Under Duke Energy's 1998 Stock Incentive Plan, stock options for up to fifteen million shares of common stock may be granted to key employees. Under the plan, the exercise price of each option granted equals 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 exercise term of ten years.

Effective with the merger, each share of PanEnergy common stock, outstanding immediately prior to the merger, was converted into the right to receive 1.0444 shares of Duke Energy common stock. Each option to purchase PanEnergy common stock, outstanding prior to the merger, was assumed by Duke Energy and became exercisable upon the same terms as under the applicable PanEnergy stock option plan and option agreement, except that these options became options to purchase shares of Duke Energy common stock, appropriately adjusted.

Stock Option Grants
	Options (in thousands)				Weighted Average Exercise Price
Outstanding at December 31, 1995			3,559		$	18
Granted			498			28
Exercised			(712	)		16
Forfeited			(71	)		22
Outstanding at December 31, 1996			3,274			20
Granted			388			44
Exercised			(873	)		19
Forfeited			(60	)		27
Outstanding at December 31, 1997			2,729			24
Granted			3,548			57
Exercised			(948	)		21
Forfeited			(868	)		57
Outstanding at December 31, 1998			4,461			45

Stock Options at December 31, 1998
	Outstanding						Exercisable
Range of Exercise Prices	Number (in thousands)		Weighted Average Remaining Life (Years)		Weighted Average Exercise Price		Number (in thousands)		Weighted Average Exercise Price
$10 to $14	57		2.3		$12		57		$12
$15 to $20	637		4.9		18		637		18
$21 to $25	556		4.9		21		556		21
$26 to $31	199		7.1		27		199		27
$42 to $50	240		8.1		44		87		44
$55 to $60	2,709		9.2		57		--		--
$66 to $67	63		9.7		67		7		67
Total	4,461						1,543		22

Duke Energy had two million options exercisable at both December 31, 1997 and 1996, with weighted average exercise prices of $21 and $19 per option, respectively. The weighted-average fair value of options granted was $9, $10 and $9 per option during 1998, 1997 and 1996, respectively. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model.

Weighted-Average Assumptions for Option-Pricing
	1998	1997	1996
Stock dividend yield	4.2%	3.5%	2.6%
Expected stock price volatility	15.1%	20.7%	26.0%
Risk-free interest rates	5.6%	6.5%	5.7%
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, 1998 net income would have been $1,250 million, or $3.40 per basic share; 1997 net income would have been $971 million, or $2.50 per basic share; and 1996 net income would have been $1,074 million, or $2.85 per basic share.