognized in income when the
underlying hedged physical transaction closes and are included in the
Consolidated Statements of Income as Natural Gas and Petroleum Products
Purchased, or Net Interchange and Purchased Power. If the commodity derivative
is no longer sufficiently correlated to the underlying commodity, or if the
underlying commodity transaction closes earlier than anticipated, the deferred
gains or losses are recognized in income.

Duke Energy periodically uses interest rate swaps, accounted for under the
accrual method, to manage the interest rate characteristics associated with
outstanding debt. Interest rate differentials to be paid or received as
interest rates change are accrued and recognized as an adjustment to interest
expense. The amount accrued as either a payable to or a receivable from
counterparties is included in the Consolidated Balance Sheets as Deferred Debt
Expense.

Duke Energy also periodically utilizes interest rate lock agreements to
hedge interest rate risk associated with new debt issuances. Under the deferral
method of accounting, gains or losses on such agreements, when settled, are
deferred in the Consolidated Balance Sheets as Long-Term Debt and are amortized
in the Consolidated Statements of Income as an adjustment to Interest Expense.

F-8

DUKE ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Duke Energy is exposed to foreign currency risk from investments in
international affiliates and businesses owned and operated in foreign
countries. To mitigate risks associated with foreign currency fluctuations,
when possible, contracts are denominated in or indexed to the U.S. dollar or
investments may be hedged through debt denominated in the foreign currency.
Duke Energy also uses foreign currency derivatives, where possible, to hedge
its risk related to foreign currency fluctuations. To qualify as a hedge, there
must be a high degree of correlation between price movements in the derivative
and the item designated as being hedged.

Duke Energy also enters into foreign currency swap agreements to manage
foreign currency risks associated with energy contracts denominated in foreign
currencies. These agreements are accounted for under the mark-to-market method
previously described.

Goodwill. Goodwill represents the excess of acquisition costs over the fair
value of the net assets of an acquired business. The goodwill created by Duke
Energy's acquisitions is amortized on a straight-line basis over the useful
lives of the assets, ranging from 10 to 40 years. The amount of goodwill
reported on the Consolidated Balance Sheets as of December 31, 2000 and 1999,
was $1,566 million and $844 million, net of accumulated amortization of $291
million and $218 million, respectively. See Note 2 to the Consolidated
Financial Statements for information on significant goodwill additions.

Property, Plant and Equipment. Property, plant and equipment are stated at
original cost. Duke Energy capitalizes all construction-related direct labor
and material costs, as well as indirect construction costs. Indirect costs
include general engineering, taxes and the cost of money. The cost of renewals
and betterments that extend the useful life of property, plant and equipment is
also capitalized. The cost of repairs and replacements is charged to expense as
incurred. Depreciation is generally computed using the straight-line method.
The composite weighted-average depreciation rates, excluding nuclear fuel, were
3.97%, 3.73% and 3.82% for 2000, 1999 and 1998, respectively.

When property, plant and equipment maintained by Duke Energy's regulated
operations are retired, the original cost plus the cost of retirement, less
salvage, is charged to accumulated depreciation and amortization. When entire
regulated operating units are sold or non-regulated properties are retired or
sold, the property and related accumulated depreciation and amortization
accounts are reduced, and any gain or loss is recorded in income, unless
otherwise required by the Federal Energy Regulatory Commission (FERC).

Impairment of Long-Lived Assets. The recoverability of long-lived assets and
intangible assets are reviewed whenever events or changes in circumstances
indicate that the carrying amount of the asset may not be recoverable. Such
evaluation is based on various analyses, including undiscounted cash flow
projections.

Unamortized Debt Premium, Discount and Expense. Premiums, discounts and
expenses incurred in connection with the issuance of currently outstanding
long-term debt are amortized over the terms of the respective issues. Any call
premiums or unamortized expenses associated with refinancing higher-cost debt
obligations used to finance regulated assets and operations are amortized
consistent with regulatory treatment of those items.

Environmental Expenditures. Environmental expenditures that relate to an
existing condition caused by past operations and do not contribute to current
or future revenue generation are expensed. Environmental expenditures relating
to current or future revenues are expensed or capitalized as appropriate.
Liabilities are recorded when environmental assessments and/or cleanups are
probable and the costs can be reasonably estimated.

Cost-Based Regulation. Duke Energy's regulated operations are subject to the
provisions of Statement of Financial Accounting Standards (SFAS) No. 71,
"Accounting for the Effects of Certain Types of

F-9

DUKE ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Regulation." Accordingly, certain assets and liabilities that result from the
regulated ratemaking process are recorded that would not be recorded under
generally accepted accounting principles for non-regulated entities. These
regulatory assets and liabilities are classified in the Consolidated Balance
Sheets as Regulatory Assets and Deferred Debits, and Deferred Credits and Other
Liabilities, respectively. The applicability of SFAS No. 71 is routinely
evaluated, and factors such as regulatory changes and the impact of competition
are considered. Discontinuing cost-based regulation or increasing competition
might require companies to reduce their asset balances to reflect a market
basis less than cost and to write off their associated regulatory assets.
Management cannot predict the potential impact, if any, of discontinuing cost-
based regulation or increasing competition on future consolidated results of
operations, cash flows or financial position. However, Duke Energy continues to
position itself to effectively meet these challenges by maintaining competitive
prices.

Common Stock Options. Duke Energy accounts for stock-based compensation
using the intrinsic method of accounting. Under this method, compensation cost,
if any, is measured as the excess of the quoted market price of Duke Energy's
stock at the date of the grant over the amount an employee must pay to acquire
the stock. Restricted stock grants and Company Performance Awards are recorded
as compensation cost over the requisite vesting period based on the market
value on the date of the grant. Pro forma disclosures utilizing the fair value
accounting method are included in Note 16 to the Consolidated Financial
Statements. All outstanding common stock amounts and compensation awards have
been adjusted to reflect the two-for-one common stock split effective January
26, 2001. See Note 15 to the Consolidated Financial Statements for additional
information on the stock split.

Revenues. Revenues on sales of electricity and transportation and storage of
natural gas are recognized as service is provided. Revenues on sales of natural
gas and petroleum products, as well as electricity, gas and other energy
products marketed, are recognized in the period of delivery. The allowance for
doubtful accounts was approximately $200 million and $43 million as of December
31, 2000 and 1999, respectively. Receivables on the Consolidated Balance Sheets
included $244 million and $207 million as of December 31, 2000 and 1999,
respectively, for electric service that has been provided but not yet billed to
customers. When rate cases are pending final approval, a portion of the
revenues is subject to possible refund. Reserves are established where required
for such cases. During 2000, Duke Energy adopted the provisions of Staff
Accounting Bulletin (SAB) 101 issued by the Securities and Exchange Commission.
The impact of adopting SAB 101 was not material to Duke Energy.

Nuclear Fuel. Amortization of nuclear fuel is included in the Consolidated
Statements of Income as Fuel Used in Electric Generation. The amortization is
recorded using the units-of-production method.

Deferred Returns and Allowance for Funds Used During Construction
(AFUDC). Deferred returns represent the estimated financing costs associated
with funding certain regulatory assets. These regulatory assets primarily arose
from the funding of purchased capacity costs above levels collected in rates.
Deferred returns are non-cash items and are primarily recognized as an addition
to Purchased Capacity Costs with an offsetting credit to Other Income and
Expenses.

AFUDC represents the estimated debt and equity costs of capital funds
necessary to finance the construction of new regulated facilities. AFUDC is a
non-cash item and is recognized as a cost of Property, Plant and Equipment,
with offsetting credits to Other Income and Expenses and to Interest Expense.
After construction is completed, Duke Energy is permitted to recover these
costs, including a fair return, through their inclusion in rate base and in the
provision for depreciation.

Rates used for capitalization of deferred returns and AFUDC by Duke Energy's
regulated operations are calculated in compliance with FERC rules.

F-10

DUKE ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Foreign Currency Translation. Assets and liabilities of Duke Energy's
international operations, where the local currency is the functional currency,
have been translated at year-end exchange rates, and revenues and expenses have
been translated using average exchange rates prevailing during the year.
Adjustments resulting from translation are included in the Consolidated
Statements of Common Stockholders' Equity and Comprehensive Income as Foreign
Currency Translation Adjustments. The financial statements of international
operations, where the U.S. dollar is the functional currency, reflect certain
transactions denominated in the local currency that have been remeasured in
U.S. dollars. The remeasurement of local currencies into U.S. dollars resulting
from foreign currency gains and losses is included in consolidated net income.

Income Taxes. Duke Energy and its subsidiaries file a consolidated federal
income tax return. Deferred income taxes have been provided for temporary
differences. Temporary differences occur when events and transactions
recognized for financial reporting result in taxable or tax-deductible amounts
in different periods. Investment tax credits have been deferred and are being
amortized over the estimated useful lives of the related properties.

Earnings Per Common Share. Basic earnings per share is based on a simple
weighted average of common shares outstanding. Diluted earnings per share
reflects the potential dilution that could occur if securities or other
agreements to issue common stock, such as stock options, were exercised or
converted into common stock. The numerator for the calculation of basic and
diluted earnings per share is earnings available for common stockholders.

Denominator for Earnings per Share

2000 1999 1998
----- ----- -----
(in millions)

Denominator for basic earnings per share (weighted-
average shares outstanding)............................ 735.7 729.3 722.0
Assumed exercise of diluted stock options............... 3.7 1.6 2.4
----- ----- -----
Denominator for diluted earnings per share.............. 739.4 730.9 724.4
===== ===== =====

All common stock amounts have been adjusted to reflect the two-for-one
common stock split effective January 26, 2001. See Note 15 to the Consolidated
Financial Statements for additional information on the stock split.

Extraordinary Items. In 1999, Duke Energy realized an extraordinary gain of
$660 million after tax, or $0.91 per share, relating to the sale of certain
pipeline companies. See Note 2 to the Consolidated Financial Statements for
additional information on the extraordinary item.

In January 1998, TEPPCO Partners, LP (TEPPCO), in which Duke Energy has a
21.1% ownership interest, redeemed certain First Mortgage Notes. A non-cash
extraordinary loss of $8 million, net of income tax of $5 million, was recorded
related to costs of the early retirement of debt. Earnings per common share for
1998 were reduced by $0.01 as a result of this charge.

New Accounting Standard. In June 1998, SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," was issued. Duke Energy was
required to adopt this standard by January 1, 2001. SFAS No. 133 requires that
all derivatives be recognized as either assets or liabilities and measured at
fair value, and changes in the fair value of derivatives are reported in
current earnings, unless the derivative is designated and effective as a hedge.
If the intended use of the derivative is to hedge the exposure to changes in
the fair value of an asset, a liability or a firm commitment, then changes in
the fair value of the derivative

F-11

DUKE ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

instrument will generally be offset in the income statement by changes in the
hedged item's fair value. However, if the intended use of the derivative is to
hedge the exposure to variability in expected future cash flows, then changes
in the fair value of the derivative instrument will generally be reported in
Other Comprehensive Income (OCI). The gains and losses on the derivative
instrument that are reported in OCI will be reclassified to earnings in the
periods in which earnings are impacted by the hedged item.

Reclassifications. Certain prior period amounts have been reclassified in
the Consolidated Financial Statements to conform to the current presentation.

2. Business Acquisitions and Dispositions

Business Acquisitions: For acquisitions accounted for using the purchase
method, assets and liabilities have been consolidated as of the purchase date
and earnings from the acquisitions have been included in consolidated earnings
of Duke Energy subsequent to the purchase date. Assets acquired and liabilities
assumed are recorded at their estimated fair values, and the excess of the
purchase price over the estimated fair value of the net identifiable assets and
liabilities acquired is recorded as goodwill. Purchase price allocations are
subject to adjustment when additional information concerning asset and
liability valuations becomes available within one year after the acquisition.

Market Hub Partners (MHP). In September 2000, Duke Energy, through a wholly
owned subsidiary, completed the approximately $400 million acquisition of MHP
from subsidiaries of NiSource Inc. for approximately $250 million in cash and
the assumption of $150 million in debt. MHP provides natural gas storage
services in Louisiana and Texas with a current capacity of 23 billion cubic
feet with significant expansion capabilities. Approximately $159 million of
goodwill was recorded in the transaction and is being amortized on a straight-
line basis over 35 years. In association with the acquisition of MHP, a tender
offer was made for $115 million of the assumed debt as required by the debt
agreements. As of December 31, 2000, approximately $88 million of this debt was
retired.

Phillips Petroleum's Gas Gathering, Processing and Marketing Unit
(Phillips). In March 2000, Duke Energy, through a wholly owned subsidiary,
completed the approximately $1.7 billion transaction that combined Field
Services' and Phillips' gas gathering, processing and marketing business to
form a new midstream company, named Duke Energy Field Services, LLC (DEFS). In
connection with the combination, DEFS issued approximately $2.75 billion of
commercial paper in April 2000. The proceeds were used to make one-time cash
distributions of approximately $1.53 billion to Duke Energy and $1.22 billion
to Phillips Petroleum. Duke Energy owns approximately 70% of DEFS and Phillips
Petroleum owns approximately 30%. Goodwill of approximately $429 million was
recorded in connection with the transaction and is being amortized on a
straight-line basis over 20 years.

F-12

DUKE ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

East Tennessee Natural Gas Company. In March 2000, Duke Energy, through a
wholly owned subsidiary, completed the approximately $390 million acquisition
of East Tennessee Natural Gas Company from El Paso Energy. East Tennessee
Natural Gas Company owns a 1,100-mile interstate natural gas pipeline system
that crosses Duke Energy's Texas Eastern Transmission Corporation's (TETCO's)
pipeline and serves the southeastern region of the U.S.

Dominion Resources' Hydroelectric, Natural Gas and Diesel Power Generation
Businesses. In August 1999, Duke Energy, through its wholly owned subsidiary
Duke Energy International, LLC (DEI), reached a definitive agreement to acquire
Dominion Resources Inc.'s 1,200-megawatt portfolio of hydroelectric, natural
gas and diesel power generation businesses in Latin America (collectively, the
"Dominion acquisitions") for approximately $405 million. The Dominion
acquisitions were completed in April 2000, and total goodwill related to these
purchases was $109 million and is being amortized on a straight-line basis over
40 years.

Companhia de Geracao de Energia Eletrica Paranapanema (Paranapanema). In
January 2000, Duke Energy, through its wholly owned subsidiary DEI, completed a
series of transactions to purchase for approximately $1.03 billion an
approximate 95% interest in Paranapanema, an electric generating company in
Brazil. Goodwill of approximately $134 million was recorded in relation to this
acquisition and is being amortized on a straight-line basis over 40 years.

Union Pacific Resources' Gathering, Processing and Marketing Operations. In
March 1999, Duke Energy through its wholly owned subsidiary, Duke Energy Field
Services, Inc., completed the $1.35 billion acquisition of the natural gas
gathering, processing, fractionation and NGL pipeline business from Union
Pacific Resources (UPR), as well as UPR's NGL marketing activities. Goodwill of
$135 million has been recorded and is being amortized on a straight-line basis
over 15 to 20 years.

Dispositions: BellSouth Carolina PCS (BellSouth PCS). In September 2000,
Duke Energy, through its wholly owned subsidiary DukeNet Communications, LLC
(DukeNet), sold its 20% interest in BellSouth PCS for approximately $400
million to BellSouth Corporation. Operating revenues includes the resulting
pre-tax gain of $407 million, or an after-tax gain of $0.34 per basic share.

Catawba River Associates, LLC (Catawba River). During 2000, Duke Energy
formed Catawba River, and third-party, non-controlling, preferred interest
holders invested $1,025 million. Catawba River is a limited liability company
with separate existence and identity from its members, and the assets of
Catawba River are separate and legally distinct from Duke Energy. The preferred
interest receives a preferred return equal to an adjusted floating reference
rate (approximately 7.847% at December 31, 2000). The results of operations,
cash flows and financial position of Catawba River are consolidated with Duke
Energy. The preferred interest and the expense attributable to this interest
are included in Minority Interests and Minority Interest Expense, respectively,
on the Consolidated Financial Statements.

PEPL Companies and Trunkline LNG. In March 1999, wholly owned subsidiaries
of Duke Energy sold Panhandle Eastern Pipe Line Company (PEPL), Trunkline Gas
Company (Trunkline) and additional storage related to those systems, which
substantially comprised the Midwest Pipelines, along with Trunkline LNG Company
to CMS Energy Corporation (CMS). The sales price of $2.2 billion involved cash
proceeds of $1.9 billion and CMS' assumption of existing PEPL debt of
approximately $300 million. The sale resulted in an extraordinary gain of $660
million, net of income tax of $404 million, and an increase in earnings per
basic share of $0.91. In 1999 and 1998, earnings before interest and taxes
(EBIT) of $70 million and $156 million, respectively, relating to the Midwest
Pipelines was included in Duke Energy's operating results. Under the terms of
the sales agreement with CMS, Duke Energy retained certain assets and
liabilities, which will not have a material adverse effect on consolidated
results of operations, cash flows or financial position.

F-13

DUKE ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The pro forma results of operations for acquisitions and dispositions do not
materially differ from reported results.

3. Business Segments

Duke Energy is an integrated energy and energy services provider with the
ability to offer physical delivery and management of both electricity and
natural gas throughout the U.S. and abroad. Duke Energy provides these and
other services through seven business segments.

Franchised Electric generates, transmits, distributes and sells electric
energy in central and western North Carolina and the western portion of South
Carolina. Its operations are conducted primarily through Duke Power and
Nantahala Power and Light. These electric operations are subject to the rules
and regulations of the FERC, the North Carolina Utilities Commission (NCUC) and
the Public Service Commission of South Carolina (PSCSC).

Field Services gathers, processes, transports, markets and stores natural
gas and produces, transports, markets and stores NGLs. Its operations are
conducted primarily through DEFS, a limited liability company that is
approximately 30% owned by Phillips Petroleum. Field Services operates
gathering systems in western Canada and 11 contiguous states that serve major
natural gas-producing regions in the Rocky Mountain, Permian Basin, Mid-
Continent, East Texas-Austin Chalk-North Louisiana, as well as onshore and
offshore Gulf Coast areas.

International Energy conducts its operations through DEI. International
Energy's activities include asset development, operation and management of
natural gas and power facilities and energy trading and marketing of natural
gas and electric power. This activity is targeted in the Latin American, Asia-
Pacific and European regions.

Other Energy Services is a combination of businesses that provide
engineering, consulting, construction and integrated energy solutions
worldwide, primarily through Duke Engineering & Services, Inc., Duke/Fluor
Daniel (D/FD) and DukeSolutions, Inc. D/FD is a 50/50 partnership between Duke
Energy and Fluor Enterprises, Inc.

Duke Ventures is comprised of other diverse businesses, primarily operating
through Crescent Resources, Inc. (Crescent), DukeNet and Duke Capital Partners
(DCP). Crescent develops high-quality commercial, residential and multi-family
real estate projects and manages land holdings primarily in the southeastern
U.S. DukeNet provides fiber optic networks for industrial, commercial and
residential customers. DCP, a newly formed, wholly owned merchant finance
company, provides financing, investment banking and asset management services
to wholesale and commercial energy markets.

F-14

DUKE ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Duke Energy's reportable segments are strategic business units that offer
different products and services and are each managed separately. The accounting
policies for the segments are the same as those described in Note 1 to the
Consolidated Financial Statements. Management evaluates segment performance
based on EBIT after deducting minority interests. EBIT presented in the
accompanying table includes intersegment sales accounted for at prices
representative of unaffiliated party transactions. Segment assets are provided
as additional information in the accompanying table and are net of intercompany
advances, intercompany notes receivable and investments in subsidiaries.

Other Operations primarily include certain unallocated corporate items.

Business Segment Data

Depreciation Capital and
Unaffiliated Intersegment Total and Investment Segment
Revenues Revenues Revenues EBIT Amortization Expenditures Assets
------------ ------------ -------- ------ ------------ ------------ -------
(in millions)

Year Ended December 31,
2000
Franchised Electric..... $ 4,946 $ -- $ 4,946 $1,704 $ 565 $ 661 $12,819
Natural Gas
Transmission........... 998 133 1,131 534 131 973 4,995
Field Services.......... 7,601 1,459 9,060 296 240 376 6,266
North American Wholesale
Energy................. 33,590 284 33,874 418 75 1,937 28,213
International Energy.... 1,060 7 1,067 331 97 980 4,551
Other Energy Services... 528 167 695 (61) 13 28 543
Duke Ventures........... 642 -- 642 563 17 643 1,967
Other Operations........ (47) 68 21 (2) 29 36 2,749
Eliminations and
minority interests..... -- (2,118) (2,118) 231 -- -- (3,927)
------- -------- ------- ------ ------ ------ -------
Total consolidated..... $49,318 $ -- $49,318 $4,014 $1,167 $5,634 $58,176
======= ======== ======= ====== ====== ====== =======
Year Ended December 31,
1999
Franchised Electric..... $ 4,700 $ -- $ 4,700 $ 856 $ 542 $ 759 $13,133
Natural Gas
Transmission........... 1,124 106 1,230 627 126 261 3,897
Field Services.......... 2,883 707 3,590 144 131 1,630 3,565
North American Wholesale
Energy................. 11,623 178 11,801 209 57 1,028 6,268
International Energy.... 323 34 357 42 58 1,779 4,459
Other Energy Services... 886 103 989 (94) 14 94 612
Duke Ventures........... 232 -- 232 162 13 382 1,031
Other Operations........ (5) 44 39 5 27 3 1,250
Eliminations and
minority interests..... -- (1,172) (1,172) 92 -- -- (806)
------- -------- ------- ------ ------ ------ -------
Total consolidated..... $21,766 $ -- $21,766 $2,043 $ 968 $5,936 $33,409
======= ======== ======= ====== ====== ====== =======
Year Ended December 31,
1998
Franchised Electric..... $ 4,626 $ -- $ 4,626 $1,513 $ 522 $ 586 $12,953
Natural Gas
Transmission........... 1,440 102 1,542 702 215 290 4,996
Field Services.......... 2,132 545 2,677 76 80 304 1,893
North American Wholesale
Energy................. 8,727 56 8,783 133 27 796 4,394
International Energy.... 125 34 159 12 15 239 900
Other Energy Services... 436 85 521 10 12 41 376
Duke Ventures........... 171 -- 171 122 10 232 818
Other Operations........ 5 26 31 22 28 12 874
Eliminations and
minority interests..... -- (848) (848) 57 -- -- (398)
------- -------- ------- ------ ------ ------ -------
Total consolidated..... $17,662 $ -- $17,662 $2,647 $ 909 $2,500 $26,806
======= ======== ======= ====== ====== ====== =======

F-15

DUKE ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Geographic Data

Latin Other
U.S. Canada America Foreign Consolidated
------- ------ ------- ------- ------------
(in millions)

2000
Consolidated revenues.............. $43,282 $4,964 $ 512 $ 560 $49,318
Consolidated long-term assets...... 31,074 900 2,823 1,222 36,019
1999
Consolidated revenues.............. $19,336 $2,007 $ 171 $ 252 $21,766
Consolidated long-term assets...... 22,995 250 2,708 901 26,854
1998
Consolidated revenues.............. $16,589 $ 996 $ 31 $ 46 $17,662
Consolidated long-term assets...... 20,982 140 207 632 21,961

4. Regulatory Matters

Franchised Electric. The NCUC and the PSCSC approve rates for retail
electric sales within their respective states. The FERC approves Franchised
Electric's rates for electric sales to wholesale customers. Electric sales to
the other joint owners of the Catawba Nuclear Station, which represent a
majority of Franchised Electric's wholesale revenues, are set through
contractual agreements.

Fuel costs are reviewed semiannually in the wholesale jurisdiction and
annually in the South Carolina retail jurisdiction, with provisions for
reviewing such costs in base rates. In the North Carolina retail jurisdiction,
a review of fuel costs in rates is required annually and during general rate
case proceedings. All jurisdictions allow Duke Energy to adjust electric rates
for past over- or under-recovery of fuel costs. Therefore, the difference
between actual fuel costs incurred for electric operations and fuel costs
recovered through rates is reflected in revenues.

As a result of these rulemakings, on October 16, 2000, Duke Energy and two
other investor-owned utilities, Progress Energy and South Carolina Electric &
Gas, filed with the FERC to establish GridSouth Transco, LLC (GridSouth), as an
RTO. If approved, GridSouth will be a for-profit, independent transmission
company, responsible for operating and planning the companies' combined
transmission systems. The target date for formation of GridSouth is December
15, 2001. However, the actual date that GridSouth becomes operational will
depend upon the resolution of all necessary regulatory approvals and resolving
all technical issues. Management believes that the establishment of GridSouth
will not have a material adverse effect on future consolidated results of
operations, cash flows or financial position.

Natural Gas Transmission. On February 9, 2000, the FERC issued Order 637,
which sets forth revisions to its regulations governing short-term natural gas
transportation services and policies governing the regulation of interstate
natural gas pipelines. "Short-term" has been defined as all transactions of
less than one year.

F-16

DUKE ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Among the significant actions taken are the lifting of the price cap for short-
term capacity release by pipeline customers for an experimental 2 1/2-year
period ending September 1, 2002, and requiring that interstate pipelines file
pro forma tariff sheets to (i) provide for nomination equality between capacity
release and primary pipeline capacity; (ii) implement imbalance management
services (for which interstate pipelines may charge fees) while at the same
time reducing the use of operational flow orders and penalties; and (iii)
provide segmentation rights if operationally feasible. Order 637 also narrows
the right of first refusal to remove economic biases perceived in the current
rule. Order 637 imposes significant new reporting requirements for interstate
pipelines that were implemented by Duke Energy during the third quarter of
2000. Additionally, Order 637 permits pipelines to propose peak/off-peak rates
and term-differentiated rates, and encourages pipelines to propose experimental
capacity auctions. By Order 637-A, issued in February 2000, the FERC generally
denied requests for rehearing and several parties, including Duke Energy, have
filed appeals in the District of Columbia Court of Appeals seeking court review
of various aspects of the Order. During the third quarter of 2000, Duke
Energy's interstate pipelines made the required pro forma tariff sheet filings.
These filings are currently subject to review and approval by the FERC.

Management does not believe the effects of these matters will have a
material effect on Duke Energy's future consolidated results of operations,
cash flows or financial position.

5. Joint Ownership of Generating Facilities

Joint Ownership of Catawba Nuclear Station

Ownership
Owner Interest
----- ---------

North Carolina Municipal Power Agency Number 1 (NCMPA)................... 37.5%
North Carolina Electric Membership Corporation (NCEMC)................... 28.1%
Duke Energy Corporation.................................................. 12.5%
Piedmont Municipal Power Agency (PMPA)................................... 12.5%
Saluda River Electric Cooperative, Inc. (Saluda River)................... 9.4%
-----
100.0%
=====

As of December 31, 2000, $525 million of property, plant and equipment and
$268 million of accumulated depreciation and amortization represented Duke
Energy's investment in Catawba Nuclear Station Units 1 and 2. Duke Energy's
share of operating costs is included in the Consolidated Statements of Income.

Duke Energy entered into contractual interconnection agreements with the
other joint owners of Catawba Nuclear Station to purchase declining percentages
of the generating capacity and energy from the station, which expired during
2000.

The portion of purchased capacity costs subject to levelization in rates was
deferred. As of December 31, 2000 and 1999, $505 million and $643 million,
respectively, associated with the cost of capacity purchased but not reflected
in current rates have been accumulated in the Consolidated Balance Sheets as
Purchased Capacity Costs and Current Portion of Purchased Capacity Costs. Duke
Energy is recovering the accumulated balance, including returns on the deferred
balance, over a period expected to end in 2004. Jurisdictional levelizations
are intended to recover total costs, including deferred returns, and are
subject to adjustments, including final true-ups. For the years ended December
31, 2000, 1999 and 1998, purchased capacity and energy costs from the other
joint owners were approximately $7 million, $62 million and $88 million,
respectively. These amounts, after adjustments for amounts in current rates,
are included in the Consolidated Statements of Income as Net Interchange and
Purchased Power.

F-17

DUKE ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The interconnection agreements also provide for supplemental power sales by
Duke Energy to the other joint owners of Catawba Nuclear Station to satisfy
their capacity and energy needs beyond the capacity and energy which they
retain from the station or potentially acquire in the form of other resources.
The agreements further provide the other joint owners the ability to secure
such supplemental requirements outside of these contractual agreements
following an appropriate notice period. NCEMC, Saluda River and NCMPA have
given such appropriate notice effective January 1, 2001. PMPA will continue to
receive supplemental power sales from Duke Energy through December 31, 2005. As
the other joint owners retain more capacity and energy from the station, or
obtain additional capacity and energy from a third party, supplemental power
sales are expected to decline. Management believes this will not have a
material adverse effect on consolidated results of operations, cash flows or
financial position.

6. Income Taxes

Income Tax Expense

For the Years
Ended
December 31,
-------------------
2000 1999 1998
------ ----- ----
(in millions)

Current income taxes
Federal.................................................. $ 679 $ 525 $673
State.................................................... 109 138 138
Foreign.................................................. 18 1 --
------ ----- ----
Total current income taxes............................. 806 664 811
------ ----- ----
Deferred income taxes, net
Federal.................................................. 187 (126) (15)
State.................................................... 13 (65) (4)
Foreign.................................................. 29 (1) --
------ ----- ----
Total deferred income taxes, net....................... 229 (192) (19)
------ ----- ----
Investment tax credit amortization......................... (15) (19) (15)
------ ----- ----
Total income tax expense............................... $1,020 $ 453 $777
====== ===== ====

Income Tax Expense Reconciliation to Statutory Rate

For the Years
Ended
December 31,
-------------------
2000 1999 1998
------ ----- ----
(in millions)

Income tax, computed at the statutory rate of 35%.......... $ 979 $ 455 $713
Adjustments resulting from:
State income tax, net of federal income tax effect....... 75 47 90
Favorable resolution of federal tax issues............... (18) (30) --
Other items, net......................................... (16) (19) (26)
------ ----- ----
Total income tax expense............................... $1,020 $ 453 $777
------ ----- ----
Effective tax rate......................................... 36.5% 34.9% 38.1%
====== ===== ====

F-18

DUKE ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Net Deferred Income Tax Liability Components

December 31,
----------------
2000 1999
------- -------
(in millions)

Deferred credits and other liabilities.................... $ 429 $ 500
International property, plant, & equipment................ 153 --
Other..................................................... 10 8
------- -------
Total deferred income tax assets...................... 592 508
Valuation allowance....................................... (9) (6)
------- -------
Net deferred income tax assets.......................... 583 502
------- -------
Investments and other assets.............................. (320) (245)
Property, plant and equipment............................. (2,707) (2,483)
Regulatory assets and deferred debits..................... (326) (427)
Regulatory asset related to restating to pre-tax basis.... (429) (432)
------- -------
Total deferred income tax liability................... (3,782) (3,587)
------- -------
State deferred income tax, net of federal tax effect...... (320) (340)
------- -------
Total net deferred income tax liability............... $(3,519) $(3,425)
======= =======

7. Risk Management and Financial Instruments

Commodity Derivatives--Trading. Duke Energy provides risk management
services to its customers through forward contracts, futures, over-the-counter
swap agreements and options (collectively, "commodity derivatives"). Duke
Energy engages in the trading of commodity derivatives, and therefore
experiences net open positions, which are managed with strict policies that
limit its exposure to market risk and require daily reporting to management of
potential financial exposure. These policies include statistical risk tolerance
limits using historical price movements to calculate a daily earnings at risk
measurement. The weighted-average life of Duke Energy's commodity trading
portfolio was approximately 25 months at December 31, 2000.

Net Gains Recognized from Trading Activities

2000 1999 1998
---- ---- ----
(in millions)

Natural gas................................................... $212 $83 $114
Electricity................................................... 368 41 14
Other(a)...................................................... 46 -- --

- --------
(a) Other includes refined products, fertilizer, crude oil and other
miscellaneous commodities.

Absolute Notional Contract Quantity of Commodity Derivatives Held for Trading
Purposes

December 31,
---------------
2000 1999
------- -------

Natural gas, in billion cubic feet........................... 39,716 17,248
Electricity, in gigawatt hours............................... 289,109 185,536
Fertilizer contracts, in thousands of tonnes................. 141,619 --
Refined products, in thousands of barrels.................... 451,133 --

F-19

DUKE ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Fair Values of Commodity Derivatives--Trading

2000 1999
-------------------- -------------------
Assets Liabilities Assets Liabilities
------- ----------- ------ -----------
(in millions)

Fair values at December 31,
Natural gas.......................... $45,423 $45,104 $2,966 $2,855
Electricity.......................... 9,436 9,254 1,302 1,271
Fertilizer contracts................. 5,886 5,850 -- --
Refined products..................... 1,192 1,159 -- --
Other(a)............................. 303 268 -- --
Eliminations......................... (46,984) (46,984) (2,447) (2,447)
------- ------- ------ ------
Total fair values.................. $15,256 $14,651 $1,821 $1,679
======= ======= ====== ======
Average fair values for the year
Natural gas.......................... 20,150 19,801 2,401 2,269
Electricity.......................... 6,650 6,558 962 900
Fertilizer contracts................. 3,002 2,974 -- --
Refined products..................... 1,345 1,309 -- --
Other(a)............................. 437 427 -- --

- --------
(a) Other includes crude oil and other miscellaneous commodities.

Commodity Derivatives--Non-Trading. Duke Energy also manages its exposure to
risk from existing assets, liabilities and commitments by hedging the impact of
market fluctuations. At December 31, 2000 and 1999, Duke Energy held or issued
several commodity derivatives, primarily in the form of swaps, that reduce
exposure to market price fluctuations for certain power and NGL production
facilities. At December 31, 2000, these commodity derivatives extended for
periods up to 10 years and generally contain margin requirements. The gains,
losses and costs related to non-trading commodity derivatives are not
recognized until the underlying physical transaction closes. At December 31,
2000 and 1999, Duke Energy had unrealized net losses of $1,642 million and $120
million, respectively, related to non-trading commodity derivatives. These
unrealized losses partially offset the unrealized market value gains related to
future cash flows from underlying asset positions.

Absolute Notional Contract Quantity of Commodity Derivatives Held for Non-
Trading Purposes

December 31,
-------------
2000 1999
------ ------

Natural gas, in billion cubic feet............................. 401 592
Electricity, in gigawatt hours................................. 75,932 45,877
Power capacity, in megawatt months............................. 35,325 25,950
Crude oil, in thousands of barrels............................. 43,991 32,764

Interest Rate Derivatives. Duke Energy periodically enters into financial
derivative instruments including, but not limited to, swaps, options and
interest rate locks to manage and mitigate interest rate risk related to
existing and anticipated borrowings. The notional amounts shown in the
following table serve solely as a basis for the calculation of payment streams
to be exchanged. These notional amounts are not a measure of Duke Energy's
exposure through its use of derivatives. Fair values shown in the following
table represent estimated amounts that Duke Energy would have received (paid)
if the swaps had been settled at current market rates on the respective dates.

F-20

DUKE ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Interest Rate Derivatives

December 31,
-------------------------------------------------
2000 1999
------------------------ ------------------------
Notional Fair Contracts Notional Fair Contracts
Amounts Value Expire Amounts Value Expire
-------- ----- --------- -------- ----- ---------
(dollars in millions)

Fixed-to-floating rate
swaps...................... $275 $27 2009 $100 $ 1 2000
Cancelable fixed-to-floating
rate swaps................. 630 20 2004-2022 -- -- --
CP(a) floating-to-fixed rate
swaps...................... 100 (1) 2001 500 1 2000
Interest rate locks......... 275 (9) 2011 -- -- --

- --------
(a) Commercial paper.

Gains and losses that have been deferred in anticipation of planned
financing transactions on interest rate swap derivatives have been capitalized
and are being amortized over the life of the underlying debt. These deferred
gains and losses were not material in 2000 or 1999. As a result of the interest
rate swap contracts, interest expense for the relative notional amount is
recognized at the weighted-average rates as depicted in the following table.

Weighted-Average Rates for Interest Rate Swaps

For the Years
Ended December
31,
----------------
2000 1999 1998
---- ---- ----

Fixed-to-floating rate swaps.................................. 6.50% 5.71% 6.04%
Cancelable fixed-to-floating rate swaps....................... 5.09% -- --
Commercial paper swaps........................................ 6.11% 4.95% --

Foreign Currency Derivatives. NAWE enters into foreign currency swap
agreements to manage foreign currency risks associated with energy contracts
denominated in foreign currencies, primarily in the Canadian dollar. As of
December 31, 2000, the agreements had a notional contract amount of
approximately $1,396 million, beginning in the year 2001 and extending through
the year 2005, and had a weighted-average fixed exchange rate of 1.4672
Canadian dollars to one U.S. dollar. As of December 31, 1999, the agreements
had a notional contract amount of approximately $762 million, beginning in the
year 2000 and extending to the year 2005, and had a weighted-average fixed
exchange rate of 1.470 Canadian dollars to one U.S. dollar. The fair value of
foreign currency swap agreements was not material at December 31, 2000 or 1999.

Market and Credit Risk. Duke Energy's principal markets for power and
natural gas marketing services are industrial end-users and utilities located
throughout the U.S., Canada, Asia Pacific and Latin America. Duke Energy has
concentrations of receivables from natural gas and electric utilities and their
affiliates, as well as industrial customers throughout these regions. These
concentrations of customers may affect Duke Energy's overall credit risk in
that certain customers may be similarly affected by changes in economic,
regulatory or other factors. On all transactions where Duke Energy is exposed
to credit risk, Duke Energy analyzes the counterparties' financial condition
prior to entering into an agreement, establishes credit limits and monitors the
appropriateness of these limits on an ongoing basis. As of December 31, 2000,
Duke Energy had approximately $400 million in receivables related to energy
sales in California. Duke Energy quantified its exposures with regard to those
receivables and recorded a provision of $110 million. See Note 14 to the
Consolidated Financial Statements for further information regarding credit
exposure.

F-21

DUKE ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Financial Instruments. The fair value of financial instruments is summarized
in the following table. Judgment is required in interpreting market data to
develop the estimates of fair value. Accordingly, the estimates determined as
of December 31, 2000 and 1999, are not necessarily indicative of the amounts
Duke Energy could have realized in current markets. The majority of the
estimated fair value amounts were obtained from independent parties.

Financial Instruments

2000 1999
------------------- ------------------
Book Approximate Book Approximate
Value Fair Value Value Fair Value
------- ----------- ------ -----------
(in millions)

Long-term debt(a)....................... $11,456 $12,198 $9,165 $8,891
Guaranteed preferred beneficial
interests in subordinated notes of Duke
Energy or subsidiaries................. 1,406 1,389 1,404 1,207
Preferred stock(a)...................... 280 275 313 303

- --------
(a) Includes current maturities.

The fair value of cash and cash equivalents, notes receivable, notes payable
and commercial paper are not materially different from their carrying amounts
because of the short-term nature of these instruments or because the stated
rates approximate market rates.

Guarantees made on behalf of affiliates or recourse provisions from
affiliates have no book value associated with them, and there are no fair
values readily determinable since quoted market prices are not available.

8. Investment in Affiliates

Investments in domestic and international affiliates that are not controlled
by Duke Energy but where Duke Energy has significant influence over operations
are accounted for by the equity method. These investments include undistributed
earnings of $70 million and $6 million in 2000 and 1999, respectively. Duke
Energy's share of net income from these affiliates is reflected in the
Consolidated Statements of Income as Other Operating Revenues.

Natural Gas Transmission. Investments primarily include ownership interests
in natural gas pipeline joint ventures which transport natural gas to the U.S.
from Canada. Investments include a 37.5% ownership interest in Maritimes &
Northeast Pipeline, LLC.

Field Services. Investments primarily include a 37% interest in a
partnership which owns natural gas gathering systems in the Gulf of Mexico
(Dauphin Island Gathering Partners) and a 21.1% ownership interest in TEPPCO.

North American Wholesale Energy. Significant investments include a 50%
indirect interest in VMC Generating Company, a merchant electric generating
company, a 32.5% indirect interest in American Ref-Fuel, LLC and a 50% interest
in Southwest Power Partners.

F-22

DUKE ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

International Energy. International Energy has investments in various
natural gas and electric generation and transmission facilities in its targeted
geographic areas. Significant investments include a 25% indirect interest in
National Methanol Company, which owns and operates a methanol and MTBE (methyl
tertiary butyl ether) business in Jubail, Saudi Arabia.

Other Energy Services. Investments include the participation in various
construction and support activities for fossil-fueled generating plants.

Duke Ventures. Significant investments include various real estate
development projects and a 20% interest in the BellSouth PCS joint venture
until its sale in 2000.

Investment in Affiliates

December 31, 2000 December 31, 1999 December 31, 1998
----------------------------- ----------------------------- ----------------------------
Domestic International Total Domestic International Total Domestic International Total
-------- ------------- ------ -------- ------------- ------ -------- ------------- -----
(in millions)

Natural Gas
Transmission........... $ 82 $ 88 $ 170 $ 67 $ 83 $ 150 $104 $ 37 $141
Field Services.......... 373 -- 373 439 -- 439 303 -- 303
North American Wholesale
Energy................. 635 9 644 425 -- 425 171 -- 171
International Energy.... -- 154 154 -- 224 224 -- 223 223
Other Energy Services... 11 7 18 51 6 57 19 23 42
Duke Ventures........... 23 -- 23 10 -- 10 24 -- 24
Other Operations........ (12) -- (12) (6) -- (6) (2) -- (2)
------ ---- ------ ---- ---- ------ ---- ---- ----
Total.................. $1,112 $258 $1,370 $986 $313 $1,299 $619 $283 $902
====== ==== ====== ==== ==== ====== ==== ==== ====

Equity in Earnings of Investment

For the years ended:
----------------------------------------------------------------------------------------
December 31, 2000 December 31, 1999 December 31, 1998
---------------------------- ---------------------------- ----------------------------
Domestic International Total Domestic International Total Domestic International Total
-------- ------------- ----- -------- ------------- ----- -------- ------------- -----
(in millions)

Natural Gas
Transmission........... $ 13 $ 4 $ 17 $ 16 $ 9 $ 25 $ 14 $ 3 $ 17
Field Services.......... 39 -- 39 44 -- 44 9 -- 9
North American Wholesale
Energy................. 36 -- 36 47 -- 47 50 -- 50
International Energy.... -- 43 43 -- 10 10 -- 18 18
Other Energy Services... (13) -- (13) 10 3 13 1 13 14
Duke Ventures........... (9) -- (9) (22) -- (22) (29) -- (29)
Other Operations........ (10) -- (10) (5) -- (5) -- -- --
---- ---- ---- ---- ---- ---- ---- ---- ----
Total.................. $ 56 $ 47 $103 $ 90 $ 22 $112 $ 45 $ 34 $ 79
==== ==== ==== ==== ==== ==== ==== ==== ====

F-23

DUKE ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Summarized Combined Financial Information of Unconsolidated Affiliates

December 31,
--------------------
2000 1999 1998
------ ------ ------
(in millions)

Balance Sheet
Current assets........................................... $1,242 $1,544 $ 848
Noncurrent assets........................................ 6,588 7,826 7,340
Current liabilities...................................... 888 1,155 1,084
Noncurrent liabilities................................... 4,404 4,727 3,884
------ ------ ------
Net assets............................................... $2,538 $3,488 $3,220
====== ====== ======
Income Statement
Operating revenues....................................... $4,617 $3,510 $1,667
Operating expenses....................................... 4,039 3,104 1,166
------ ------ ------
Net income............................................... 440 193 263
====== ====== ======

Duke Energy had outstanding notes receivable from certain affiliates of $70
million and $72 million at December 31, 2000 and 1999, respectively.

9. Net Property, Plant and Equipment

December 31,
-----------------
2000 1999
-------- -------
(in millions)

Land...................................................... $ 36 $ 25
Plant:
Electric generation and transmission.................... 11,734 11,717
Natural gas transmission................................ 11,281 10,290
Gathering and processing facilities..................... 4,434 2,466
Other buildings and improvements........................ 1,339 1,310
Leasehold improvements.................................. 14 8
Nuclear fuel.............................................. 761 741
Equipment................................................. 92 83
Vehicles.................................................. 36 37
Construction in process................................... 2,209 1,220
Other..................................................... 2,679 2,539
-------- -------
Total property, plant and equipment................... 34,615 30,436
Total accumulated depreciation(a)..................... (10,146) (9,441)
-------- -------
Total net property, plant and equipment............... $ 24,469 $20,995
======== =======

- --------
(a) Includes amortization of nuclear fuel: 2000--$503 million; 1999--$444
million.

Capitalized interest of $67 million, $52 million and $28 million is included
in the Consolidated Statements of Income for the years ended December 31, 2000,
1999 and 1998, respectively.

F-24

DUKE ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

10. Debt and Credit Facilities

Long-term Debt

December
31,
-----------
Year Due 2000 1999
---------- ----- -----
(in
millions)

Duke Energy
First and refunding mortgage bonds:(a)
5.875%--6.375%........................................ 2001--2008 $ 625 $ 625
6.750%--8.30%......................................... 2023--2025 661 661
7.0%--8.950%.......................................... 2027--2033 165 165
Pollution control debt, 3.850%--5.80%................... 2012--2017 172 172
Notes:
5.375%--9.210%........................................ 2009--2016 811 264
6.0%--6.60%........................................... 2028--2038 500 500
Commercial paper, 6.510% and 5.840% weighted-average
rate at December 31, 2000 and 1999, respectively(b).... 1,256 1,184
Other debt.............................................. 18 21
Notes matured during 2000............................... -- 200
Duke Capital Corporation
Senior notes:
6.250%--7.50%......................................... 2004--2009 1,400 1,250
6.750%--8.50%......................................... 2018--2019 650 650
Commercial paper, 6.660% and 5.910% weighted-average
rate at December 31, 2000 and 1999, respectively(b).. 1,378 535
Note payable to affiliate 6.140% and 5.030% weighted-
average rate at December 31, 2000 and 1999,
respectively........................................... 141 86
PanEnergy Corp
Bonds:
7.750%................................................ 2022 328 328
8.625% Debentures..................................... 2025 100 100
Notes:
7.0%--9.90%, maturing serially........................ 2003--2006 384 395
TETCO
Notes:
7.30%--10.375%........................................ 2001--2010 600 500
Medium-term, Series A, 7.640%--9.070%................. 2001--2012 51 51
Algonquin Gas Transmission Company
9.130% Notes............................................ 2003 100 100
DEFS
Notes, 7.50%--8.125%.................................... 2005--2030 1,700 --
Commercial paper, 7.390% weighted-average rate at
December 31, 2000...................................... 346 --
DENA
Bonds, 7.50%--10.0%..................................... 2010--2030 302 --
Capital leases.......................................... 2009--2028 272 207
Notes matured during 2000............................... -- 380

F-25

DUKE ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31,
---------------
Year Due 2000 1999
---------- ------- ------
(in millions)

DEI
Medium-term note, 7.250%.......................... 2004 139 162
Notes:
4.50%--18.0%.................................... 2001--2024 222 107
7.90%........................................... 2004--2013 138 161
6.0%--10.0%(c).................................. 2013--2017 477 485
Credit facilities, 6.130% and 6.010% weighted-
average rate at December 31, 2000 and 1999,
respectively..................................... 44 80
Commercial paper, 6.40% and 5.510% weighted-
average at December 31, 2000 and 1999,
respectively..................................... 223 49
Crescent(d)
Construction and mortgage loans, 6.30%--9.50%..... 2001--2010 67 46
Other debt of subsidiaries........................ 103 34
Unamortized debt discount and premium, net........ (91) (66)
------- ------
Total long-term debt.............................. 13,282 9,432
Current maturities of long-term debt.............. (437) (482)
Short-term notes payable and commercial paper..... (1,826) (267)
------- ------
Total long-term portion........................... $11,019 $8,683
======= ======

- --------
(a) Substantially all of Franchised Electric's plant was mortgaged.
(b) Extendible commercial notes are included in the 2000 amounts.
(c) Paranapanema (Brazil) debt, principal is indexed annually to inflation.
(d) Substantial amounts of Crescent's real estate development projects, land
and buildings were pledged as collateral.

The weighted-average interest rate on outstanding short-term notes payable
and commercial paper at December 31, 2000 and 1999, was 6.80% and 5.720%,
respectively.

Annual Maturities

(in millions)
-------------

2001........................................................... $ 437
2002........................................................... 263
2003........................................................... 475
2004........................................................... 956
2005........................................................... 922
Thereafter..................................................... 8,403
-------
Total long-term debt....................................... $11,456
=======

Included in the annual maturities after 2005 is $1,536 million of long-term
debt that has call options whereby Duke Energy has the option to repay the debt
early. Based on the years in which Duke Energy may first exercise its
redemption options, $95 million could potentially be repaid in 2001, $1,114
million in 2002, $227 million in 2003 and $100 million in 2005.

F-26

DUKE ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Credit Facilities

December 31, 2000 December 31, 1999
---------------------- ----------------------
Credit Credit
Facilities Outstanding Facilities Outstanding
---------- ----------- ---------- -----------
(in millions)

364-day facilities(a)........... $1,796 $ -- $ 823 $ 10
Three-year revolving
facilities..................... 84 44 565 450
Four-year revolving facilities.. 125 -- 125 --
Five-year revolving
facilities(a).................. 2,200 -- 2,200 --
------ ----- ------ ----
Total consolidated.......... $4,205 $ 44 $3,713 $460
====== ===== ====== ====

- --------
(a) Supported commercial paper facilities.

11. Nuclear Decommissioning Costs

Nuclear Decommissioning Costs. Estimated site-specific nuclear
decommissioning costs, including the cost of decommissioning plant components
not subject to radioactive contamination, total approximately $1.9 billion
stated in 1999 dollars based on decommissioning studies completed in 1999. This
amount includes Duke Energy's 12.5% ownership in the Catawba Nuclear Station.
The other joint owners of Catawba Nuclear Station are responsible for
decommissioning costs related to their ownership interests in the station. Both
the NCUC and the PSCSC have granted Duke Energy recovery of estimated
decommissioning costs through retail rates over the expected remaining service
periods of Duke Energy's nuclear stations. The operating licenses for Duke
Energy's nuclear units are subject to extension. On May 23, 2000, Duke Energy
was granted a license renewal for Oconee. The current operating licenses for
Duke Energy's nuclear units are as follows:

Operating Licenses for Nuclear Units

Unit Year
---- ----

McGuire 1............................................................... 2021
McGuire 2............................................................... 2023
Catawba 1............................................................... 2024
Catawba 2............................................................... 2026
Oconee 1 and 2.......................................................... 2033
Oconee 3................................................................ 2034

During 2000 and 1999, Duke Energy expensed approximately $57 million, which
was contributed to the external funds for decommissioning costs, and accrued an
additional $8 million to the internal reserve. Nuclear units are depreciated at
an annual rate of 4.7%, of which 1.61% is for decommissioning. The balance of
the external funds as of December 31, 2000 and 1999, was $717 million and $703
million, respectively. The balance of the internal reserve as of December 31,
2000 and 1999, was $231 million and $223 million, respectively, and is
reflected in the Consolidated Balance Sheets as Accumulated Depreciation and
Amortization. Management believes that the decommissioning costs being
recovered through rates, when coupled with expected fund earnings, are
currently sufficient to provide for the cost of decommissioning.

A provision in the Energy Policy Act of 1992 established a fund for the
decontamination and decommissioning of the Department of Energy's (DOE) uranium
enrichment plants (the D&D Fund). Licensees are subject to an annual assessment
for 15 years based on their pro rata share of past enrichment services. On June
12, 1998, Duke Energy and 21 other utilities filed a lawsuit challenging the
constitutionality of the D&D Fund and seeking an injunction that prohibits the
government from collecting the assessment and a refund of all

F-27

DUKE ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

assessments paid. The annual assessment is recorded in the Consolidated
Statements of Income as Fuel Used in Electric Generation. Duke Energy paid $10
million during 2000 and has paid $85 million cumulatively related to its
ownership interests in nuclear plants. The remaining liability and regulatory
assets of $62 million and $70 million at December 31, 2000 and 1999,
respectively, are reflected in the Consolidated Balance Sheets as Deferred
Credits and Other Liabilities, and Regulatory Assets and Deferred Debits,
respectively.

Spent Nuclear Fuel. Under provisions of the Nuclear Waste Policy Act of
1982, Duke Energy has entered into contracts with the DOE for the disposal of
spent nuclear fuel. The DOE failed to begin accepting the spent nuclear fuel on
January 31, 1998, the date provided by the Nuclear Waste Policy Act and by
Duke Energy's contract with the DOE. On June 8, 1998, Duke Energy filed with
the U.S. Court of Federal Claims a claim against the DOE for damages in excess
of $1 billion arising out of the DOE's failure to begin accepting commercial
spent nuclear fuel by January 31, 1998. Damages claimed in the suit are
intended to recover costs that Duke Energy is incurring and will continue to
incur as a result of the DOE's partial material breach of its contract with
Duke Energy, including costs associated with securing additional spent fuel
storage capacity. Duke Energy will continue to safely manage its spent nuclear
fuel until the DOE accepts it. Payments made to the DOE for disposal costs are
based on nuclear output and are included in the Consolidated Statements of
Income as Fuel Used in Electric Generation.

12. Guaranteed Preferred Beneficial Interests in Subordinated Notes of Duke
Energy or Subsidiaries

Duke Energy and certain subsidiaries have each formed business trusts for
which they own all the respective common securities. The trusts issue and sell
preferred securities and invest the gross proceeds in junior subordinated notes
issued by the respective parent companies.

Trust Preferred Securities

December 31,
--------------
Issued Rate Due 2000 1999
------ ------ ---- ---- ------
(in millions)

1997............................................... 7.20% 2037 $ 350 $ 350
1998............................................... 7.375% 2038 350 350
1998............................................... 7.375% 2038 250 250
1999............................................... 8.375% 2029 250 250
1999............................................... 7.20% 2039 250 250
Unamortized debt discount.......................... (44) (46)
------ ------
$1,406 $1,404
====== ======

These trust preferred securities represent preferred undivided beneficial
interests in the assets of the respective trusts. Payment of distributions on
these preferred securities is guaranteed by the respective parent company, but
only to the extent the trusts have funds legally and immediately available to
make such distributions. Dividends of $108 million, $87 million and $44 million
related to the trust preferred securities have been included in the
Consolidated Statements of Income as Minority Interest Expense for the years
ended December 31, 2000, 1999 and 1998, respectively.

F-28

DUKE ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

13. Preferred and Preference Stock

Authorized Shares of Stock as of December 31, 2000 and 1999

Par Value Shares
--------- ------------
(in millions)

Preferred Stock...................................... $100 12.5
Preferred Stock A.................................... $ 25 10.0
Preference Stock..................................... $100 1.5

As of December 31, 2000 and 1999, there were no shares of preference stock
outstanding.

Preferred Stock with Sinking Fund Requirements

Shares
Outstanding December 31,
Year At December 31, -----------------------
Rate/Series Issued 2000 2000 1999
----------- ------ --------------- ---- -----------
(dollars in millions)

6.20% D (Preferred Stock A)...... 1992 800,000 $ 20 $ 20
6.30% U.......................... 1992 130,000 13 13
6.40% V.......................... 1992 130,000 13 13
6.75% X.......................... 1993 250,000 25 25
6.10% C (Preferred Stock A)(a)... 1992 -- -- 20
6.20% T(a)....................... 1992 -- -- 13
---------- -----------
Total........................ $ 71 $ 104
========== ===========

- --------
(a) Preferred stock series C and T redeemed in September and December, 2000,
respectively.

The annual sinking fund requirements for 2001 through 2005 are $33 million,
$13 million, $2 million, $2 million and $2 million, respectively. Some
additional redemptions are permitted at Duke Energy's option.

Preferred Stock without Sinking Fund Requirements

Shares
Outstanding December 31,
Year At December 31, ------------------------
Rate/Series Issued 2000 2000 1999
----------- ------ --------------- ----------- -----------
(dollars in millions)

4.50% C......................... 1964 175,000 $ 18 $ 18
7.85% S......................... 1992 300,000 30 30
7.00% W......................... 1993 249,989 25 25
7.04% Y......................... 1993 299,995 30 30
6.375% (Preferred Stock A)...... 1993 1,257,185 31 31
Auction Series A................ 1990 750,000 75 75
---------- -----------
Total....................... $ 209 $ 209
========== ===========

The call provisions for the outstanding preferred stock specify various
redemption prices not exceeding 104% of par value, plus accumulated dividends
to the redemption date.

F-29

DUKE ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

14. Commitments and Contingencies

Nuclear Insurance. Duke Energy owns and operates the McGuire and Oconee
Nuclear Stations with two and three nuclear reactors, respectively, and
operates and has a partial ownership interest in the Catawba Nuclear Station
with two nuclear reactors. Nuclear insurance coverage is maintained in three
program areas: liability coverage; property, decontamination and
decommissioning coverage; and business interruption and/or extra expense
coverage. Certain expenses associated with nuclear insurance premiums paid by
Duke Energy are reimbursed by the other joint owners of the Catawba Nuclear
Station.

Pursuant to the Price-Anderson Act, Duke Energy is required to insure
against public liability claims resulting from nuclear incidents to the full
limit of liability of approximately $9.5 billion.

Primary Liability Insurance. The maximum required private primary liability
insurance of $200 million has been purchased along with a like amount to cover
certain worker tort claims.

Excess Liability Insurance. This policy currently provides approximately
$9.3 billion of coverage through the Price-Anderson Act's mandatory industry-
wide excess secondary insurance program of risk pooling. The $9.3 billion of
coverage is the sum of the current potential cumulative retrospective premium
assessments of $88 million per licensed commercial nuclear reactor. This $9.3
billion will be increased by $88 million as each additional commercial nuclear
reactor is licensed, or reduced by $88 million for certain nuclear reactors
that are no longer operational and may be exempted from the risk pooling
insurance program. Under this program, licensees could be assessed
retrospective premiums to compensate for damages in the event of a nuclear
incident at any licensed facility in the nation. If such an incident occurs and
public liability damages exceed primary insurances, licensees may be assessed
up to $88 million for each of their licensed reactors, payable at a rate not to
exceed $10 million a year per licensed reactor for each incident. The $88
million amount is subject to indexing for inflation and may be subject to state
premium taxes.

Duke Energy is a member of Nuclear Electric Insurance Limited (NEIL), which
provides property and business interruption insurance coverage for Duke
Energy's nuclear facilities under the following three policy programs:

Primary Property Insurance. This policy provides $500 million in primary
property damage coverage for each of Duke Energy's nuclear facilities.

Excess Property Insurance. This policy provides excess property,
decontamination and decommissioning liability insurance in the following
amounts: $2.25 billion for the Catawba Nuclear Station and $1.5 billion each
for the Oconee and McGuire Nuclear Stations.

Business Interruption Insurance. This policy provides business interruption
and/or extra expense coverage resulting from an accidental outage of a nuclear
unit. Each unit of the McGuire and Catawba Nuclear Stations is insured for up
to approximately $4 million per week and the Oconee Nuclear Station units are
insured for up to approximately $3 million per week. Coverage amounts per unit
decline if more than one unit is involved in an accidental outage. Initial
coverage begins after a 12-week deductible period and continues at 100% for 52
weeks and 80% for the next 110 weeks.

If NEIL's losses ever exceed its reserves for any of the above three
programs, Duke Energy will be liable for assessments of up to five times its
annual premiums. The current potential maximum assessments are as follows:
Primary Property Insurance--$18 million; Excess Property Insurance--$18
million; Business Interruption Insurance--$15 million.

F-30

DUKE ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The other joint owners of the Catawba Nuclear Station are obligated to
assume their pro rata share of any liabilities for retrospective premiums and
other premium assessments resulting from the Price-Anderson Act's excess
secondary insurance program of risk pooling or the NEIL policies.

Environmental. Duke Energy is subject to international, federal, state and
local regulations regarding air and water quality, hazardous and solid waste
disposal and other environmental matters.

Air Quality Control. In October 1998, the EPA issued a final rule on
regional ozone control that required 22 eastern states and the District of
Columbia to revise their State Implementation Plans (SIPs) to significantly
reduce emissions of nitrogen oxide by May 1, 2003. The EPA's rule was
challenged in court by various states, industry and other interests, including
the states of North Carolina and South Carolina, and Duke Energy. In March
2000, the court upheld most aspects of the EPA's rule. The same court
subsequently issued a decision that extended the compliance deadline for
implementation of emission reductions to May 31, 2004. In January 2000, the EPA
finalized another ozone-related rule under Section 126 of the Clean Air Act
(CAA) that has virtually identical emission control requirements as its October
1998 action, but with a May 1, 2003 compliance date. The EPA's 2000 rule has
been challenged in court. The court is expected to issue its decision during
the spring of 2001.

F-31

DUKE ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

estimated time period which continues through 2007. Emission control retrofits
of this type are large technical, design and construction projects. These
projects will be managed closely to ensure the continuation of reliable
electric service to Duke Energy's customers throughout the projects and upon
their completion.

On December 22, 2000, the U.S. Justice Department, acting on behalf of the
EPA, filed a complaint against Duke Energy in the U.S. District Court in
Greensboro, North Carolina, for alleged violations of the New Source Review
(NSR) provisions of the CAA. The EPA is claiming that 29 projects performed at
25 of Duke Energy's coal-fired units were major modifications as defined in the
CAA and that Duke Energy violated the CAA's NSR requirements when it undertook
those projects without obtaining permits and installing emission controls for
sulfur dioxide, nitrogen oxide and particulate matter. The complaint requests,
among other things, that the court enjoin Duke Energy from operating the coal-
fired units identified in the complaint, and order Duke Energy to install
additional emission controls and pay unspecified civil penalties. This
complaint appears to be part of the EPA's NSR enforcement initiative, in which
the EPA claims that utilities and others have committed widespread violations
of the CAA permitting requirements for the past 25 years. The EPA has sued or
issued notices of violation or investigative information requests, to at least
48 other electric utilities and cooperatives.

Injury and Damages Claims. Duke Energy has experienced numerous claims
relating to damages for personal injury alleged to have arisen from the
exposure to or use of asbestos in connection with construction and maintenance
activities conducted by Duke Energy on its electric generation plants during
the 1960s and 1970s. During 1999, Duke Energy experienced a significant
increase in the number of these claims. This increase, coupled with its
cumulative experience in claims received, prompted Duke Energy to conduct a
comprehensive review which was completed in late 1999 and to record an $800
million accrual, which is included in Other Deferred Credits and Other
Liabilities in the Consolidated Balance Sheets, to reflect the purchase of a
third-party insurance policy as well as estimated amounts for future claims not
recoverable under such policy. The insurance policy, combined with amounts
covered by self-insurance reserves, provides for claims paid up to an aggregate
of $1.6 billion. Duke Energy currently believes the estimated claims relating
to this exposure will not exceed such amount. While Duke Energy is uncertain as
to the timing of when claims will be received, portions of the estimated claims
may not be received and paid for 30 or more years.

While Duke Energy has recorded an accrual related to this estimated
liability, such estimates cannot be made with certainty. Factors, such as the
frequency and magnitude of claims, could result in changes in the estimates of
the injury and damages liability and insurance recoveries. Such changes could
result in, over time, a difference from the amount currently reflected in the
financial statements. However, due to Duke Energy's insurance program relating
to this liability, management believes that any changes in the estimates would
not have a material adverse effect on consolidated results of operations, cash
flows or financial position.

F-32

DUKE ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

"generators and traders" of electricity in California markets. DETM also was
named as one of numerous defendants in four additional lawsuits, including two
class actions (the Hendricks and Pier 23 Restaurant lawsuits), filed against
generators, marketers and traders and other unnamed providers of electricity in
California markets. These suits were brought either by or on behalf of
electricity consumers in the State of California. The Gordon and Hendricks
class action suits were filed in the Superior Court of the State of California,
San Diego County, in November 2000. The other three suits were filed in January
2001, one in the Superior Court of the State of California, San Diego County,
and the other two in the Superior Court of the State of California, County of
San Francisco. These suits generally allege that the defendants manipulated the
wholesale electricity markets in violation of state laws against unfair and
unlawful business practices and state antitrust laws. Plaintiffs in the Gordon
suit seek aggregate damages of over $4 billion, and the plaintiffs in the other
suits, to the extent damages are specified, allege damages in excess of $1
billion. The lawsuits each seek the disgorgement of alleged unlawfully obtained
revenues for sales of electricity and, in three suits, an award of treble
damages.

At the state level, the California Public Utilities Commission, the
California Electricity Oversight Board, the California Bureau of State Audits
and the California Office of the Attorney General all have separate ongoing
investigations into the high prices and their causes. None of those
investigations have been completed and no findings have been made in connection
with any of them.

Litigation. Exxon Mobil Corporation Arbitration. In December 2000, three
subsidiaries of Duke Energy initiated binding arbitration against three
subsidiaries of the Exxon Mobil Corporation (collectively, the "Exxon Mobil
entities") concerning the parties' joint ownership of DETM and certain related
affiliates (collectively, the "Ventures"). At issue is a buy-out right
provision in the parties' agreement. The agreements governing the ownership of
the Ventures contain provisions giving Duke Energy the right to purchase the
Exxon Mobil entities' 40% interest in the Ventures in the event material
business disputes arise between the Ventures' owners. Such disputes have
arisen, and consequently, Duke Energy exercised its right to buy the Exxon
Mobil entities' interest. Duke Energy claims that refusal by the Exxon Mobil
entities to honor the

F-33

DUKE ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

exercise is a breach of the buy-out right provision, and seeks specific
performance of the provision. Duke Energy also complains of the Exxon Mobil
entities' lack of use of, and contributions to, the Ventures.

Other Commitments and Contingencies. Financial Guarantees. Certain
subsidiaries of Duke Energy have guaranteed debt agreements of affiliates and
have provided surety bonds and letters of credit, all of which totaled
approximately $1.9 billion and $853 million as of December 31, 2000 and 1999,
respectively. The increase in the amount of these obligations is primarily due
to increasing support for margin deposits and power exchange participation.

Leases. Duke Energy utilizes assets under operating leases in several areas
of operations. Consolidated rental expense amounted to $90 million, $87 million
and $80 million in 2000, 1999 and 1998, respectively. Future minimum rental
payments under Duke Energy's various operating leases for the years 2001
through 2005 are $74 million, $60 million, $51 million, $44 million and $38
million, respectively.

15. Common Stock

On December 20, 2000, Duke Energy announced a two-for-one common stock split
effective January 26, 2001, to shareholders of record on January 3, 2001. All
outstanding share and per share amounts have been restated to reflect the stock
split, and appropriate adjustments have been made in the exercise price and
number of shares subject to stock options along with appropriate adjustments to
stock amounts and other employee benefit programs. Effective with the stock
split, the quarterly cash dividend rate on common stock is $0.275 per share,
subject to declaration from time to time by the Board of Directors.

At its December 20, 2000 meeting, the Board of Directors approved a proposal
to increase the number of authorized shares of common stock from one billion to
two billion. Such an increase is subject to shareholder approval at the Duke
Energy Corporation Annual Meeting of Shareholders to be held on April 26, 2001.

16. Stock-Based Compensation

All of the following information regarding outstanding common stock shares
and options has been restated to reflect the two-for-one common stock split
discussed in Note 15 to the Consolidated Financial Statements.

Under Duke Energy's 1998 Long-term Incentive Plan (the 1998 Plan), stock
options for up to 30 million shares of common stock may be granted to key
employees. Under the 1998 Plan, the exercise price of each option granted is
required to be no less than the market price of Duke Energy's common stock on
the date of grant. Vesting periods range from one to five years with a maximum
term of 10 years. An amendment to the 1998 Plan, subject to shareholder
approval at the Duke Energy Corporation Annual Meeting of Shareholders to be
held on April 26, 2001, will increase the number of shares of common stock
available under the 1998 Plan to 60 million shares.

F-34

DUKE ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Stock Option Activity

Weighted-
Average
Exercise
Options Price
-------------- ---------
(in thousands)

Outstanding at December 31, 1997....................... 5,459 $12
Granted.............................................. 7,096 29
Exercised............................................ (1,896) 11
Forfeited............................................ (1,736) 29
------
Outstanding at December 31, 1998....................... 8,923 23
Granted.............................................. 10,308 27
Exercised............................................ (856) 12
Forfeited............................................ (750) 29
------
Outstanding at December 31, 1999....................... 17,625 25
Granted.............................................. 7,594 41
Exercised............................................ (2,047) 21
Forfeited............................................ (666) 27
------
Outstanding at December 31, 2000....................... 22,506 31
======

Stock Options at December 31, 2000

Outstanding Exercisable
----------------------------------- ------------------------
Weighted- Weighted- Weighted-
Range of Average Average Average
Exercise Remaining Exercise Exercise
Prices Number Life Price Number Price
-------- ------ --------- --------- ------ ---------
(in thousands) (in years) (in thousands)

$5 to $7 7 1.3 $ 7 7 $ 7
$8 to $10 944 3.1 10 944 10
$11 to $12 203 3.3 12 203 12
$13 to $16 220 5.1 14 220 14
$21 to $25 6,115 8.9 25 1,532 24
$26 to $30 7,726 7.7 29 2,111 29
$31 to $34 578 8.0 32 185 33
> $34 6,713 10.0 43 -- --
------ -----
Total 22,506 5,202 $23
====== =====

Duke Energy had 3.6 million and 3.0 million options exercisable at December
31, 1999 and 1998, with weighted-average exercise prices of $17 and $11 per
option, respectively.

The weighted-average fair value of options granted was $10, $5 and $4 per
option during 2000, 1999 and 1998, respectively. The fair value of each option
grant was estimated on the date of grant using the Black-Scholes option-pricing
model.

F-35

DUKE ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Weighted-Average Assumptions for Option-Pricing

2000 1999 1998
------- ------- -------

Stock dividend yield.................................... 3.7% 4.1% 4.2%
Expected stock price volatility......................... 25.1% 18.8% 15.1%
Risk-free interest rates................................ 5.3% 5.9% 5.6%
Expected option lives................................... 7 years 7 years 7 years

Had compensation expense for stock-based compensation been determined based
on the fair value at the grant dates, 2000 net income would have been $1,764
million, or $2.37 per basic share; 1999 net income would have been $1,498
million, or $2.03 per basic share; and 1998 net income would have been $1,250
million, or $1.70 per basic share.

Under Duke Energy's 1996 Stock Incentive Plan (the 1996 Plan), four million
shares of common stock were reserved for awards to employees. Restricted stock
grants made under the 1996 Plan vest over periods ranging from one to five
years. Duke Energy awarded 294,526 restricted shares (fair value at grant dates
of approximately $8 million) in 2000 and 131,700 restricted shares (fair value
at grant dates of approximately $4 million) in 1999. Compensation expense for
the grants is charged to earnings over the restriction period and amounted to
$4 million in 2000 and was not material in 1999 or 1998.

Duke Energy granted Company Performance Awards under the 1998 Plan, under
which 30 million shares of common stock have been reserved for employee and
outside director awards. These share grants under the 1998 Plan vest over
periods ranging between one and seven years. Duke Energy awarded 225,000 of
these shares (fair value at grant dates of $7 million) in 2000 and 986,400 of
these shares (fair value at grant dates of $26 million) in 1999. Compensation
expense for the stock grants is charged to earnings over the vesting period,
and amounted to $7 million in 2000, $3 million in 1999 and zero in 1998.

17. Employee Benefit Plans

Retirement Plans. Duke Energy and its subsidiaries maintain a non-
contributory defined benefit retirement plan covering most employees with
minimum service requirements using a cash balance formula. Under a cash balance
formula, a plan participant accumulates a retirement benefit based upon a
percentage, which may vary with age and years of service, of current eligible
earnings and current interest credits.

On December 31, 1998, all defined benefit retirement plans maintained by
Duke Energy and its subsidiaries, except for the PanEnergy retirement plan,
were merged to form the Duke Energy Retirement Cash Balance Plan (the Duke
Energy Plan). The plan merger changed the benefit for certain participants,
from a formula based primarily on benefit accrual service and highest average
earnings, to a cash balance formula.

Through December 31, 1998, the PanEnergy retirement plan provided retirement
benefits (i) for eligible employees of certain subsidiaries that are generally
based on an employee's years of benefit accrual service and highest average
eligible earnings, and (ii) for eligible employees of certain other
subsidiaries under a cash balance formula. In 1998, a significant amount of
lump sum payouts were made from the PanEnergy plan resulting in a settlement
gain of $10 million. Effective January 1, 1999, the benefit formula under the
PanEnergy plan, for all eligible employees, was changed to a cash balance
formula.

In connection with the 1999 sale of the Midwest Pipelines to CMS, benefit
accruals under the PanEnergy plan were frozen on December 31, 1998, for all
participants who, as a result of the sale, became employees of CMS and its
subsidiaries. Once the transfer of the benefit obligation and related assets of
the affected participants to CMS was completed, the PanEnergy plan was merged
into the Duke Energy Plan.

F-36

DUKE ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Duke Energy's policy is to fund amounts, as necessary, on an actuarial basis
to provide assets sufficient to meet benefits to be paid to plan participants.
No contributions to the Duke Energy Plan were necessary in 2000 or 1999. The
net unrecognized transition asset, resulting from the implementation of accrual
accounting, is being amortized over approximately 20 years.

Components of Net Periodic Pension Costs

For the Years Ended
December 31,
----------------------
2000 1999 1998
------ ------ ------
(in millions)

Service cost benefit earned during the year............. $ 70 $ 72 $ 63
Interest cost on projected benefit obligation........... 184 165 169
Expected return on plan assets.......................... (244) (224) (218)
Amortization of prior service cost...................... (3) (3) (4)
Amortization of net transition asset.................... (4) (4) (4)
Recognized net actuarial loss........................... -- 12 10
Settlement gain......................................... -- -- (10)
------ ------ ------
Net periodic pension costs.............................. $ 3 $ 18 $ 6
====== ====== ======

Reconciliation of Funded Status to Pre-funded Pension Costs

December 31,
--------------
2000 1999
------ ------
(in millions)

Change in Benefit Obligation
Benefit obligation at beginning of year...................... $2,446 $2,540
Service cost................................................. 70 72
Interest cost................................................ 184 165
Actuarial (gain) loss........................................ 16 (41)
Transfer to CMS.............................................. -- (85)
Benefits paid................................................ (130) (205)
------ ------
Benefit obligation at end of year............................ $2,586 $2,446
------ ------
Change in Plan Assets
Fair value of plan assets at beginning of year(a)............ $3,121 $2,920
Actual return on plan assets................................. 47 491
Transfer to CMS.............................................. -- (85)
Benefits paid................................................ (130) (205)
------ ------
Fair value of plan assets at end of year(a).................. $3,038 $3,121
------ ------
Funded status................................................ $ 452 $ 675
Unrecognized net experience gain............................. (110) (315)
Unrecognized prior service cost reduction.................... (22) (24)
Unrecognized net transition asset............................ (16) (21)
------ ------
Pre-funded pension costs..................................... $ 304 $ 315
====== ======

- --------
(a) Principally equity and fixed-income securities.

F-37

DUKE ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Assumptions Used for Pension Benefits Accounting(a)

2000 1999 1998
---- ---- ----
(percent)

Discount rate.................................................... 7.50 7.50 6.75
Salary increase.................................................. 4.53 4.50 4.67
Expected long-term rate of return on plan assets................. 9.25 9.25 9.25

- --------
(a) Reflects weighted averages across all plans.

Duke Energy also sponsors employee savings plans that cover substantially
all employees. Employer matching contributions of $66 million, $68 million and
$53 million were expensed in 2000, 1999 and 1998, respectively.

Other Postretirement Benefits. Duke Energy and most of its subsidiaries
provide certain health care and life insurance benefits for retired employees
on a contributory and non-contributory basis. Employees become eligible for
these benefits if they have met certain age and service requirements at
retirement, as defined in the plans. Under plan amendments effective late 1998
and early 1999, health care benefits for future retirees were changed to limit
employer contributions and medical coverage.

Such benefit costs are accrued over the active service period of employees
to the date of full eligibility for the benefits. The net unrecognized
transition obligation, resulting from the implementation of accrual accounting,
is being amortized over approximately 20 years.

Components of Net Periodic Postretirement Benefit Costs

For the Years
Ended
December 31,
----------------
2000 1999 1998
---- ---- ----
(in millions)

Service cost benefit earned during the year................. $ 5 $ 7 $ 10
Interest cost on accumulated postretirement benefit
obligation................................................. 43 40 43
Expected return on plan assets.............................. (23) (21) (18)
Amortization of prior service cost.......................... 1 1 7
Amortization of net transition obligation................... 18 18 16
Recognized net actuarial (gain) loss........................ -- (1) 1
---- ---- ----
Net periodic postretirement benefit costs................... $ 44 $ 44 $ 59
==== ==== ====

F-38

DUKE ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Reconciliation of Funded Status to Accrued Postretirement Benefit Costs

December
31,
------------
2000 1999
----- -----
(in
millions)

Change in Benefit Obligation
Accumulated postretirement benefit obligation at beginning of
year........................................................ $ 562 $ 625
Service cost................................................. 5 7
Interest cost................................................ 43 40
Plan participants' contributions............................. 7 7
Actuarial (gain) loss........................................ 39 (68)
Benefits paid................................................ (42) (49)
----- -----
Accumulated postretirement benefit obligation at end of
year........................................................ $ 614 $ 562
----- -----
Change in Plan Assets
Fair value of plan assets at beginning of year(a)............ $ 327 $ 305
Actual return on plan assets................................. 8 41
Employer contributions....................................... 25 23
Plan participants' contributions............................. 7 7
Benefits paid................................................ (42) (49)
----- -----
Fair market value of plan assets at end of year(a)........... $ 325 $ 327
----- -----
Funded status................................................ $(289) $(235)
Unrecognized net experience gain............................. (47) (110)
Unrecognized prior service cost.............................. 5 8
Unrecognized transition obligation........................... 214 229
----- -----
Accrued postretirement benefit costs......................... $(117) $(108)
===== =====

- --------
(a) Principally equity and fixed-income securities.

Assumptions Used for Postretirement Benefits Accounting(a)

2000 1999 1998
----- ----- -----
(percent)

Discount rate................................................. 7.50 7.50 6.75
Salary increase............................................... 4.53 4.50 4.67
Expected long-term rate of return on assets................... 9.25 9.25 9.25
Assumed tax rate(b)........................................... 39.60 39.60 39.60

- --------
(a) Reflects weighted averages across all plans.
(b) Applicable to the health care portion of funded postretirement benefits.

For measurement purposes, a 6% average annual rate of increase in the per
capita cost of covered health care benefits was assumed for 2000 and beyond.
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plans.

F-39

DUKE ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Sensitivity to Changes in Assumed Health Care Cost Trend Rates

1-Percentage- 1-Percentage-
Point Increase Point Decrease
-------------- --------------
(in millions)

Effect on total service and interest costs.... $ 2 $ (2)
Effect on postretirement benefit obligation... 27 (25)

18. Quarterly Financial Data (Unaudited)

First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -------
(In millions, except per share data)

2000
Operating revenues................... $7,290 $10,926 $15,691 $15,411 $49,318
Operating income..................... 812 794 1,501 706 3,813
EBIT................................. 859 837 1,556 762 4,014
Net income........................... 393 329 770 284 1,776
Earnings per share(a)
Basic.............................. $ 0.53 $ 0.44 $ 1.04 $ 0.38 $ 2.39
Diluted............................ $ 0.53 $ 0.44 $ 1.03 $ 0.38 $ 2.38
1999
Operating revenues................... $4,178 $ 4,691 $ 6,676 $ 6,221 $21,766
Operating income..................... 645 531 866 (223) 1,819
EBIT................................. 683 568 908 (116) 2,043
Income before extraordinary item..... 307 288 441 (189) 847
Net income........................... 967 288 441 (189) 1,507
Earnings per share (before
Extraordinary item)(a)
Basic.............................. $ 0.41 $ 0.39 $ 0.60 $ (0.27) $ 1.13
Diluted............................ $ 0.41 $ 0.39 $ 0.60 $ (0.27) $ 1.13
Earnings per share(a)
Basic.............................. $ 1.32 $ 0.39 $ 0.60 $ (0.27) $ 2.04
Diluted............................ $ 1.32 $ 0.39 $ 0.60 $ (0.27) $ 2.03

- --------
(a) Restated to reflect the two-for-one common stock split effective January
26, 2001.

F-40

PROSPECTUS

$2,000,000,000

Duke Energy Corporation

Senior Notes
Junior Subordinated Notes
First and Refunding Mortgage Bonds
Common Stock
Stock Purchase Contracts
Stock Purchase Units

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

Duke Energy Capital Trust III

Duke Energy Capital Trust IV

Duke Energy Capital Trust V

Trust Preferred Securities
Guaranteed, to the extent described herein, by

Duke Energy Corporation

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

This prospectus contains summaries of the general terms of these
securities. You will find the specific terms of these securities, and the
manner in which they are being offered, in supplements to this prospectus. You
should read this prospectus and the applicable prospectus supplement carefully
before you invest.

The Common Stock of Duke Energy is listed on the New York Stock Exchange
under the symbol "DUK."

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.

This prospectus is dated December 26, 2000.

ABOUT THIS PROSPECTUS

This prospectus is part of a registration statement that Duke Energy,
Duke Energy Capital Trust III, Duke Energy Capital Trust IV and Duke Energy
Capital Trust V filed with the SEC utilizing a "shelf" registration process.
Under the shelf registration process, Duke Energy may issue Senior Notes,
Junior Subordinated Notes, First and Refunding Mortgage Bonds, Common Stock,
Stock Purchase Contracts and Stock Purchase Units and the Trusts may issue
Preferred Securities in one or more offerings up to a total dollar amount of
$2,000,000,000.

This prospectus provides general descriptions of the securities Duke
Energy and the Trusts may offer. Each time securities are sold, a prospectus
supplement will provide specific information about the terms of that offering.
The prospectus supplement may also add, update or change information contained
in this prospectus. The registration statement filed with the SEC includes
exhibits that provide more details about the matters discussed in this
prospectus. You should read this prospectus, the related exhibits filed with
the SEC and any prospectus supplement, together with the additional information
described under the caption "Where You Can Find More Information."

DUKE ENERGY CORPORATION

Duke Energy, together with its subsidiaries, is an integrated energy and
energy services provider with the ability to offer physical delivery and
management of both electricity and natural gas throughout the United States and
abroad. Duke Energy, directly or through its subsidiaries, provides these and
other services through seven business segments:

. Franchised Electric
. Natural Gas Transmission
. Field Services
. North American Wholesale Energy
. International Energy
. Other Energy Services
. Duke Ventures

Franchised Electric generates, transmits, distributes and sells electric
energy in central and western North Carolina and the western portion of South
Carolina (doing business as Duke Power or Nantahala Power and Light).

Natural Gas Transmission conducts its operations primarily through Duke
Energy Gas Transmission Corporation, and provides interstate transportation and
storage of natural gas for customers primarily in the Mid-Atlantic, New England
and southeastern states.

Field Services gathers, processes, transports, markets and stores natural
gas, and produces, transports and markets natural gas liquids. Field Services'
operations are conducted primarily through Duke Energy Field Services, LLC, a
limited liability company that is approximately 30% owned by Phillips Petroleum
Company. Field Services operates gathering systems in western Canada and eleven
contiguous states that serve major gas-producing regions in the Rocky
Mountains, Permian Basin, Mid-Continent, East Texas-Austin Chalk-North
Louisiana areas and onshore and offshore Gulf Coast areas.

North American Wholesale Energy's activities include asset development,
operation and management, primarily through Duke Energy North America, LLC, as
well as commodity sales and services related to natural gas and power,
primarily through Duke Energy Trading and Marketing

(DETM), a joint venture with Exxon Mobil Corporation, a 40% partner in DETM.
This segment also includes Duke Energy Merchants, which develops new business
lines in the evolving energy commodity markets. North American Wholesale Energy
conducts its business throughout the United States and western Canada.

International Energy conducts its operations through Duke Energy
International, LLC. International Energy's activities include asset
development, operation and management of international energy-related
facilities, primarily in Latin America, Asia Pacific and Europe. International
Energy also provides worldwide energy trading and marketing of natural gas and
electric power.

Other Energy Services is a combination of certain other businesses that
provide engineering, consulting, construction and integrated energy solutions
worldwide, primarily through Duke Engineering & Services, Inc., Duke/Fluor
Daniel and DukeSolutions, Inc. Duke/Fluor Daniel is a 50/50 partnership between
Duke Energy and Fluor Enterprises, Inc.

Duke Ventures is comprised of other diverse businesses, primarily
operating through Crescent Resources, Inc., DukeNet Communications and Duke
Capital Partners. Crescent Resources develops high quality commercial and
residential real estate projects and manages land holdings primarily in the
southeastern United States. DukeNet Communications provides fiber optic and
wireless digital networks for industrial, commercial and residential customers.
Duke Capital Partners, a wholly owned merchant finance company, provides
financing, investment banking and asset management services to wholesale and
commercial energy markets.

The foregoing information about Duke Energy and its business segments is
only a general summary and is not intended to be comprehensive. For additional
information about Duke Energy and its business segments you should refer to the
information described under the caption "Where You Can Find More Information."

Duke Energy's principal executive offices are located at 526 South Church
Street, Charlotte, North Carolina 28202 (telephone (704) 594-6200).

Ratio of Earnings to Fixed Charges
(unaudited)

Nine Months
Ended
September 30, Year Ended December 31,
-------------- ---------------------------------
2000 1999 1999 1998 1997(1) 1996(1) 1995(1)
------ ------ ---- ---- ------- ------- -------

Ratio of Earnings to Fixed
Charges.................... 4.3 4.6 2.9 4.7 4.1 4.3 4.0

For purposes of this ratio (a) earnings consist of income from continuing
operations before income taxes and fixed charges, and (b) fixed charges consist
of all interest deductions and the interest component of rentals.
- --------
(1) Data reflects accounting for the stock-for-stock merger of Duke Energy and
PanEnergy Corp on June 18, 1997 as a pooling of interests. As a result,
the data gives effect to the merger as if it had occurred as of January 1,
1995.

USE OF PROCEEDS

Unless Duke Energy states otherwise in the accompanying prospectus
supplement, Duke Energy intends to use the net proceeds from the sale of any
offered securities:

. to redeem or purchase from time to time presently outstanding
securities when it anticipates those transactions will result in an
overall cost savings;

. to repay maturing securities;

. to finance its ongoing construction program; or

. for general corporate purposes.

The proceeds from the sale of Preferred Securities by a Trust will be
invested in Junior Subordinated Notes issued by Duke Energy. Except as Duke
Energy may otherwise describe in the related prospectus supplement, Duke Energy
expects to use the net proceeds from the sale of such Junior Subordinated Notes
to the applicable Trust for the above purposes.

THE TRUSTS

Duke Energy formed each Trust as a statutory business trust under
Delaware law. Each Trust's business is defined in a trust agreement executed by
Duke Energy, as depositor, and Chase Manhattan Bank Delaware. Each trust
agreement will be amended when Preferred Securities are issued under it and
will be in substantially the form filed as an exhibit to the registration
statement, of which this prospectus is a part. An amended trust agreement is
called a "Trust Agreement" in this prospectus.

The Preferred Securities and the Common Securities of each Trust
represent undivided beneficial interests in the assets of that Trust. The
Preferred Securities and the Common Securities together are sometimes called
the "Trust Securities" in this prospectus.

The trustees of each Trust will conduct that Trust's business and
affairs. Duke Energy, as the holder of the Common Securities of each Trust,
will appoint the trustees of that Trust. The trustees of each Trust will
consist of:

. two officers of Duke Energy as Administrative Trustees;

. The Chase Manhattan Bank as Property Trustee; and

. Chase Manhattan Bank Delaware as Delaware Trustee.

The prospectus supplement relating to the Preferred Securities of a Trust
will provide further information concerning that Trust.

No separate financial statements of any Trust are included in this
prospectus. Duke Energy considers that such statements would not be material to
holders of the Preferred Securities because no Trust has any independent
operations and the sole purpose of each Trust is investing the proceeds of the
sale of its Trust Securities in Junior Subordinated Notes. Duke Energy does not
expect that any of the Trusts will be filing annual, quarterly or special
reports with the SEC.

The principal place of business of each Trust will be c/o Duke Energy
Corporation, 526 South Church Street, Charlotte, North Carolina 28202,
telephone (704) 594-6200.

ACCOUNTING TREATMENT

Each Trust will be treated as a subsidiary of Duke Energy for financial
reporting purposes. Accordingly, Duke Energy's consolidated financial
statements will include the accounts of each Trust. The Preferred Securities,
along with other trust preferred securities that Duke Energy guarantees on an
equivalent basis, will be presented as a separate line item in Duke Energy's
consolidated balance sheets, entitled "Guaranteed Preferred Beneficial
Interests in Subordinated Notes of Duke Energy Corporation or Subsidiaries."
Duke Energy will record distributions that each Trust pays on the Preferred
Securities as an expense in its consolidated statement of income.

DESCRIPTION OF THE SENIOR NOTES

Duke Energy will issue the Senior Notes in one or more series under its
Senior Indenture dated as of September 1, 1998 between Duke Energy and The
Chase Manhattan Bank, as Trustee, as supplemented from time to time. The Senior
Indenture is an exhibit to the registration statement, of which this prospectus
is a part.

The Senior Notes are unsecured and unsubordinated obligations and will
rank equally with all of Duke Energy's other unsecured and unsubordinated
indebtedness. The First and Refunding Mortgage Bonds are effectively senior to
the Senior Notes to the extent of the value of the properties securing them. As
of September 30, 2000, there were approximately $1,568,000,000 of First and
Refunding Mortgage Bonds outstanding.

Duke Energy conducts its non-electric operations, and certain of its
electric operations outside its service area in the Carolinas, through
subsidiaries. Accordingly, its ability to meet its obligations under the Senior
Notes is partly dependent on the earnings and cash flows of those subsidiaries
and the ability of those subsidiaries to pay dividends or to advance or repay
funds to Duke Energy. In addition, the rights that Duke Energy and its
creditors would have to participate in the assets of any such subsidiary upon
the subsidiary's liquidation or recapitalization will be subject to the prior
claims of the subsidiary's creditors. Certain of Duke Energy's subsidiaries
have incurred substantial amounts of debt in the expansion of their businesses
and Duke Energy anticipates that certain of its subsidiaries will do so in the
future.

The following description of the Senior Notes is only a summary and is
not intended to be comprehensive. For additional information you should refer
to the Senior Indenture.

General

The Senior Indenture does not limit the amount of Senior Notes that Duke
Energy may issue under it. Duke Energy may issue Senior Notes from time to time
under the Senior Indenture in one or more series by entering into supplemental
indentures or by its Board of Directors or a duly authorized committee
authorizing the issuance. The form of supplemental indenture to the Senior
Indenture is an exhibit to the registration statement, of which this prospectus
is a part.

The Senior Notes of a series need not be issued at the same time, bear
interest at the same rate or mature on the same date.

The Senior Indenture does not protect the holders of Senior Notes if Duke
Energy engages in a highly leveraged transaction.

Provisions Applicable to Particular Series

The prospectus supplement for a particular series of Senior Notes being
offered will disclose the specific terms related to the offering, including the
price or prices at which the Senior Notes to be offered will be issued. Those
terms will include some or all of the following:

. the title of the series;

. the total principal amount of the Senior Notes of the series;

. the date or dates on which principal is payable or the method for
determining the date or dates, and any right that Duke Energy has to
change the date on which principal is payable;

. the interest rate or rates, if any, or the method for determining the
rate or rates, and the date or dates from which interest will accrue;

. any interest payment dates and the regular record date for the
interest payable on each interest payment date, if any;

. whether Duke Energy may extend the interest payment periods and, if
so, the terms of the extension;

. the place or places where payments will be made;

. whether Duke Energy has the option to redeem the Senior Notes and, if
so, the terms of its redemption option;

. any obligation that Duke Energy has to redeem the Senior Notes through
a sinking fund or to purchase the Senior Notes through a purchase fund
or at the option of the holder;

. whether the provisions described under "Defeasance and Covenant
Defeasance" will not apply to the Senior Notes;

. the currency in which payments will be made if other than U.S.
dollars, and the manner of determining the equivalent of those amounts
in U.S. dollars;

. if payments may be made, at Duke Energy's election or at the holder's
election, in a currency other than that in which the Senior Notes are
stated to be payable, then the currency in which those payments may be
made, the terms and conditions of the election and the manner of
determining those amounts;

. the portion of the principal payable upon acceleration of maturity, if
other than the entire principal;

. whether the Senior Notes will be issuable as global securities and, if
so, the securities depositary;

. any changes in the events of default or covenants with respect to the
Senior Notes;

. any index or formula used for determining principal, premium or
interest;

. if the principal payable on the maturity date will not be determinable
on one or more dates prior to the maturity date, the amount which will
be deemed to be such principal amount or the manner of determining it;
and

. any other terms.

Unless Duke Energy states otherwise in the applicable prospectus
supplement, Duke Energy will issue the Senior Notes only in fully registered
form without coupons, and there will be no service charge for any registration
of transfer or exchange of the Senior Notes. Duke Energy may, however, require
payment to cover any tax or other governmental charge payable in connection
with any transfer or exchange. Subject to the terms of the Senior Indenture and
the limitations applicable to global securities, transfers and exchanges of the
Senior Notes may be made at The Chase Manhattan Bank, 55 Water Street, New
York, New York 10041 or at any other office or agency maintained by Duke Energy
for such purpose.

The Senior Notes will be issuable in denominations of $1,000 and any
integral multiples of $1,000, unless Duke Energy states otherwise in the
applicable prospectus supplement.

Duke Energy may offer and sell the Senior Notes, including original issue
discount Senior Notes, at a substantial discount below their principal amount.
The applicable prospectus supplement will describe special United States
federal income tax and any other considerations applicable to those securities.
In addition, the applicable prospectus supplement may describe certain special
United States federal income tax or other considerations, if any, applicable to
any Senior Notes that are denominated in a currency other than U.S. dollars.

Global Securities

Duke Energy may issue some or all of the Senior Notes as book-entry
securities. Any such book-entry securities will be represented by one or more
fully registered global securities. Duke Energy will register each global
security with, or on behalf of, a securities depositary identified in the
applicable prospectus supplement. Each global security will be deposited with
the securities depositary or its nominee or a custodian for the securities
depositary.

As long as the securities depositary or its nominee is the registered
holder of a global security representing Senior Notes, that person will be
considered the sole owner and holder of the global security and the Senior
Notes it represents for all purposes. Except in limited circumstances, owners
of beneficial interests in a global security:

. may not have the global security or any Senior Notes it represents
registered in their names;

. may not receive or be entitled to receive physical delivery of
certificated Senior Notes in exchange for the global security; and

. will not be considered the owners or holders of the global security or
any Senior Notes it represents for any purposes under the Senior Notes
or the Senior Indenture.

Duke Energy will make all payments of principal and any premium and
interest on a global security to the securities depositary or its nominee as
the holder of the global security. The laws of some jurisdictions require that
certain purchasers of securities take physical delivery of securities in
definitive form. These laws may impair the ability to transfer beneficial
interests in a global security.

Ownership of beneficial interests in a global security will be limited to
institutions having accounts with the securities depositary or its nominee,
which are called "participants" in this discussion, and to persons that hold
beneficial interests through participants. When a global security representing
Senior Notes is issued, the securities depositary will credit on its book
entry, registration

and transfer system the principal amounts of Senior Notes the global security
represents to the accounts of its participants. Ownership of beneficial
interests in a global security will be shown only on, and the transfer of those
ownership interests will be effected only through, records maintained by:

. the securities depositary, with respect to participants' interests;
and

. any participant, with respect to interests the participant holds on
behalf of other persons.

Payments participants make to owners of beneficial interests held through
those participants will be the responsibility of those participants. The
securities depositary may from time to time adopt various policies and
procedures governing payments, transfers, exchanges and other matters relating
to beneficial interests in a global security. None of the following will have
any responsibility or liability for any aspect of the securities depositary's
or any participant's records relating to beneficial interests in a global
security representing Senior Notes, for payments made on account of those
beneficial interests or for maintaining, supervising or reviewing any records
relating to those beneficial interests:

. Duke Energy;

. the Senior Indenture Trustee; or

. an agent of either of them.

Redemption

Provisions relating to the redemption of Senior Notes will be set forth
in the applicable prospectus supplement. Unless Duke Energy states otherwise in
the applicable prospectus supplement, Duke Energy may redeem Senior Notes only
upon notice mailed at least 30 but not more than 60 days before the date fixed
for redemption. Unless Duke Energy states otherwise in the applicable
prospectus supplement, that notice may state that the redemption will be
conditional upon the Senior Indenture Trustee, or the applicable paying agent,
receiving sufficient funds to pay the principal, premium and interest on those
Senior Notes on the date fixed for redemption and that if the Senior Indenture
Trustee or the applicable paying agent does not receive those funds, the
redemption notice will not apply, and Duke Energy will not be required to
redeem those Senior Notes.

Duke Energy will not be required to:

. issue, register the transfer of, or exchange any Senior Notes of a
series during the period beginning 15 days before the date the notice
is mailed identifying the Senior Notes of that series that have been
selected for redemption; or

. register the transfer of or exchange any Senior Note of that series
selected for redemption except the unredeemed portion of a Senior Note
being partially redeemed.

Consolidation, Merger, Conveyance or Transfer

The Senior Indenture provides that Duke Energy may consolidate or merge
with or into, or convey or transfer all or substantially all of its properties
and assets to, another corporation or other entity. Any successor must,
however, assume Duke Energy's obligations under the Senior Indenture and the
Senior Notes issued under it, and Duke Energy must deliver to the Senior
Indenture Trustee a statement by certain of its officers and an opinion of
counsel that affirm compliance with all

conditions in the Senior Indenture relating to the transaction. When those
conditions are satisfied, the successor will succeed to and be substituted for
Duke Energy under the Senior Indenture, and Duke Energy will be relieved of its
obligations under the Senior Indenture and the Senior Notes.

Modification; Waiver

Duke Energy may modify the Senior Indenture with the consent of the
holders of a majority in principal amount of the outstanding Senior Notes of
all series of Senior Notes that are affected by the modification, voting as one
class. The consent of the holder of each outstanding Senior Note affected is,
however, required to:

. change the maturity date of the principal or any installment of
principal or interest on that Senior Note;

. reduce the principal amount, the interest rate or any premium payable
upon redemption on that Senior Note;

. reduce the amount of principal due and payable upon acceleration of
maturity;

. change the currency of payment of principal, premium or interest on
that Senior Note;

. impair the right to institute suit to enforce any such payment on or
after the maturity date or redemption date;

. reduce the percentage in principal amount of Senior Notes of any
series required to modify the Senior Indenture, waive compliance with
certain restrictive provisions of the Senior Indenture or waive
certain defaults; or

. with certain exceptions, modify the provisions of the Senior Indenture
governing modifications of the Senior Indenture or governing waiver of
covenants or past defaults.

In addition, Duke Energy may modify the Senior Indenture for certain other
purposes, without the consent of any holders of Senior Notes.

The holders of a majority in principal amount of the outstanding Senior
Notes of any series may waive, for that series, Duke Energy's compliance with
certain restrictive provisions of the Senior Indenture, including the covenant
described under "Negative Pledge." The holders of a majority in principal
amount of the outstanding Senior Notes of all series under the Senior Indenture
with respect to which a default has occurred and is continuing, voting as one
class, may waive that default for all those series, except a default in the
payment of principal or any premium or interest on any Senior Note or a default
with respect to a covenant or provision which cannot be modified without the
consent of the holder of each outstanding Senior Note of the series affected.

Events of Default

The following are events of default under the Senior Indenture with
respect to any series of Senior Notes, unless Duke Energy states otherwise in
the applicable prospectus supplement:

. failure to pay principal of or any premium on any Senior Note of that
series when due;

. failure to pay when due any interest on any Senior Note of that series
that continues for 60 days; for this purpose, the date on which
interest is due is the date on which Duke Energy is required to make
payment following any deferral of interest payments by it under the
terms of Senior Notes that permit such deferrals;

. failure to make any sinking fund payment when required for any Senior
Note of that series that continues for 60 days;

. failure to perform any covenant in the Senior Indenture (other than a
covenant expressly included solely for the benefit of other series)
that continues for 90 days after the Senior Indenture Trustee or the
holders of at least 33% of the outstanding Senior Notes of that series
give Duke Energy written notice of the default; and

. certain bankruptcy, insolvency or reorganization events with respect
to Duke Energy.

In the case of the fourth event of default listed above, the Senior Indenture
Trustee may extend the grace period. In addition, if holders of a particular
series have given a notice of default, then holders of at least the same
percentage of Senior Notes of that series, together with the Senior Indenture
Trustee, may also extend the grace period. The grace period will be
automatically extended if Duke Energy has initiated and is diligently pursuing
corrective action.

Duke Energy may establish additional events of default for a particular
series and, if established, any such events of default will be described in the
applicable prospectus supplement.

If an event of default with respect to Senior Notes of a series occurs
and is continuing, then the Senior Indenture Trustee or the holders of at least
33% in principal amount of the outstanding Senior Notes of that series may
declare the principal amount of all Senior Notes of that series to be
immediately due and payable. However, that event of default will be considered
waived at any time after the declaration but before a judgment for payment of
the money due has been obtained if:

. Duke Energy has paid or deposited with the Senior Indenture Trustee
all overdue interest, the principal and any premium due otherwise than
by the declaration and any interest on such amounts, and any interest
on overdue interest, to the extent legally permitted, in each case
with respect to that series, and all amounts due to the Senior
Indenture Trustee; and

. all events of default with respect to that series, other than the
nonpayment of the principal that became due solely by virtue of the
declaration, have been cured or waived.

The Senior Indenture Trustee is under no obligation to exercise any of
its rights or powers at the request or direction of any holders of Senior Notes
unless those holders have offered the Senior Indenture Trustee security or
indemnity against the costs, expenses and liabilities which it might incur as a
result. The holders of a majority in principal amount of the outstanding Senior
Notes of any series have, with certain exceptions, the right to direct the
time, method and place of conducting any proceedings for any remedy available
to the Senior Indenture Trustee or the exercise of any power of the Senior
Indenture Trustee with respect to those Senior Notes. The Senior Indenture
Trustee may withhold notice of any default, except a default in the payment of
principal or interest, from the holders of any series if the Senior Indenture
Trustee in good faith considers it in the interest of the holders to do so.

The holder of any Senior Note will have an absolute and unconditional
right to receive payment of the principal, any premium and, within certain
limitations, any interest on that Senior Note on its maturity date or
redemption date and to enforce those payments.

Duke Energy is required to furnish each year to the Senior Indenture
Trustee a statement by certain of its officers to the effect that it is not in
default under the Senior Indenture or, if there has been a default, specifying
the default and its status.

Payments; Paying Agent

The paying agent will pay the principal of any Senior Notes only if those
Senior Notes are surrendered to it. The paying agent will pay interest on
Senior Notes issued as global securities by wire transfer to the holder of
those global securities. Unless Duke Energy states otherwise in the applicable
prospectus supplement, the paying agent will pay interest on Senior Notes that
are not in global form at its office or, at Duke Energy's option:

. by wire transfer to an account at a banking institution in the United
States that is designated in writing to the Senior Indenture Trustee
at least 16 days prior to the date of payment by the person entitled
to that interest; or

. by check mailed to the address of the person entitled to that interest
as that address appears in the security register for those Senior
Notes.

Unless Duke Energy states otherwise in the applicable prospectus
supplement, the Senior Indenture Trustee will act as paying agent for that
series of Senior Notes, and the principal corporate trust office of the Senior
Indenture Trustee will be the office through which the paying agent acts. Duke
Energy may, however, change or add paying agents or approve a change in the
office through which a paying agent acts.

Any money that Duke Energy has paid to a paying agent for principal or
interest on any Senior Notes which remains unclaimed at the end of two years
after that principal or interest has become due will be repaid to Duke Energy
at its request. After repayment to Duke Energy, holders should look only to
Duke Energy for those payments.

Negative Pledge

While any of the Senior Notes remain outstanding, Duke Energy will not
create, or permit to be created or to exist, any mortgage, lien, pledge,
security interest or other encumbrance upon any of its property, whether owned
on or acquired after the date of the Senior Indenture, to secure any
indebtedness for borrowed money of Duke Energy, unless the Senior Notes then
outstanding are equally and ratably secured for so long as any such
indebtedness is so secured.

The foregoing restriction does not apply with respect to, among other
things:

. purchase money mortgages, or other purchase money liens, pledges,
security interests or encumbrances upon property that Duke Energy
acquired after the date of the Senior Indenture;

. mortgages, liens, pledges, security interests or other encumbrances
existing on any property at the time Duke Energy acquired it,
including those which exist on any property of an entity with which
Duke Energy is consolidated or merged or which transfers or leases all
or substantially all of its properties to Duke Energy;

. mortgages, liens, pledges, security interests or other encumbrances
upon any property of Duke Energy that existed on the date of the
initial issuance of the Senior Notes;

. pledges or deposits to secure performance in connection with bids,
tenders, contracts (other than contracts for the payment of money) or
leases to which Duke Energy is a party;

. liens created by or resulting from any litigation or proceeding which
at the time is being contested in good faith by appropriate
proceedings;

. liens incurred in connection with the issuance of bankers' acceptances
and lines of credit, bankers' liens or rights of offset and any
security given in the ordinary course of business to banks or others
to secure any indebtedness payable on demand or maturing within 12
months of the date that such indebtedness is originally incurred;

. liens incurred in connection with repurchase, swap or other similar
agreements (including commodity price, currency exchange and interest
rate protection agreements);

. liens securing industrial revenue or pollution control bonds;

. liens, pledges, security interests or other encumbrances on any
property arising in connection with any defeasance, covenant
defeasance or in-substance defeasance of indebtedness of Duke Energy;

. liens created in connection with, and created to secure, a non-
recourse obligation;

. Bonds issued or to be issued from time to time under Duke Energy's
First and Refunding Mortgage, and the "permitted liens" specified in
Duke Energy's First and Refunding Mortgage;

. indebtedness which Duke Energy may issue in connection with its
consolidation or merger with or into any other entity, which may be
its affiliate, in exchange for or otherwise in substitution for
secured indebtedness of that entity ("Third Party Debt") which by its
terms (1) is secured by a mortgage on all or a portion of the property
of that entity, (2) prohibits that entity from incurring secured
indebtedness, unless the Third Party Debt is secured equally and
ratably with such secured indebtedness or (3) prohibits that entity
from incurring secured indebtedness;

. indebtedness of any entity which Duke Energy is required to assume in
connection with a consolidation or merger of that entity, with respect
to which any property of Duke Energy is subjected to a mortgage, lien,
pledge, security interest or other encumbrance;

. mortgages, liens, pledges, security interests or other encumbrances
upon any property that Duke Energy acquired, constructed, developed or
improved after the date of the Senior Indenture which are created
before, at the time of, or within 18 months after such acquisition--or
in the case of property constructed, developed or improved, after the
completion of the construction, development or improvement and
commencement of full commercial operation of that property, whichever
is later--to secure or provide for the payment of any part of its
purchase price or cost; provided that, in the case of such
construction, development or improvement, the mortgages, liens,
pledges, security interests or other encumbrances shall not apply to
any property that Duke Energy owns other than real property that is
unimproved up to that time; and

. the replacement, extension or renewal of any mortgage, lien, pledge,
security interest or other encumbrance described above; or the
replacement, extension or renewal (not exceeding the principal amount
of indebtedness so secured together with any premium,

interest, fee or expense payable in connection with any such
replacement, extension or renewal) of the indebtedness so secured;
provided that such replacement, extension or renewal is limited to all
or a part of the same property that secured the mortgage, lien, pledge,
security interest or other encumbrance replaced, extended or renewed,
plus improvements on it or additions or accessions to it.

In addition, Duke Energy may create or assume any other mortgage, lien, pledge,
security interest or other encumbrance not excepted in the Senior Indenture
without equally and ratably securing the Senior Notes, if immediately after that
creation or assumption, the principal amount of indebtedness for borrowed money
of Duke Energy that all such other mortgages, liens, pledges, security interests
and other encumbrances secure does not exceed an amount equal to 10% of Duke
Energy's common stockholders' equity as shown on its consolidated balance sheet
for the accounting period occurring immediately before the creation or
assumption of that mortgage, lien, pledge, security interest or other
encumbrance.

Defeasance and Covenant Defeasance

The Senior Indenture provides that Duke Energy may be:

. discharged from its obligations, with certain limited exceptions, with
respect to any series of Senior Notes, as described in the Senior
Indenture, such a discharge being called a "defeasance" in this
prospectus; and

. released from its obligations under certain restrictive covenants
especially established with respect to any series of Senior Notes,
including the covenant described under "Negative Pledge," as described
in the Senior Indenture, such a release being called a "covenant
defeasance" in this prospectus.

Duke Energy must satisfy certain conditions to effect a defeasance or covenant
defeasance. Those conditions include the irrevocable deposit with the Senior
Indenture Trustee, in trust, of money or government obligations which through
their scheduled payments of principal and interest would provide sufficient
money to pay the principal and any premium and interest on those Senior Notes on
the maturity dates of those payments or upon redemption.

Following a defeasance, payment of the Senior Notes defeased may not be
accelerated because of an event of default under the Senior Indenture.
Following a covenant defeasance, the payment of Senior Notes may not be
accelerated by reference to the covenants from which Duke Energy has been
released. A defeasance may occur after a covenant defeasance.

Under current United States federal income tax laws, a defeasance would
be treated as an exchange of the relevant Senior Notes in which holders of
those Senior Notes might recognize gain or loss. In addition, the amount,
timing and character of amounts that holders would thereafter be required to
include in income might be different from that which would be includible in the
absence of that defeasance. Duke Energy urges investors to consult their own
tax advisors as to the specific consequences of a defeasance, including the
applicability and effect of tax laws other than United States federal income
tax laws.

Under current United States federal income tax law, unless accompanied by
other changes in the terms of the Senior Notes, a covenant defeasance should
not be treated as a taxable exchange.

Concerning the Senior Indenture Trustee

The Chase Manhattan Bank is the Senior Indenture Trustee and is also the
trustee under Duke Energy's Subordinated Indenture and the trustee under Duke
Energy's First and Refunding Mortgage. Duke Energy and certain of its
affiliates maintain deposit accounts and banking relationships with The Chase
Manhattan Bank. The Chase Manhattan Bank also serves as trustee under other
indentures pursuant to which securities of Duke Energy and of certain of its
affiliates are outstanding.

The Senior Indenture Trustee will perform only those duties that are
specifically set forth in the Senior Indenture unless an event of default under
the Senior Indenture occurs and is continuing. In case an event of default
occurs and is continuing, the Senior Indenture Trustee will exercise the same
degree of care as a prudent individual would exercise in the conduct of his or
her own affairs.

DESCRIPTION OF THE JUNIOR SUBORDINATED NOTES

Duke Energy will issue the Junior Subordinated Notes in one or more
series under its Subordinated Indenture dated as of December 1, 1997 between
Duke Energy and The Chase Manhattan Bank, as Trustee, as supplemented from time
to time. The Subordinated Indenture is an exhibit to the registration
statement, of which this prospectus is a part.

The Junior Subordinated Notes are unsecured obligations of Duke Energy
and are junior in right of payment to "Senior Indebtedness" of Duke Energy. You
may find a description of the subordination provisions of the Junior
Subordinated Notes, including a description of Senior Indebtedness of Duke
Energy, under "Subordination."

Duke Energy conducts its non-electric operations, and certain of its
electric operations outside its service area in the Carolinas, through
subsidiaries. Accordingly, its ability to meet its obligations under the Junior
Subordinated Notes is partly dependent on the earnings and cash flows of those
subsidiaries and the ability of those subsidiaries to pay dividends or to
advance or repay funds to Duke Energy. In addition, the rights that Duke Energy
and its creditors would have to participate in the assets of any such
subsidiary upon the subsidiary's liquidation or recapitalization will be
subject to the prior claims of the subsidiary's creditors. Certain of Duke
Energy's subsidiaries have incurred substantial amounts of debt in the
expansion of their businesses and Duke Energy anticipates that certain of its
subsidiaries will do so in the future.

The following description of the Junior Subordinated Notes is only a
summary and is not intended to be comprehensive. For additional information you
should refer to the Subordinated Indenture.

General

The Subordinated Indenture does not limit the amount of Subordinated
Notes, including Junior Subordinated Notes, that Duke Energy may issue under
it. Duke Energy may issue Subordinated Notes, including Junior Subordinated
Notes, from time to time under the Subordinated Indenture in one or more series
by entering into supplemental indentures or by its Board of Directors or a duly
authorized committee authorizing the issuance. Two forms of supplemental
indenture to the Subordinated Indenture (one with respect to Junior
Subordinated Notes initially issued to a Trust and the other with respect to
Junior Subordinated Notes initially issued to the public) are exhibits to the
registration statement, of which this prospectus is a part.

The Junior Subordinated Notes of a series need not be issued at the same
time, bear interest at the same rate or mature on the same date.

The Subordinated Indenture does not protect the holders of Junior
Subordinated Notes if Duke Energy engages in a highly leveraged transaction.

Provisions Applicable to Particular Series

The prospectus supplement for a particular series of Junior Subordinated
Notes being offered will disclose the specific terms related to the offering,
including the price or prices at which the Junior Subordinated Notes to be
offered will be issued. Those terms will include some or all of the following:

. the title of the series;

. the total principal amount of the Junior Subordinated Notes of the
series;

. the date or dates on which principal is payable or the method for
determining the date or dates, and any right that Duke Energy has to
change the date on which principal is payable;

. the interest rate or rates, if any, or the method for determining the
rate or rates, and the date or dates from which interest will accrue;

. any interest payment dates and the regular record date for the
interest payable on each interest payment date, if any;

. whether Duke Energy may extend the interest payment periods and, if
so, the terms of the extension;

. the place or places where payments will be made;

. whether Duke Energy has the option to redeem the Junior Subordinated
Notes and, if so, the terms of its redemption option;

. any obligation that Duke Energy has to redeem the Junior Subordinated
Notes through a sinking fund or to purchase the Junior Subordinated
Notes through a purchase fund or at the option of the holder;

. whether the provisions described under "Defeasance and Covenant
Defeasance" will not apply to the Junior Subordinated Notes;

. the currency in which payments will be made if other than U.S.
dollars, and the manner of determining the equivalent of those amounts
in U.S. dollars;

. if payments may be made, at Duke Energy's election or at the holder's
election, in a currency other than that in which the Junior
Subordinated Notes are stated to be payable, then the currency in
which those payments may be made, the terms and conditions of the
election and the manner of determining those amounts;

. the portion of the principal payable upon acceleration of maturity, if
other than the entire principal;

. whether the Junior Subordinated Notes will be issuable as global
securities and, if so, the securities depositary;

. any changes in the events of default or covenants with respect to the
Junior Subordinated Notes;

. any index or formula used for determining principal, premium or
interest;

. the subordination of the Junior Subordinated Notes to any other of
Duke Energy's indebtedness, including other series of Subordinated
Notes; and

. any other terms.

The interest rate and interest and other payment dates of each series of
Junior Subordinated Notes issued to a Trust will correspond to the rate at
which distributions will be paid and the distribution and other payment dates
of the Preferred Securities of that Trust.

Unless Duke Energy states otherwise in the applicable prospectus
supplement, Duke Energy will issue the Junior Subordinated Notes only in fully
registered form without coupons, and there will

be no service charge for any registration of transfer or exchange of the Junior
Subordinated Notes. Duke Energy may, however, require payment to cover any tax
or other governmental charge payable in connection with any transfer or
exchange. Subject to the terms of the Subordinated Indenture and the
Limitations applicable to global securities, transfers and exchanges of the
Junior Subordinated Notes may be made at The Chase Manhattan Bank, 55 Water
Street, New York, New York 10041or at any other office maintained by Duke
Energy for such purpose.

The Junior Subordinated Notes will be issuable in denominations of $1,000
and any integral multiples of $1,000, unless Duke Energy states otherwise in
the applicable prospectus supplement.

Duke Energy may offer and sell the Junior Subordinated Notes, including
original issue discount Junior Subordinated Notes, at a substantial discount
below their principal amount. The applicable prospectus supplement will
describe special United States federal income tax and any other considerations
applicable to those securities. In addition, the applicable prospectus
supplement may describe certain special United States federal income tax or
other considerations, if any, applicable to any Junior Subordinated Notes that
are denominated in a currency other than U.S. dollars.

Global Securities

Duke Energy may issue some or all of the Junior Subordinated Notes as
book-entry securities. Any such book-entry securities will be represented by
one or more fully registered global securities. Duke Energy will register
each global security with or on behalf of a securities depositary identified in
the applicable prospectus supplement. Each global security will be deposited
with the securities depositary or its nominee or a custodian for the securities
depositary.

As long as the securities depositary or its nominee is the registered
holder of a global security representing Junior Subordinated Notes, that person
will be considered the sole owner and holder of the global security and the
Junior Subordinated Notes it represents for all purposes. Except in limited
circumstances, owners of beneficial interests in a global security:

. may not have the global security or any Junior Subordinated Notes it
represents registered in their names;

. may not receive or be entitled to receive physical delivery of
certificated Junior Subordinated Notes in exchange for the global
security; and

. will not be considered the owners or holders of the global security or
any Junior Subordinated Notes it represents for any purposes under the
Junior Subordinated Notes or the Subordinated Indenture.

Junior Subordinated Notes is issued, the securities depositary will credit on
its book-entry, registration and transfer system the principal amounts of
Junior Subordinated Notes the global security represents to the accounts of its
participants. Ownership of beneficial interests in a global security will be
shown only on, and the transfer of those ownership interests will be effected
only through, records maintained by:

. the securities depositary, with respect to participants' interests;
and

. any participant, with respect to interests the participant holds on
behalf of other persons.

Payments participants make to owners of beneficial interests held through
those participants will be the responsibility of those participants. The
securities depositary may from time to time adopt various policies and
procedures governing payments, transfers, exchanges and other matters relating
to beneficial interests in a global security. None of the following will have
any responsibility or liability for any aspect of the securities depositary's
or any participant's records relating to beneficial interests in a global
security representing Junior Subordinated Notes, for payments made on account
of those beneficial interests or for maintaining, supervising or reviewing any
records relating to those beneficial interests:

. Duke Energy;

. the Subordinated Indenture Trustee;

. the Trust (if the Junior Subordinated Notes are issued to a Trust); or

. any agent of any of them.

Redemption

Provisions relating to the redemption of Junior Subordinated Notes will
be set forth in the applicable prospectus supplement. Unless Duke Energy states
otherwise in the applicable prospectus supplement, Duke Energy may redeem
Junior Subordinated Notes only upon notice mailed at least 30 but not more than
60 days before the date fixed for redemption.

Duke Energy will not be required to:

. issue, register the transfer of, or exchange any Junior Subordinated
Notes of a series during the period beginning 15 days before the date
the notice is mailed identifying the Junior Subordinated Notes of that
series that have been selected for redemption; or

. register the transfer of or exchange any Junior Subordinated Note of
that series selected for redemption except the unredeemed portion of a
Junior Subordinated Note being partially redeemed.

Consolidation, Merger, Conveyance or Transfer

The Subordinated Indenture provides that Duke Energy may consolidate or
merge with or into, or convey or transfer all or substantially all of its
properties and assets to, another corporation or other entity. Any successor
must, however, assume Duke Energy's obligations under the Subordinated
Indenture and the Subordinated Notes, including the Junior Subordinated Notes,
and Duke Energy must deliver to the Subordinated Indenture Trustee a statement
by certain of its officers and an opinion of counsel that affirm compliance
with all conditions in the Subordinated Indenture relating to the transaction.
When those conditions are satisfied, the successor will succeed to and be

substituted for Duke Energy under the Subordinated Indenture, and Duke Energy
will be relieved of its obligations under the Subordinated Indenture and any
Subordinated Notes, including the Junior Subordinated Notes.

Modification; Waiver

Duke Energy may modify the Subordinated Indenture with the consent of the
holders of a majority in principal amount of the outstanding Subordinated Notes
of all series that are affected by the modification, voting as one class. The
consent of the holder of each outstanding Subordinated Note affected is,
however, required to:

. change the maturity date of the principal or any installment of
principal or interest on that Subordinated Note;

. reduce the principal amount, the interest rate or any premium payable
upon redemption on that Subordinated Note;

. reduce the amount of principal due and payable upon acceleration of
maturity;

. change the currency of payment of principal, premium or interest on
that Subordinated Note;

. impair the right to institute suit to enforce any such payment on or
after the maturity date or redemption date;

. reduce the percentage in principal amount of Subordinated Notes of any
series required to modify the Subordinated Indenture, waive compliance
with certain restrictive provisions of the Subordinated Indenture or
waive certain defaults; or

. with certain exceptions, modify the provisions of the Subordinated
Indenture governing modifications of the Subordinated Indenture or
governing waiver of covenants or past defaults.

In addition, Duke Energy may modify the Subordinated Indenture for certain other
purposes, without the consent of any holders of Subordinated Notes, including
Junior Subordinated Notes.

The holders of a majority in principal amount of the outstanding Junior
Subordinated Notes of any series may waive, for that series, Duke Energy's
compliance with certain restrictive provisions of the Subordinated Indenture.
The holders of a majority in principal amount of the outstanding Subordinated
Notes of all series under the Subordinated Indenture with respect to which a
default has occurred and is continuing, voting as one class, may waive that
default for all those series, except a default in the payment of principal or
any premium or interest on any Subordinated Note or a default with respect to a
covenant or provision which cannot be modified without the consent of the
holder of each outstanding Subordinated Note of the series affected.

Duke Energy may not amend the Subordinated Indenture to change the
subordination of any outstanding Junior Subordinated Notes without the consent
of each holder of Senior Indebtedness that the amendment would adversely
affect.

Events of Default

The following are events of default under the Subordinated Indenture with
respect to any series of Junior Subordinated Notes, unless Duke Energy states
otherwise in the applicable prospectus supplement:

. failure to pay principal of or any premium on any Junior Subordinated
Note of that series when due;

. failure to pay when due any interest on any Junior Subordinated Note
of that series that continues for 60 days; for this purpose, the date
on which interest is due is the date on which Duke Energy is required
to make payment following any deferral of interest payments by it
under the terms of Junior Subordinated Notes that permit such
deferrals;

. failure to make any sinking fund payment when required for any Junior
Subordinated Note of that series that continues for 60 days;

. failure to perform any covenant in the Subordinated Indenture (other
than a covenant expressly included solely for the benefit of other
series) that continues for 90 days after the Subordinated Indenture
Trustee or the holders of at least 33% of the outstanding Junior
Subordinated Notes of that series give Duke Energy written notice of
the default; and

. certain bankruptcy, insolvency or reorganization events with respect
to Duke Energy.

In the case of the fourth event of default listed above, the Subordinated
Indenture Trustee may extend the grace period. In addition, if holders of a
particular series have given a notice of default, then holders of at least the
same percentage of Junior Subordinated Notes of that series, together with the
Subordinated Indenture Trustee, may also extend the grace period. The grace
period will be automatically extended if Duke Energy has initiated and is
diligently pursuing corrective action.

Duke Energy may establish additional events of default for a particular
series and, if established, any such events of default will be described in the
applicable prospectus supplement.

If an event of default with respect to Junior Subordinated Notes of a
series occurs and is continuing, then the Subordinated Indenture Trustee or the
holders of at least 33% in principal amount of the outstanding Junior
Subordinated Notes of that series may declare the principal amount of all
Junior Subordinated Notes of that series to be immediately due and payable.
However, that event of default will be considered waived at any time after the
declaration but before a judgment for payment of the money due has been
obtained if:

. Duke Energy has paid or deposited with the Subordinated Indenture
Trustee all overdue interest, the principal and any premium due
otherwise than by the declaration and any interest on such amounts,
and any interest on overdue interest, to the extent legally permitted,
in each case with respect to that series, and all amounts due to the
Subordinated Indenture Trustee; and

. all events of default with respect to that series, other than the
nonpayment of the principal that became due solely by virtue of the
declaration, have been cured or waived.

In the case of Junior Subordinated Notes issued to a Trust, a holder of
Preferred Securities may institute a legal proceeding directly against Duke
Energy, without first instituting a legal

proceeding against the Property Trustee of the Trust by which those Preferred
Securities were issued or any other person or entity, for enforcement of
payment to that holder of principal or interest on an equivalent amount of
Junior Subordinated Notes of the related series on or after the due dates
specified in those Junior Subordinated Notes.

The Subordinated Indenture Trustee is under no obligation to exercise
any of its rights or powers at the request or direction of any holders of
Junior Subordinated Notes unless those holders have offered the Subordinated
Indenture Trustee security or indemnity against the costs, expenses and
liabilities which it might incur as a result. The holders of a majority in
principal amount of the outstanding Junior Subordinated Notes of any series
have, with certain exceptions, the right to direct the time, method and place
of conducting any proceedings for any remedy available to the Subordinated
Indenture Trustee or the exercise of any power of the Subordinated Indenture
Trustee with respect to those Junior Subordinated Notes. The Subordinated
Indenture Trustee may withhold notice of any default, except a default in the
payment of principal or interest, from the holders of any series if the
Subordinated Indenture Trustee in good faith considers it in the interest of
the holders to do so.

The holder of any Junior Subordinated Note will have an absolute and
unconditional right to receive payment of the principal, any premium and,
within certain limitations, any interest on that Junior Subordinated Note on
its maturity date or redemption date and to enforce those payments.

Duke Energy is required to furnish each year to the Subordinated
Indenture Trustee a statement by certain of its officers to the effect that it
is not in default under the Subordinated Indenture or, if there has been a
default, specifying the default and its status.

Payments; Paying Agent

The paying agent will pay the principal of any Junior Subordinated Notes
only if those Junior Subordinated Notes are surrendered to it. The paying
agent will pay interest on Junior Subordinated Notes issued as global
securities by wire transfer to the holder of those global securities. Unless
Duke Energy states otherwise in the applicable prospectus supplement, the
paying agent will pay interest on Junior Subordinated Notes that are not in
global form at its office or, at Duke Energy's option:

. by wire transfer to an account at a banking institution in the United
States that is designated in writing to the Subordinated Indenture
Trustee at least 16 days prior to the date of payment by the person
entitled to that interest; or

. by check mailed to the address of the person entitled to that interest
as that address appears in the security register for those Junior
Subordinated Notes.

Unless Duke Energy states otherwise in the applicable prospectus
supplement, the Subordinated Indenture Trustee will act as paying agent for
that series of Junior Subordinated Notes, and the principal corporate trust
office of the Subordinated Indenture Trustee will be the office through which
the paying agent acts. Duke Energy may, however, change or add paying agents
or approve a change in the office through which a paying agent acts.

Any money that Duke Energy has paid to a paying agent for principal or
interest on any Junior Subordinated Notes which remains unclaimed at the end
of two years after that principal or

interest has become due will be repaid to Duke Energy at its request. After
repayment to Duke Energy, holders should look only to Duke Energy for those
payments.

Defeasance and Covenant Defeasance

The Subordinated Indenture provides that Duke Energy may be:

. discharged from its obligations, with certain limited exceptions, with
respect to any series of Junior Subordinated Notes, as described in
the Subordinated Indenture, such a discharge being called a
"defeasance" in this prospectus; and

. released from its obligations under certain restrictive covenants
especially established with respect to a series of Junior Subordinated
Notes, as described in the Subordinated Indenture, such a release
being called a "covenant defeasance" in this prospectus.

Duke Energy must satisfy certain conditions to effect a defeasance or
covenant defeasance. Those conditions include the irrevocable deposit with the
Subordinated Indenture Trustee, in trust, of money or government obligations
which through their scheduled payments of principal and interest would provide
sufficient money to pay the principal and any premium and interest on those
Junior Subordinated Notes on the maturity dates of those payments or upon
redemption. Following a defeasance, payment of the Junior Subordinated Notes
defeased may not be accelerated because of an event of default under the
Subordinated Indenture.

Under current United States federal income tax laws, a defeasance would
be treated as an exchange of the relevant Junior Subordinated Notes in which
holders of those Junior Subordinated Notes might recognize gain or loss. In
addition, the amount, timing and character of amounts that holders would
thereafter be required to include in income might be different from that which
would be includible in the absence of that defeasance. Duke Energy urges
investors to consult their own tax advisors as to the specific consequences of
a defeasance, including the applicability and effect of tax laws other than
United States federal income tax laws.

Junior Subordinated Notes issued to a Trust will not be subject to
covenant defeasance.

Subordination

Each series of Junior Subordinated Notes will be subordinate and junior
in right of payment, to the extent set forth in the Subordinated Indenture, to
all Senior Indebtedness as defined below. If:

. Duke Energy makes a payment or distribution of any of its assets to
creditors upon its dissolution, winding-up, liquidation or
reorganization, whether in bankruptcy, insolvency or otherwise;

. a default beyond any grace period has occurred and is continuing with
respect to the payment of principal, interest or any other monetary
amounts due and payable on any Senior Indebtedness; or

. the maturity of any Senior Indebtedness has been accelerated because
of a default on that Senior Indebtedness,

then the holders of Senior Indebtedness generally will have the right to
receive payment, in the case of the first instance, of all amounts due or to
become due upon that Senior Indebtedness, and, in the case of the second

and third instances, of all amounts due on that Senior Indebtedness, or Duke
Energy will make provision for those payments, before the holders of any Junior
Subordinated Notes have the right to receive any payments of principal or
interest on their Junior Subordinated Notes.

"Senior Indebtedness" means, with respect to any series of Junior
Subordinated Notes, the principal, premium, interest and any other payment in
respect of any of the following:

. all of Duke Energy's indebtedness that is evidenced by notes,
debentures, bonds or other securities Duke Energy sells for money or
other obligations for money borrowed;

. all indebtedness of others of the kinds described in the preceding
category which Duke Energy has assumed or guaranteed or which Duke
Energy has in effect guaranteed through an agreement to purchase,
contingent or otherwise; and

. all renewals, extensions or refundings of indebtedness of the kinds
described in either of the preceding two categories.

Any such indebtedness, renewal, extension or refunding, however, will not
be Senior Indebtedness if the instrument creating or evidencing it or the
assumption or guarantee of it provides that it is not superior in right of
payment to or is equal in right of payment with those Junior Subordinated
Notes. Senior Indebtedness will be entitled to the benefits of the
subordination provisions in the Subordinated Indenture irrespective of the
amendment, modification or waiver of any term of the Senior Indebtedness.

Future series of Subordinated Notes which are not Junior Subordinated
Notes may rank senior to outstanding series of Junior Subordinated Notes and
would constitute Senior Indebtedness with respect to those series.

The Subordinated Indenture does not limit the amount of Senior
Indebtedness that Duke Energy may issue. As of September 30, 2000, Duke
Energy's Senior Indebtedness totaled approximately $4,000,000,000.

Concerning the Subordinated Indenture Trustee

The Chase Manhattan Bank is the Subordinated Indenture Trustee and is
also the Senior Indenture Trustee and the trustee under Duke Energy's First and
Refunding Mortgage. Duke Energy and certain of its affiliates maintain deposit
accounts and banking relationships with The Chase Manhattan Bank. The Chase
Manhattan Bank also serves as trustee under other indentures pursuant to which
securities of Duke Energy and of certain of its affiliates are outstanding.

The Subordinated Indenture Trustee will perform only those duties that
are specifically set forth in the Subordinated Indenture unless an event of
default under the Subordinated Indenture occurs and is continuing. In case an
event of default occurs and is continuing, the Subordinated Indenture Trustee
will exercise the same degree of care as a prudent individual would exercise in
the conduct of his or her own affairs.

DESCRIPTION OF THE FIRST AND REFUNDING MORTGAGE BONDS

Duke Energy will issue the First and Refunding Mortgage Bonds in one or
more series under its First and Refunding Mortgage, dated as of December 1,
1927, to The Chase Manhattan Bank, as Trustee, as supplemented and amended. The
First and Refunding Mortgage is sometimes called the "Mortgage" and the First
and Refunding Mortgage Bonds are sometimes called the "Bonds" in this
prospectus. The trustee under the Mortgage is sometimes called the "Bond
Trustee" in this prospectus. The Mortgage is an exhibit to the registration
statement, of which this prospectus is a part.

The following description of the Bonds is only a summary and is not
intended to be comprehensive. For additional information you should refer to
the Mortgage.

General

The amount of Bonds which Duke Energy may issue under the Mortgage is
unlimited. Duke Energy's Board of Directors will determine the terms of each
series of Bonds, including denominations, maturity, interest rate and payment
terms and whether the series will have redemption or sinking fund provisions.

Unless Duke Energy states otherwise in the applicable prospectus
supplement, Duke Energy will issue the Bonds only in fully registered form
without coupons and there will be no service charge for any transfers and
exchanges of the Bonds. Duke Energy may, however, require payment to cover any
stamp tax or other governmental charge payable in connection with any transfer
or exchange. Transfers and exchanges of the Bonds may be made at The Chase
Manhattan Bank, 55 Water Street, New York, New York 10041 or at any other
office maintained by Duke Energy for such purpose.

The Bonds will be issuable in denominations of $1,000 and multiples of
$1,000, unless Duke Energy states otherwise in the applicable prospectus
supplement. The Bonds will be exchangeable for an equivalent principal amount
of Bonds of other authorized denominations of the same series.

The prospectus supplement for a particular series of Bonds will describe
the maturity, interest rate and payment terms of those Bonds and any relevant
redemption or sinking fund provisions.

Security

The Mortgage creates a continuing lien to secure the payment of principal
and interest on the Bonds. All the Bonds are equally and ratably secured
without preference, priority or distinction. The lien of the Mortgage covers
substantially all of Duke Energy's properties, real, personal and mixed, and
Duke Energy's franchises, including properties acquired after the date of the
Mortgage, with certain exceptions. Those exceptions include cash, accounts
receivable, inventories of materials and supplies, merchandise held for sale,
securities that Duke Energy holds, certain after-acquired property not useful
in Duke Energy's electric business, certain after-acquired franchises and
certain after-acquired non-electric properties.

The lien of the Mortgage is subject to certain permitted liens and to
liens that exist upon properties that Duke Energy acquired after it entered
into the Mortgage to the extent of the amounts of prior lien bonds secured by
those properties (not, however, exceeding 75% of the cost or value of those
properties) and additions to those properties. "Prior lien bonds" are bonds or
other

indebtedness that are secured at the time of acquisition by a lien upon
property that Duke Energy acquires after the date of the Mortgage that becomes
subject to the lien of the Mortgage.

Issuance of Additional Bonds

If Duke Energy satisfies the conditions in the Mortgage, the Bond Trustee
may authenticate and deliver additional Bonds in an aggregate principal amount
not exceeding:

. the amount of cash that Duke Energy has deposited with the Bond
Trustee for that purpose;

. the amount of previously authenticated and delivered Bonds or
refundable prior lien bonds that have been or are to be retired which,
with certain exceptions, Duke Energy has deposited with the Bond
Trustee for that purpose; or

. 66 2/3% of the aggregate of the net amounts of additional property
(electric) certified to the Bond Trustee after February 18, 1949.

The Bond Trustee may not authenticate and deliver any additional Bonds
under the Mortgage, other than certain types of refunding Bonds, unless Duke
Energy's available net earnings for twelve consecutive calendar months within
the immediately preceding fifteen calendar months have been at least twice the
amount of the annual interest charges on all Bonds outstanding under the
Mortgage, including the Bonds proposed to be issued, and on all outstanding
prior lien bonds that the Bond Trustee does not hold under the Mortgage.

Duke Energy may not apply to the Bond Trustee to authenticate and deliver
any Bonds (1) in an aggregate principal amount exceeding $26,000,000 on the
basis of additional property (electric) that Duke Energy acquired or
constructed prior to January 1, 1949 or (2) on the basis of Bonds or prior lien
bonds paid, purchased or redeemed prior to February 1, 1949. Duke Energy may
not certify any additional property (electric) which is subject to the lien of
any prior lien bonds for the purpose of establishing those prior lien bonds as
refundable if the aggregate principal amount of those prior lien bonds exceeds
66 2/3% of the net amount of the additional property that is subject to the
lien of such prior lien bonds.

Release Provisions

The Mortgage permits Duke Energy to dispose of certain property and to
take other actions without the Bond Trustee releasing that property. The
Mortgage also permits the release of mortgaged property if Duke Energy deposits
cash or other consideration equal to the value of the mortgaged property to be
released. In certain events and within certain limitations, the Bond Trustee is
required to pay out cash that the Bond Trustee receives--other than for the
Replacement Fund or as the basis for issuing Bonds--upon Duke Energy's
application.

Duke Energy may withdraw cash that it deposited with the Bond Trustee as
the basis for issuing Bonds in an amount equal to the principal amount of any
Bonds that it is entitled to have authenticated and delivered on the basis of
additional property (electric), on the basis of Bonds previously authenticated
and delivered or on the basis of refundable prior lien bonds.

Replacement Fund

The Mortgage requires Duke Energy to deposit with the Bond Trustee
annually, for the Replacement Fund established under the Mortgage, the sum of
the "replacement requirements" for all years beginning with 1949 and ending
with the last calendar year preceding the deposit date, less certain
deductions. Those deductions are (1) the aggregate original cost of all fixed
property (electric) retired during that time period, not exceeding the
aggregate of the gross amounts of additional property (electric) that Duke
Energy acquired or constructed during the same period, and (2) the aggregate
amount of cash that Duke Energy deposited with the Bond Trustee up to that
time, or that Duke Energy would have been required to deposit except for
permitted reductions, under the Replacement Fund.

The "replacement requirement" for any year is 2 1/2% of the average
"amount of depreciable fixed property" (electric) owned by Duke Energy at the
beginning and end of that year, not exceeding, however, the amount Duke Energy
is permitted to charge as an operating expense for depreciation or retirement
by any governmental authority, or the amount deductible as depreciation or
similar expense for federal income tax purposes. The "amount of depreciable
fixed property" (electric) is the amount by which the sum of $192,913,385 plus
the aggregate gross amount of all depreciable additional property (electric)
that Duke Energy acquired or constructed from January 1, 1949 to the date as of
which such amount is determined exceeds the original cost of all of Duke
Energy's depreciable fixed property (electric) retired during that period or
released from the lien of the Mortgage.

Duke Energy may reduce the amount of cash at any time required to be
deposited in the Replacement Fund and may withdraw any cash that it previously
deposited that is held in the Replacement Fund:

. in an amount equal to 150% of the principal amount of Bonds previously
authenticated and delivered under the Mortgage, or refundable prior
lien bonds, deposited with the Bond Trustee and on the basis of which
Duke Energy would otherwise have been entitled to have additional
Bonds authenticated and delivered; and

. in an amount equal to 150% of the principal amount of Bonds which Duke
Energy would otherwise be entitled to have authenticated and delivered
on the basis of additional property (electric).

Upon Duke Energy's application, the Bond Trustee will apply cash that
Duke Energy deposited in the Replacement Fund and has not previously withdrawn
to the payment, purchase or redemption of Bonds issued under the Mortgage or to
the purchase of refundable prior lien bonds.

Duke Energy has never deposited any cash with the Bond Trustee for the
Replacement Fund. If Duke Energy deposits any cash in the future, it has agreed
not to apply that cash to the redemption of the Bonds as long as any Bonds then
outstanding remain outstanding.

Amendments of the Mortgage

Duke Energy may amend the Mortgage with the consent of the holders of 66
2/3% in principal amount of the Bonds, except that no such amendment may:

. affect the terms of payment of principal at maturity or of interest or
premium on any Bond;

. affect the rights of Bondholders to sue to enforce any such payment at
maturity; or

. reduce the percentage of Bonds required to consent to an amendment.

No amendment may affect the rights under the Mortgage of the holders of
less than all of the series of Bonds outstanding unless the holders of 66 2/3%
in principal amount of the Bonds of each series affected consent to the
amendment.

The covenants included in the supplemental indenture for any series of
Bonds to be issued will be solely for the benefit of the holders of those
Bonds. Duke Energy may modify any such covenant only with the consent of the
holders of 66 2/3% in principal amount of those Bonds outstanding, without the
consent of Bondholders of any other series.

Events of Default

The Bond Trustee may, and at the written request of the holders of a
majority in principal amount of the outstanding Bonds will, declare the
principal of all outstanding Bonds due when any event of default under the
Mortgage occurs. The holders of a majority in principal amount of the
outstanding Bonds may, however, waive the default and rescind the declaration
if Duke Energy cures the default.

Events of default under the Mortgage include:

. default in the payment of principal;

. default for 60 days in the payment of interest;

. default in the performance of any other covenant in the Mortgage
continuing for 60 days after the Bond Trustee or the holders of not
less than 10% in principal amount of the Bonds then outstanding give
notice of the default; and

. certain bankruptcy or insolvency events with respect to Duke Energy.

Duke Energy provides a statement by certain of its officers each year to
the Bond Trustee stating whether it has complied with the covenants of the
Mortgage.

Concerning the Bond Trustee

The Chase Manhattan Bank is the Bond Trustee and is also the Senior
Indenture Trustee and the Subordinated Indenture Trustee. Duke Energy and
certain of its affiliates maintain deposit accounts and banking relationships
with The Chase Manhattan Bank. The Chase Manhattan Bank also serves as trustee
under other indentures pursuant to which securities of Duke Energy and of
certain of its affiliates are outstanding.

The Bond Trustee is under no obligation to exercise any of its powers at
the request of any of the holders of the Bonds unless those Bondholders have
offered to the Bond Trustee security or indemnity satisfactory to it against
the cost, expenses and liabilities it might incur as a result. The holders of a
majority in principal amount of the Bonds outstanding may direct the time,
method and place of conducting any proceeding for any remedy available to the
Bond Trustee, or the exercise of any trust or power of the Bond Trustee. The
Bond Trustee will not be liable for any action that it takes or omits to take
in good faith in accordance with any such direction.

DESCRIPTION OF THE COMMON STOCK

The following description of Duke Energy's Common Stock is only a summary and
is not intended to be comprehensive. For additional information you should
refer to the applicable provisions of the North Carolina Business Corporation
Act and Duke Energy's Restated Articles of Incorporation (Articles) and By-
Laws. The Articles and By-Laws are exhibits to the registration statement, of
which this prospectus is a part.

General

Duke Energy is authorized to issue up to 1,000,000,000 shares of Common
Stock. At September 30, 2000, 368,604,491 shares of Common Stock were
outstanding. Duke Energy is also authorized to issue up to 12,500,000 shares of
Preferred Stock, 10,000,000 shares of Preferred Stock A and 1,500,000 shares of
Preference Stock. At September 30, 2000, 2,414,984 shares of Preferred Stock,
2,057,185 shares of Preferred Stock A and no shares of Preference Stock were
outstanding. The Preferred Stock, Preferred Stock A and Preference Stock
together are sometimes called the "Preferred Stocks."

Dividends

Holders of Common Stock are entitled to such dividends as may be declared
from time to time by the Board of Directors from legally available funds but
only if full dividends on all outstanding series of the Preferred Stocks for
the then current and all prior dividend periods and any required sinking fund
payments with respect to any outstanding series of such securities have been
paid or provided for.

Voting Rights

Subject to the rights, if any, of the holders of the Preferred Stocks which
may be outstanding or as otherwise provided by law, the holders of Common Stock
have exclusive voting rights, each share being entitled to one vote. Holders of
Common Stock have noncumulative voting rights, which means that the holders of
more than 50% of the shares voting for the election of directors can elect 100%
of the directors and the holders of the remaining shares voting for the
election of directors will not be able to elect any directors.

Whenever dividends on any part of any outstanding Preferred Stock or
Preferred Stock A are in arrears in an amount equivalent to the total dividends
required to be paid on that Preferred Stock or Preferred Stock A in any period
of 12 calendar months, the holders of the Preferred Stock as a class have the
exclusive right to elect a majority of the authorized number of directors and
the holders of the Preferred Stock A as a class have the exclusive right to
elect two directors. Those rights cease whenever Duke Energy pays all accrued
and unpaid dividends in full. Whenever six quarterly dividends on any
outstanding series of the Preference Stock are in arrears or any required
sinking fund payments are in default, the holders of the Preference Stock as a
class have the exclusive right to elect two directors. This right ceases
whenever all dividends and required sinking fund obligations in default have
been paid in full or provided for. In addition, the consent of the holders of
specified percentages of any outstanding Preferred Stock, Preferred Stock A or
Preference Stock, or some or all of the holders of such classes, is required in
connection with certain increases in authorized amounts of or changes in stock
senior to the Common Stock or in connection with any sale of substantially all
of Duke Energy's assets or certain mergers.

Rights Upon Liquidation

The holders of Common Stock are entitled in liquidation to share ratably in
the assets of Duke Energy after payment of all debts and liabilities and after
required preferential payments to the holders of outstanding Preferred Stocks.

Miscellaneous

The outstanding shares of Common Stock are, and the shares of Common Stock
sold hereunder will be, upon payment for them, fully paid and nonassessable.
Holders of Common Stock have no preemptive rights and no conversion rights. The
Common Stock is not subject to redemption and is not entitled to the benefit of
any sinking fund provisions.

Transfer Agent and Registrar

Duke Energy acts as transfer agent and registrar for the Common Stock.

Preference Stock Purchase Rights

Each share of Common Stock has attached to it a Preference Stock Purchase
Right. The Rights initially are represented only by the certificates for the
shares of Common Stock and will not trade separately from those shares unless
and until:

. ten days after it is publicly announced that a person or group (with
certain exceptions) has acquired, or has obtained the right to acquire,
the beneficial ownership of 15% or more of the outstanding Common Stock
(an "acquiring person"); or

. ten business days (or a later date determined by Duke Energy's Board of
Directors) after the date a person or group commences, or public
announcement is made that the person or group intends to commence, a
tender or exchange offer that would result in the person or group
becoming an acquiring person.

If and when the Rights separate, each Right will entitle the holder to purchase
1/10,000 of a share of Duke Energy's Series A Participating Preference Stock for
an exercise price that is presently $190.

In the event that a person or group becomes an acquiring person, each Right
(except for Rights beneficially owned by the acquiring person or its
transferees, which Rights become void) will entitle its holder to purchase, for
the exercise price, a number of shares of Common Stock having a market value of
twice the exercise price. Also, if, after ten days following the date of the
announcement that a person or group has become an acquiring person:

. Duke Energy is involved in a merger or similar form of business
combination in which Duke Energy is not the surviving corporation or in
which Duke Energy is the surviving corporation but the Common Stock is
changed or exchanged; or

. more than 50% of Duke Energy's assets or earning power is sold or
transferred;

then each Right (except for voided Rights) will entitle its holder to purchase,
for the exercise price, a number of shares of common stock of the acquiring
company having a value of twice the exercise

price. If any person or group acquires from 15% to but excluding 50% of the
outstanding Common Stock, Duke Energy's Board of Directors may, at its option,
exchange each outstanding Right (except for those held by an acquiring person
or its transferees) for one share of Common Stock or 1/10,000 of a share of
Series A Participating Preference Stock.

Duke Energy's Board of Directors may redeem the Rights for $0.01 per Right
prior to ten business days after the date of the public announcement that a
person or group has become an acquiring person.

The Rights will not prevent a takeover of Duke Energy. However, the
existence of the Rights may cause substantial dilution to a person or group
that acquires 15% or more of the Common Stock unless the Board of Directors
first redeems those Rights.

Certain Anti-Takeover Matters

Duke Energy's Articles and By-Laws include a number of provisions that may
have the effect of encouraging persons considering unsolicited tender offers or
other unilateral takeover proposals to negotiate with the Board of Directors
rather than pursue non-negotiated takeover attempts. Those provisions include:

Classified Board of Directors; Removal of Directors; Vacancies

Duke Energy's Articles provide for a Board of Directors divided into three
classes, with one class being elected each year to serve for a three-year term.
As a result, at least two annual meetings of shareholders may be required for
shareholders to change a majority of the Board of Directors. Duke Energy's
shareholders may remove directors only for cause. Vacancies and newly created
directorships on the Board of Directors may be filled only by the affirmative
vote of a majority of the directors remaining in office, and no decrease in the
number of directors may shorten the term of an incumbent director. The
classification of directors and the inability of shareholders to remove
directors without cause and to fill vacancies and newly created directorships
on the Board of Directors will make it more difficult to change the composition
of the Board of Directors, but will promote continuity of existing management.

Advance Notice Requirements

Duke Energy's By-Laws establish advance notice procedures with regard to
shareholder proposals relating to the nomination of persons for election as
directors or new business to be brought before annual meetings of shareholders.
These procedures provide that shareholders must give timely notice of such
proposals in writing to the Secretary of Duke Energy. Generally, to be timely
with respect to an annual meeting of shareholders, notice must be received at
Duke Energy's principal executive offices not less than 90 days nor more than
120 days prior to the first anniversary date of the annual meeting for the
preceding year. The notice must contain certain information specified in the
By-Laws.

Special Meetings of Shareholders

Neither the Articles nor the By-Laws of Duke Energy give shareholders the
right to call a special meeting of shareholders. The By-Laws provide that
special meetings of shareholders may be called only by the Board of Directors
or the Chairman of the Board.

Amendment of Certain Charter Provisions

Duke Energy's Articles require the approval of not less than 80% of the
voting power of all outstanding shares of Common Stock to amend provisions
relating to the minimum and maximum size of the Board of Directors, the
classification of the Board of Directors, the removal of directors, the filling
of vacancies and newly created directorships on the Board of Directors and the
requirement that a decrease in the number of directors constituting the Board
of Directors may not shorten the term of any incumbent director. This amendment
provision will make it more difficult to dilute the anti-takeover effects of
Duke Energy's Articles and By-Laws.

DESCRIPTION OF THE STOCK PURCHASE CONTRACTS
AND THE STOCK PURCHASE UNITS

Duke Energy may issue stock purchase contracts representing contracts
obligating holders to purchase from Duke Energy, and Duke Energy to sell to the
holders, a specified number of shares of Common Stock (or a range of numbers of
shares pursuant to a predetermined formula) at a future date or dates. The
price per share of Common Stock may be fixed at the time the stock purchase
contracts are issued or may be determined by reference to a specific formula
set forth in the stock purchase contracts.

The stock purchase contracts may be issued separately or as a part of
units, often known as stock purchase units, consisting of a stock purchase
contract and either:

. Senior Notes, Junior Subordinated Notes or other debt securities of Duke
Energy or one of its subsidiaries;

. debt obligations of third parties, including U.S. Treasury securities;
or

. Preferred Securities or trust preferred securities issued by trusts, all
of whose common securities are owned by Duke Energy or by subsidiaries
of Duke Energy,

securing the holder's obligations to purchase the Common Stock under the stock
purchase contracts.

The stock purchase contracts may require Duke Energy to make periodic
payments to the holders of the stock purchase units or vice versa, and such
payments may be unsecured or prefunded on some basis. The stock purchase
contracts may require holders to secure their obligations in a specified manner
and in certain circumstances Duke Energy may deliver newly issued prepaid stock
purchase contracts, often known as prepaid securities, upon release to a holder
of any collateral securing such holder's obligations under the original stock
purchase contract.

The applicable prospectus supplement will describe the terms of any stock
purchase contracts or stock purchase units and, if applicable, prepaid
securities. The description in the applicable prospectus supplement will not
contain all of the information that you may find useful. For more information,
you should review the stock purchase contracts, the collateral arrangements and
depositary arrangements, if applicable, relating to such stock purchase
contracts or stock purchase units and, if applicable, the prepaid securities
and the document pursuant to which the prepaid securities will be issued. These
documents will be filed with the SEC promptly after the offering of such stock
purchase contracts or stock purchase units and, if applicable, prepaid
securities.

DESCRIPTION OF THE PREFERRED SECURITIES

Each Trust may issue only one series of Preferred Securities. The Trust
Agreement of each Trust will authorize the Administrative Trustees to issue the
Preferred Securities of that Trust on behalf of that Trust. For additional
information you should refer to the applicable Trust Agreement. The form of
Trust Agreement is an exhibit to the registration statement, of which this
prospectus is a part.

The prospectus supplement for a particular series of Preferred Securities
being offered will disclose the specific terms related to the offering,
including the price or prices at which the Preferred Securities to be offered
will be issued. Those terms will include some or all of the following:

. the title of the series;

. the number of Preferred Securities of the series;

. the yearly distribution rate, or the method of determining that rate,
and the date or dates on which distributions will be payable;

. the date or dates, or method of determining the date or dates, from
which distributions will be cumulative;

. the amount that will be paid out of the assets of the Trust to the
holders of the Preferred Securities upon the voluntary or involuntary
dissolution, winding-up or termination of the Trust;

. any obligation that the Trust has to purchase or redeem the Preferred
Securities, and the price at which, the period within which, and the
terms and conditions upon which the Trust will purchase or redeem
them;

. any voting rights of the Preferred Securities that are in addition to
those legally required, including any right that the holders of the
Preferred Securities have to approve certain actions under or
amendments to the Trust Agreement;

. any right that the Trust has to defer distributions on the Preferred
Securities in the event that Duke Energy extends the interest payment
period on the related Junior Subordinated Notes; and

. any other rights, preferences, privileges, limitations or restrictions
upon the Preferred Securities of the series.

Duke Energy will guarantee each series of Preferred Securities to the
extent described below under the caption "Description of the Guarantees."

The applicable prospectus supplement will describe any material United
States federal income tax considerations that apply to the Preferred
Securities.

DESCRIPTION OF THE GUARANTEES

Duke Energy will execute the Guarantees from time to time for the benefit
of the holders of the Preferred Securities of the respective Trusts. The Chase
Manhattan Bank will act as Guarantee Trustee under each Guarantee. The
Guarantee Trustee will hold each Guarantee for the benefit of the holders of
the Preferred Securities to which it relates.

The following description of the Guarantees is only a summary and is not
intended to be comprehensive. The form of Guarantee is an exhibit to the
registration statement, of which this prospectus is a part.

General

Duke Energy will irrevocably and unconditionally agree under each
Guarantee to pay the Guarantee Payments that are defined below, to the extent
specified in that Guarantee, to the holders of the Preferred Securities to
which the Guarantee relates, to the extent that the Guarantee Payments are not
paid by or on behalf of the related Trust. Duke Energy is required to pay the
Guarantee Payments to the extent specified in the relevant Guarantee regardless
of any defense, right of set-off or counterclaim that Duke Energy may have or
may assert against any person.

The following payments and distributions on the Preferred Securities of a
Trust are Guarantee Payments:

. any accrued and unpaid distributions required to be paid on the
Preferred Securities of the Trust, but only to the extent that the
Trust has funds legally and immediately available for those
distributions;

. the redemption price for any Preferred Securities that the Trust calls
for redemption, including all accrued and unpaid distributions to the
redemption date, but only to the extent that the Trust has funds
legally and immediately available for the payment; and

. upon a dissolution, winding-up or termination of the Trust, other than
in connection with the distribution of Junior Subordinated Notes to
the holders of Trust Securities of the Trust or the redemption of all
the Preferred Securities of the Trust, the lesser of:

. the sum of the liquidation amount and all accrued and unpaid
distributions on the Preferred Securities of the Trust to the
payment date, to the extent that the Trust has funds legally and
immediately available for the payment; and

. the amount of assets of the Trust remaining available for
distribution to holders of the Preferred Securities of the Trust
in liquidation of the Trust.

Duke Energy may satisfy its obligation to make a Guarantee Payment by
making that payment directly to the holders of the related Preferred Securities
or by causing the Trust to make the payment to those holders.

Each Guarantee will be a full and unconditional guarantee, subject to
certain subordination provisions, of the Guarantee Payments with respect to the
related Preferred Securities from the time of issuance of those Preferred
Securities, except that the Guarantee will only apply to the payment of
distributions and other payments on the Preferred Securities when the Trust has
sufficient funds legally and immediately available to make those distributions
or other payments.

If Duke Energy does not make the required payments on the Junior
Subordinated Notes that the Property Trustee holds under a Trust, that Trust
will not make the related payments on its Preferred Securities.

Subordination

Duke Energy's obligations under each Guarantee will be unsecured
obligations of Duke Energy. Those obligations will rank:

. subordinate and junior in right of payment to all of Duke Energy's
other liabilities, other than obligations or liabilities that rank
equal in priority or subordinate by their terms;

. equal in priority with Duke Energy's Preferred Stock and Preferred
Stock A and similar guarantees; and

. senior to Duke Energy's Common Stock.

Duke Energy has Preferred Stock and Preferred Stock A outstanding that
will rank equal in priority with the Guarantees and has Common Stock
outstanding that will rank junior to the Guarantees.

Each Guarantee will be a guarantee of payment and not of collection. This
means that the guaranteed party may institute a legal proceeding directly
against Duke Energy, as guarantor, to enforce its rights under the Guarantee
without first instituting a legal proceeding against any other person or
entity.

The terms of the Preferred Securities will provide that each holder of
the Preferred Securities, by accepting those Preferred Securities, agrees to
the subordination provisions and other terms of the related Guarantee.

Amendments and Assignment

Duke Energy may amend each Guarantee without the consent of any holder of
the Preferred Securities to which that Guarantee relates if the amendment does
not materially and adversely affect the rights of those holders. Duke Energy
may otherwise amend each Guarantee with the approval of the holders of at least
66 2/3% of the outstanding Preferred Securities to which that Guarantee
relates.

Termination

Each Guarantee will terminate and be of no further effect when:

. the redemption price of the Preferred Securities to which the
Guarantee relates is fully paid;

. Duke Energy distributes the related Junior Subordinated Notes to the
holders of those Preferred Securities; or

. the amounts payable upon liquidation of the related Trust are fully
paid.

Each Guarantee will remain in effect or will be reinstated if at any time
any holder of the related Preferred Securities must restore payment of any sums
paid to that holder with respect to those Preferred Securities or under that
Guarantee.

Events of Default

An event of default will occur under any Guarantee if Duke Energy fails
to perform any of its payment obligations under that Guarantee. The holders of
a majority of the Preferred Securities of any series may waive any such event
of default and its consequences on behalf of all of the holders of the
Preferred Securities of that series. The Guarantee Trustee is obligated to
enforce the Guarantee for the benefit of the holders of the Preferred
Securities of a series if an event of default occurs under the related
Guarantee.

The holders of a majority of the Preferred Securities to which a
Guarantee relates have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee
with respect to that Guarantee or to direct the exercise of any trust or power
that the Guarantee Trustee holds under that Guarantee. Any holder of the
related Preferred Securities may institute a legal proceeding directly against
Duke Energy to enforce that holder's rights under the Guarantee without first
instituting a legal proceeding against the Guarantee Trustee or any other
person or entity.

Concerning the Guarantee Trustee

The Chase Manhattan Bank is the Guarantee Trustee. It is also the
Property Trustee, the Subordinated Indenture Trustee, the Senior Indenture
Trustee and the Bond Trustee. Duke Energy and certain of its affiliates
maintain deposit accounts and banking relationships with The Chase Manhattan
Bank. The Chase Manhattan Bank also serves as trustee under other indentures
pursuant to which securities of Duke Energy and certain of its affiliates are
outstanding.

The Guarantee Trustee will perform only those duties that are
specifically set forth in each Guarantee unless an event of default under the
Guarantee occurs and is continuing. In case an event of default occurs and is
continuing, the Guarantee Trustee will exercise the same degree of care as a
prudent individual would exercise in the conduct of his or her own affairs.
Subject to those provisions, the Guarantee Trustee is under no obligation to
exercise any of its powers under any Guarantee at the request of any holder of
the related Preferred Securities unless that holder offers reasonable indemnity
to the Guarantee Trustee against the costs, expenses and liabilities which it
might incur as a result.

Agreements as to Expenses and Liabilities

Duke Energy will enter into an Agreement as to Expenses and Liabilities
under each Trust Agreement. Each Agreement as to Expenses and Liabilities will
provide that Duke Energy will, with certain exceptions, irrevocably and
unconditionally guarantee the full payment of any indebtedness, expenses or
liabilities of the related Trust to each person or entity to whom that Trust
becomes indebted or liable. The exceptions are the obligations of the Trust to
pay to the holders of the related Preferred Securities or other similar
interests in that Trust the amounts due to the holders under the terms of those
Preferred Securities or those similar interests.

PLAN OF DISTRIBUTION

Duke Energy and the Trusts may sell securities to one or more
underwriters or dealers for public offering and sale by them, or it may sell
the securities to investors directly or through agents. The prospectus
supplement relating to the securities being offered will set forth the terms of
the offering and the method of distribution and will identify any firms acting
as underwriters, dealers or agents in connection with the offering, including:

. the name or names of any underwriters;

. the purchase price of the securities and the proceeds to Duke Energy
or the Trusts from the sale;

. any underwriting discounts and other items constituting underwriters'
compensation;

. any public offering price;

. any discounts or concessions allowed or reallowed or paid to dealers;
and

. any securities exchange or market on which the securities may be
listed.

Only those underwriters identified in the prospectus supplement are
deemed to be underwriters in connection with the securities offered in the
prospectus supplement.

Duke Energy and the Trusts may distribute the securities from time to
time in one or more transactions at a fixed price or prices, which may be
changed, or at prices determined as the prospectus supplement specifies. Duke
Energy may sell securities through forward contracts or similar arrangements.
In connection with the sale of securities, underwriters, dealers or agents may
be deemed to have received compensation from Duke Energy in the form of
underwriting discounts or commissions and also may receive commissions from
securities purchasers for whom they may act as agent. Underwriters may sell the
securities to or through dealers, and such dealers may receive compensation in
the form of discounts, concessions or commissions from the underwriters or
commissions from the purchasers for whom they may act as agent.

Duke Energy may sell the securities directly or through agents it
designates from time to time. Any agent involved in the offer or sale of the
securities covered by this prospectus, other than at the market offerings of
common stock, will be named in a prospectus supplement relating to such
securities. At the market offerings of common stock may be made by agents.
Commissions payable by Duke Energy to agents will be set forth in a prospectus
supplement relating to the securities being offered. Unless otherwise indicated
in a prospectus supplement, any such agents will be acting on a best-efforts
basis for the period of their appointment.

Some of the underwriters, dealers or agents and some of their affiliates
who participate in the securities distribution may engage in other transactions
with, and perform other services for, Duke Energy and its subsidiaries or
affiliates in the ordinary course of business.

Any underwriting or other compensation which Duke Energy pays to
underwriters or agents in connection with the securities offering, and any
discounts, concessions or commissions which underwriters allow to dealers, will
be set forth in the applicable prospectus supplement. Underwriters,

dealers and agents participating in the securities distribution may be deemed
to be underwriters, and any discounts and commissions they receive and any
profit they realize on the resale of the securities may be deemed to be
underwriting discounts and commissions under the Securities Act of 1933.
Underwriters, and their controlling persons, and agents may be entitled, under
agreements entered into with Duke Energy and the Trusts, to indemnification
against certain civil liabilities, including liabilities under the Securities
Act of 1933.

EXPERTS

The consolidated financial statements of Duke Energy incorporated in this
prospectus by reference from Duke Energy's annual report on Form 10-K for the
year ended December 31, 1999 have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report, which is incorporated by
reference into this prospectus, and have been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.

VALIDITY OF THE SECURITIES

Ellen T. Ruff, Esq., who is Duke Energy's Vice President and General
Counsel, Corporate and Electric Operations, and Dewey Ballantine LLP will issue
opinions about the validity of the securities offered by Duke Energy in the
applicable prospectus supplement for Duke Energy. Richards, Layton & Finger,
P.A., special Delaware counsel, will issue opinions about the validity of the
Preferred Securities offered in the applicable prospectus supplement for the
Trusts. Counsel named in the applicable prospectus supplement will issue
opinions about the validity of the securities offered by Duke Energy for any
underwriters.

WHERE YOU CAN FIND MORE INFORMATION

Duke Energy files annual, quarterly and current reports and other
information with the SEC. You may read and copy any documents that are filed at
any of the following:

. SEC Public Reference Room
450 Fifth Street, N.W.
Washington, D.C. 20549;

. Citicorp Center
500 West Madison Street
Suite 1400
Chicago, Illinois 60661-2411; or

. Seven World Trade Center
Suite 1300
New York, New York 10048.

You may also obtain copies of these documents at prescribed rates from
the Public Reference Section of the SEC at its Washington address.

Please call the SEC at 1-800-SEC-0330 for further information.

Duke Energy's filings are also available to the public through:

. The SEC web site at http://www.sec.gov; and

. The New York Stock Exchange
20 Broad Street
New York, New York 10005.

Information about Duke Energy is also available on its web site at
http://www.duke-energy.com. Such web site is not a part of this prospectus.

The SEC allows Duke Energy to "incorporate by reference" the information
Duke Energy files with it, which information incorporated by reference is
considered to be part of this prospectus and any accompanying prospectus
supplement, and later information that Duke Energy files with the SEC will
automatically update and supersede that information as well as the information
included in this prospectus and any accompanying prospectus supplement. Duke
Energy incorporates by reference the documents listed below and any future
filings made with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the
Securities Exchange Act of 1934 filed prior to the termination of this
offering:

. Duke Energy's annual report on Form 10-K for the year ended December
31, 1999;

. Duke Energy's quarterly reports on Form 10-Q for the quarters ended
March 31, 2000, June 30, 2000 and September 30, 2000; and

. Duke Energy's current reports on Form 8-K dated March 3, 2000, April
28, 2000 and December 19, 2000.

Duke Energy will provide without charge a copy of these filings, other
than any exhibits unless the exhibits are specifically incorporated by
reference into this prospectus. You may request your copy by writing Duke
Energy at the following address or telephoning one of the following numbers:

Investor Relations Department
Duke Energy Corporation
P.O. Box 1005
Charlotte, North Carolina 28201
(704) 382-3853 or (800) 488-3853 (toll-free)

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