EXHIBIT 13

                     AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
--------------------------------------------------------------------------------
CONSOLIDATED SUMMARY OF SELECTED FINANCIAL DATA
(Dollars in thousands, except per share amounts)


<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,             1999         1998         1997         1996         1995
=====================================================================================================
Revenues
  Water service
<S>                                    <C>          <C>          <C>          <C>          <C>
  Residential                          $  733,956   $  691,279   $  658,955   $  617,846   $  554,448
    Commercial                            262,940      249,564      235,561      224,354      201,711
    Industrial                             77,953       78,092       73,596       72,101       64,310
    Public and other                      149,531      146,299      137,289      122,951      113,147
  Other water revenues                     11,997       13,983       11,064        9,868        9,131
-----------------------------------------------------------------------------------------------------
                                        1,236,377    1,179,217    1,116,465    1,047,120      942,747
  Wastewater service                       24,480       20,820       14,909       15,378       14,953
  Management fees                              --           --           --           --        8,042
-----------------------------------------------------------------------------------------------------
                                       $1,260,857   $1,200,037   $1,131,374   $1,062,498   $  965,742
                                       ==============================================================
Water sales (million gallons)
    Residential                           175,487      168,617      169,307      164,700      161,552
    Commercial                             81,857       79,115       78,542       77,319       75,678
    Industrial                             45,862       46,361       46,088       46,009       44,248
    Public and other                       41,477       40,110       39,831       36,152       35,653
-----------------------------------------------------------------------------------------------------
                                          344,683      334,203      333,768      324,180      317,131
                                       ==============================================================
Net income*                            $  138,949   $  150,439   $  137,691   $  116,820   $  108,723
Earnings per common share
  on average shares outstanding*            $1.40        $1.54        $1.42        $1.26        $1.29
Common dividends paid per share              $.86         $.82         $.76         $.70         $.64

AT YEAR-END
Water customers (thousands)                 2,476        2,446        2,400        2,380        2,210
Wastewater customers (thousands)               40           39           25           24           24
Total assets                           $5,952,206   $5,458,658   $4,992,023   $4,682,097   $4,016,353
Preferred stocks with mandatory
  redemption requirements
    American Water Works Company, Inc. $   40,000   $   40,000   $   40,000   $   40,000   $   40,000
    Subsidiaries                           34,020       37,298       39,734       41,060       42,326
Long-term debt
    American Water Works Company, Inc. $  211,000   $  216,500   $  131,000   $  132,000   $  133,000
    Subsidiaries                        2,182,097    2,115,687    1,965,924    1,796,170    1,462,760
Market price of common stock
  at year-end                              $21.25       $33.75       $27.31       $20.63       $19.44

</TABLE>
*Includes one-time merger costs of $20,535 ($12,905 net of tax) and
 $.13 per share in 1999, and $352 in 1998.

The results presented in 1999 and the restated results for prior
years reflect the pooling of interests method of accounting to recognize
the acquisition of National Enterprises Inc.

24

<PAGE>
                     AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
--------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS



THE STRATEGY OF AMERICAN WATER WORKS COMPANY

The Company's goal is to consistently enhance long term shareholder
value.  The primary strategy by which this goal is accomplished is by
investing in the business of water service.  Existing utility
subsidiaries apply the investments to reinforce, rehabilitate and
replace existing service infrastructure and provide for growth within
existing service territories.  The Company also invests in acquisitions
of water and wastewater utilities that complement our existing service
territories or which enhance the Company's goal of geographic
diversification.

    The Parent Company's investment in its subsidiaries has increased
from $1.4 billion at year-end 1996 to $1.8 billion at year-end 1999.
The schedule at the top of page 26 illustrates that the growth in the
Parent Company's investment in its subsidiaries has been accomplished by
subsidiary earnings retention, the investment of a portion of the
dividends received from subsidiaries and the sale of securities and bank
loans.

    Earnings to common shareholders have risen from $112.8 million in
1996 to $147.9 million, excluding one-time after tax merger costs of
$12.9 million, in 1999.

    Income to common shareholders of American Water Works Company is
influenced by three factors: the amount of investment in subsidiaries,
the rate of return on that investment and the costs to operate the
Parent Company.

    The schedule at the bottom of page 26 demonstrates that the growth
in earnings over this period is the direct result of new investment in
subsidiaries.  Fluctuations in the rate of return are the result of the
influence of weather conditions on water sales and the response of
utility regulation to the economic climate.

    A second strategy for enhancement of shareholder value is the
provision of management services to water and wastewater utilities owned
by others.  Municipally owned water and wastewater utilities face the
same challenges associated with providing high quality service that are
faced by our own utility subsidiaries.  They need access to specialized
expertise and capital resources to meet these challenges.  Our
management services subsidiary, American Water Services, (AWS),
continues our long-standing record of providing these services.  AWS has
broadened the array of services it can provide to a municipality in the
areas of operations, technical assistance and capital projects.

    The third strategy for enhancement of shareholder value is the
development of complementary water resource management product and
service capabilities.  This will be accomplished through our American
Water Resources subsidiary.


DESCRIPTION OF THE BUSINESS

AMERICAN WATER WORKS COMPANY AND THE AMERICAN WATER SYSTEM

The core business of American Water Works Company, Inc. is the
ownership of common stock of utility companies providing water service.
The combination of American Water Works with its subsidiaries
constitutes the American Water System - a system that has functioned
well for over 50 years.  Each subsidiary functions independently, yet
shares in the benefits of size and identity afforded by the American
Water System.

    However, the water utility industry environment is changing rapidly.
Changes in regulation, the need for significant capital replacement, low
growth in consumption within existing service territories and continuing
pressures for increased efficiencies and productivity are changing the
nature of the industry.  To maintain its leadership position in this
evolving industry, the Company will continue to grow through
acquisitions of water utilities as well as expanding its scope of
activities to become a full service water resource management
enterprise.


REGULATED UTILITY SERVICE

The 25 utility subsidiaries provide water and/or wastewater service
to approximately nine million people in 22 states.  As public utilities,
each company is subject to the rules of both federal and state
environmental protection agencies, particularly with respect to the
quality of the water they distribute.  In addition, with the exception
of Michigan-American Water Company, the utility companies function under
economic regulations prescribed by state regulatory commissions.

    The mission of the utility subsidiaries of the Company is to provide
high quality, reliable water and wastewater service at an affordable
price.  There are several keys to continued success in this endeavor:
efficient planning and deployment of capital investment, cultivating
experienced managers and knowledgeable staff, supporting
state-of-the-art water quality programs, and maintaining responsive
customer service.


WATER AND WASTEWATER MANAGEMENT SERVICES

American Water Services (AWS) became a wholly owned subsidiary when
the Company acquired its joint venture partner's 50 percent interest in
AmericanAnglian Environmental Technologies on December 31, 1999.  AWS is
focused on the growing contract operations segment of the water and
wastewater market.  It currently manages and operates 175 water and
wastewater facilities, providing service to approximately one million
people in seven states, six of which states also have communities served
by our utility subsidiaries.


WATER RESOURCE MANAGEMENT

American Water Resources is a subsidiary formed to invest in water
and wastewater related products and services that provide value to our
customers and shareholders.


                                                                            25


<PAGE>
<TABLE>
<CAPTION>
                     AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
--------------------------------------------------------------------------------
ANALYSIS OF GROWTH IN AMERICAN WATER WORKS COMPANY'S
INVESTMENT IN SUBSIDIARIES



(000)                                             1999         1998         1997
================================================================================
<S>                                         <C>          <C>          <C>
Investment in subsidiaries at December 31   $1,819,412   $1,708,659   $1,556,631
Investment in subsidiaries at January 1      1,708,659    1,556,631    1,438,681
--------------------------------------------------------------------------------
Change during the year                      $  110,753   $  152,028   $  117,950
                                            ====================================
Sources of additional investment
  Undistributed earnings of subsidiaries    $   37,677   $   49,481   $   49,802
  Investment in subsidiary securities           73,076      102,547       68,148
--------------------------------------------------------------------------------
  Change during the year                    $  110,753   $  152,028   $  117,950
                                            ====================================
Net income of subsidiaries                  $  166,537   $  168,764   $  152,085
Return on January 1 investment
  in subsidiaries                                 9.7%        10.8%        10.6%
Subsidiaries' common stock dividend
  payout ratio                                     77%          71%          67%
--------------------------------------------------------------------------------
Dividends from subsidiaries                   128,860       119,283      102,283
--------------------------------------------------------------------------------
Parent Company's use of cash
  Preferred dividends                           3,984         3,984        3,984
  Other cash requirements
    (includes merger related cash
    requirements of $12,704 in 1999)           33,185        16,742       14,387
--------------------------------------------------------------------------------
                                               37,169        20,726       18,371
--------------------------------------------------------------------------------
Available for common dividends                 91,691        98,557       83,912
Common dividends declared                      79,370        71,389       66,424
Cash payout ratio                                 87%           72%          79%
Available after dividends                      12,321        27,168       17,488
Parent Company cash at beginning of year       18,042           879           75
--------------------------------------------------------------------------------
                                               30,363        28,047       17,563
Investment in securities of subsidiaries      (73,076)     (102,547)     (68,148)
Notes and advances to subsidiaries, net           692          (672)          10
--------------------------------------------------------------------------------
                                              (42,021)      (75,172)     (50,575)
--------------------------------------------------------------------------------
Net bank borrowings                            46,500       (59,500)      21,400
Proceeds from long-term debt                       --       120,000           --
Intercompany borrowings, net                       --        (3,013)       3,013
Proceeds from common stock, net                40,723        36,227       28,041
Redemption of securities                      (40,500)         (500)      (1,000)
--------------------------------------------------------------------------------
                                               46,723        93,214       51,454
--------------------------------------------------------------------------------
Parent Company cash at end of year          $   4,702    $   18,042   $      879
                                            ====================================



ANALYSIS OF CHANGE IN INCOME


(000)                                             1999         1998         1997
================================================================================
<S>                                         <C>          <C>          <C>
Net income to common stock-current year     $  134,965   $  146,455   $  133,707
Net income to common stock-prior year          146,455      133,707      112,836
--------------------------------------------------------------------------------
Change in income                               (11,490)      12,748       20,871
Change in Parent Company operating cost
  (includes after tax merger costs
  of $6,422 in 1999)                             9,263        3,931       (3,703)
--------------------------------------------------------------------------------
Change in investment income                    ($2,227)  $   16,679   $   17,168
                                            ====================================
Sources of change in investment income
  Additional investment in subsidiaries     $   14,818   $   12,788   $   28,236
  Change in rate of return on investment
    (includes $6,483 of after tax merger
    costs in 1999)                             (17,045)       3,891      (11,068)
--------------------------------------------------------------------------------
Total change in investment income              ($2,227)  $   16,679   $   17,168
                                            ====================================



26

<PAGE>

--------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS



SHARED SERVICES

American Water Works Service Company, a subsidiary, provides
professional services as required to affiliated companies.  These
services include accounting, administration, communication, corporate
secretarial, engineering, financial, human resources, information
systems, operations, rates and revenue, risk management and water
quality.  This arrangement, which provides these services at cost,
affords affiliated companies professional and technical talent otherwise
unavailable economically or on a timely basis.


SYSTEM GROWTH AND DEVELOPMENT

ACQUISITIONS OF UTILITY SYSTEMS

Consistent with the Company's growth strategy, management continues
to search for opportunities to acquire water and wastewater systems that
represent the prospect for enhanced shareholder value.

    The year 1999 began with 23 acquisitions that were awaiting
regulatory approval.  During the year, contract negotiations for 22 more
acquisitions were completed.  Of that total of 45 transactions, 21 were
finalized during 1999, adding approximately 518,000 new customers.

    The most significant transaction completed in 1999 was the
acquisition of National Enterprises Inc. (NEI), a privately owned
holding company with operations primarily in the water utility business.
NEI subsidiaries provide water utility service to more than 500,000
customers in Illinois, Indiana, Missouri and New York.  Since most of
NEI's customers are in the mid-west this acquisition significantly
furthered the Company's strategy of geographic diversification.  As a
result of the NEI acquisition, the Company also acquired investments in
two publicly traded companies, ITC Deltacom and Powertel, and privately
owned ITC Holding.  See Note 3 to the financial statements for more
information about the NEI acquisition.

    At year end there were 24 pending acquisitions for which agreements
had been signed, including two transactions of particular significance
that will dramatically increase the Company's presence in the western
region of the country.

    First, on October 15, 1999 the Company entered into an agreement to
acquire all of the water and wastewater sector assets of Citizens
Utilities, a multi-utility holding company.  The transaction will be
completed by American Water Works and its utility subsidiaries in
Arizona, California, Illinois, Indiana, Ohio and Pennsylvania acquiring
the water and wastewater sector assets of Citizens and its subsidiaries
in those six states.  This transaction represents six of the 24 pending
acquisitions and will add approximately 305,000 water and wastewater
customers for the Company.  The largest group of customers being
acquired from Citizens are in Arizona, and the addition of those
operations will significantly strengthen the Company's opportunities in
one of the fastest growing regions in the country.

    Second, on October 28, 1999 the Company executed a definitive
agreement to acquire all of the outstanding common stock of SJW Corp.
(SJW), a publicly traded holding company headquartered in San Jose,
California.  This transaction is subject to approval of SJW Corp.
shareholders.  SJW's San Jose Water Company subsidiary serves
approximately 216,000 water customers.  This acquisition provides entry
into San Jose, the 11th largest municipality in the United States, and
the Silicon Valley region with high growth potential through
acquisitions and favorable demographics.  SJW Corp. also owns real
estate in San Jose and has an investment in California Water Service
Group.

    The remaining 17 acquisitions for which signed agreements are in
hand will add over 41,000 additional customers to the Company's utility
subsidiaries.

    More information about pending acquisitions can be found in Note 4
to the financial statements.


CAPITAL SPENDING PROGRAM

Investment in new facilities in 1999 totaled $467 million, which was
6 percent above the 1998 construction expenditures of $439 million.
Construction activity planned for 2000 totals $448 million.


</TABLE>
<TABLE>
<CAPTION>
CONSTRUCTION EXPENDITURES BY CATEGORY
(000)                                   1999        1998        1997        1996        1995
============================================================================================
<S>                                 <C>         <C>         <C>         <C>         <C>
Water plant
  Sources of supply                 $ 18,038    $ 19,744    $ 17,841    $ 12,210    $ 19,235
  Treatment and pumping              114,830     113,725     102,011      84,024     130,922
  Transmission and distribution      191,700     180,545     157,635     131,531     129,619
  Services, meters and fire hydrants  70,998      69,606      64,050      52,982      51,070
  General structures and equipment    66,019      52,347      48,246      31,267      32,496
Wastewater plant                       5,766       3,250       4,646       1,800       1,218
--------------------------------------------------------------------------------------------
                                    $467,351    $439,217    $394,429    $313,814    $364,560
                                    ========================================================
</TABLE>


                                                                            27

<PAGE>

--------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS




    With the benefit of comprehensive engineering, operational and
financial planning, each subsidiary prepares a capital expenditure plan
representing a balance of water quality and source of supply
initiatives, operational improvements, system growth opportunities,
regulatory compliance requirements, and infrastructure replacement
needs.  The actual expenditures recorded in a given year are influenced
by many factors including the timing of required governmental approvals
of projects, weather conditions, availability of labor resources, and
equipment and material deliveries.  It is anticipated that approximately
$2.2 billion will be invested in new facilities between now and the end
of the year 2004.  The full investment in this construction program is
expected to be recognized in regulatory decisions.

    Source of supply improvements accounted for approximately 4 percent
of the year's construction expenditures.  Projects included the
completion of new groundwater sources in Jeffersonville, Indiana;
Warrensburg, Missouri; San Marino, California; Hampton, New Hampshire
and Peoria, Illinois.  Progress continued in 1999 on significant source
of supply projects in St. Joseph, Missouri and Fayette County, West
Virginia.  Structural and hydraulic dam upgrades were completed in
Greenwich, Connecticut and Joplin, Missouri.

    Investment in treatment and pumping facilities comprised
approximately 25 percent of the 1999 construction expenditures.  A new
water treatment plant was completed in Jeffersonville, Indiana in
support of a major regional supply project.  A new plant was constructed
in Dallas Township, Pennsylvania near Wilkes-Barre to replace an aging
plant.  Water treatment plant upgrades were completed in Huntington and
Charleston, West Virginia to replace aging infrastructure, improve water
quality and support continuing water system regionalization efforts.
Other plant upgrades were completed in Greenwich, Connecticut;
Ashtabula, Ohio; Chattanooga, Tennessee; Lexington, Kentucky; Peoria and
Pekin, Illinois and Brownsville, Pennsylvania.  Significant treatment
and pumping projects continued in St. Joseph, Warrensburg and Mexico,
Missouri; Alton, Illinois; Fayette County, West Virginia; Norristown and
New Castle, Pennsylvania; and Hopewell, Virginia.

    Transmission and distribution facilities accounted for approximately
41 percent of the 1999 construction expenditures.  Prominent projects
include continuing regionalization efforts in Putnam and Boone Counties,
West Virginia and transmission, pumping and storage related projects in
Alton and East St. Louis, Illinois; Bel Air, Maryland; Thousand Oaks,
California; Parkville, Missouri; Gary, Indiana; Chattanooga, Tennessee
and Scranton, Pennsylvania.  Significant capital expenditures occurred
across a large number of service areas for distribution system
improvements.  These projects improve existing service conditions,
provide service to new areas and allow full utilization of existing
source of supply and treatment facilities between neighboring water
systems.

    The Company's formal planning process involves a comprehensive
evaluation by each utility subsidiary of all aspects of public water
supply.  This includes reviews of source water supply reliability,
adequacy of water treatment facilities and distribution systems, and the
potential for regional water supply solutions and acquisition.  In 1999
planning reports were prepared for the Johnson County, Terre Haute,
Muncie and Richmond service territories in Indiana; Hampton, New
Hampshire; Bangor, Kane, Ellwood City and New Castle service areas in
Pennsylvania; Paradise Valley, Arizona; San Marino, Thousand Oaks and
Coronado, California; Atlantic, Burlington, Camden and Gloucester
Counties in New Jersey and Chattanooga, Tennessee.  Studies are underway
for subsidiaries in California, Hawaii, Illinois, Indiana, Kentucky,
Massachusetts, New Jersey, New York, Pennsylvania, Virginia and West
Virginia.  These continuing studies encompass 49 service areas.


CONDEMNATIONS OF UTILITY SYSTEMS

In November 1998 the City of Chattanooga, Tennessee, began an effort
to condemn the assets of Tennessee-American Water Company through an
eminent domain proceeding.  The Company responded with a vigorous and
ultimately successful defense that led to a settlement between the two
parties in October 1999.  The City Council rescinded its resolution
authorizing the takeover and withdrew its condemnation litigation.  In
return, Tennessee-American and the City obtained the approval of the
Tennessee Regulatory Authority to lower fire hydrant fees significantly
over two years.

    The support of Tennessee-American by a vast majority of
Chattanoogans was a key factor in the outcome of the 11-month campaign
against the takeover.  The basis of that support, however, was equally
important: the Company's long-standing record of delivering quality
water and service at a reasonable price.

    During the campaign, the Company won an important legal victory.
A Chancery Court ruled that Tennessee-American had a state franchise,
issued in the mid-1800s, to operate in Chattanooga.  That ruling
rebutted a city claim that the company was "trespassing."

    The City and Tennessee-American reached an agreement shortly after
this ruling and pledged their mutual cooperation in the area's economic
development.  The City has appealed the Chancery Court's decision that
Tennessee-American has a perpetual franchise.  As part of the settlement
the City has agreed to grant Tennessee-American a 25-year franchise if
its appeal is successful.

    In Illinois, the cities of Pekin and Peoria are considering
acquiring, by eminent domain or otherwise, the utility assets of
Illinois-American Water Company that are used to provide water service
to their respective communities.  As with Tennessee-American,
Illinois-American plans to vigorously contest litigation relating to the
proposed taking by the City of Peoria.  The Company also continues its
efforts to dissuade the City of Pekin from pursuing the acquisition.


28

<PAGE>
                     AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
--------------------------------------------------------------------------------



WATER AND WASTEWATER MANAGEMENT SERVICES

American Water Services (AWS) was created when the Company purchased
Anglian Water's 50% interest in AmericanAnglian Environmental
Technologies for $32 million on December 31, 1999.  The mission of AWS
is to provide wastewater and water utility operational and management
services to clients in the United Sates on an unregulated basis.  The
business will focus on providing wastewater services to the over 1,000
communities already served by utility subsidiaries.  This will
complement the water services being provided and generate synergies for
existing and future customers.  The business will also pursue new
opportunities to provide full-service water management solutions, from
intake to outfall, for communities not currently served by the American
Water System.

    The current market for contract services is $1.5 billion in annual
revenues and is anticipated to grow at an average annual rate of 16% for
the foreseeable future.  Competition within this market continued to be
very active in 1999 and should continue to grow as this market expands.
Several foreign competitors have established market share in the United
States market which has intensified the competitiveness of this
business.

    American Water Works' purchase of the remaining share of the
AmericanAnglian joint venture reflects the Company's intention to be a
key player within the full-service water and wastewater management
market.  The ability of AWS to be competitive and to actively
participate in this market's growth will be significantly enhanced
through this acquisition.  AWS is the seventh largest operations and
maintenance contractor in the United States.

    In 1999 AWS developed and signed new wastewater operations contracts
with Scranton, Pennsylvania; Strongsville, Ohio; and Moore County in
North Carolina.  These contracts provided additional wastewater
credentials and expanded the presence of the business into new
geographic areas.


RESULTS OF OPERATIONS

The Company's experience in assessing the impact of inflation on its
business indicates that with timely rate increases authorized by
regulators, revenue will likely keep pace with inflation.  Inflation did
not significantly impact the Company's financial position or results of
operations in 1997 through 1999, and it is not expected to materially
affect 2000 results.

OPERATING REVENUES
(000)                          1999          1998          1997
===============================================================
Water service            $1,236,377    $1,179,217    $1,116,465
Wastewater service           24,480        20,820        14,909
---------------------------------------------------------------
                         $1,260,857    $1,200,037    $1,131,374
                         ======================================


OPERATING REVENUES

Revenues in 1999 totaled $1.261 billion and were 5% above those for
1998, reflecting increased sales volume due to customer growth,
acquisitions and rate increases authorized for various subsidiaries in
1999 and the latter part of 1998.  The volume of water sold increased 3%
to 344.7 billion gallons in 1999 compared with 1998.

    Rate authorizations adjusted the water service rates in effect for
nine utility subsidiaries during 1999.  These authorizations are
expected to increase annual revenues by $59.3 million.  Operating
revenues for 1999 included approximately $15.8 million which resulted
from these rate orders.

    Nine applications requesting additional annual revenues of $28.3
million are awaiting regulatory decisions.  Of these the largest single
request is Missouri-American Water Company's request of $16.4 million,
which is primarily related to the new water treatment plant in St. Joseph.

    Revenues of $1.200 billion in 1998 were 6% above those for 1997.
Nine utility subsidiaries received rate orders in 1998, authorizing
increases in annual revenues aggregating $16.7 million.  Operating
revenues for 1998 included approximately $8.3 million which resulted
from these rate orders.  The 334.2 billion gallons of water sold in 1998
was slightly above sales in 1997.


PERCENTAGE OF REVENUES BY CUSTOMER CLASS
                                           1999    1998    1997
===============================================================
Residential                               58.2%   57.6%   58.2%
Commercial                                20.8%   20.8%   20.8%
Industrial                                 6.2%    6.5%    6.5%
Public and other                          11.9%   12.2%   12.2%
Other water revenues                       1.0%    1.2%    1.0%
Wastewater service                         1.9%    1.7%    1.3%
---------------------------------------------------------------
                                         100.0%  100.0%  100.0%
                                         ======================


RESIDENTIAL

Residential water service revenues in 1999 amounted to $734.0
million, an increase of 6% over those for 1998.  This 1999 revenue
improvement followed an increase of 5% in 1998.  The volume of water
sold to residential customers increased by 4% in 1998 to 175.5 billion
gallons.  The average unit price of residential water increased by 2% in
1999 and by 5% in 1998.


                                                                            29

<PAGE>

--------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS



COMMERCIAL

Revenues from commercial customers in 1999 rose by 5% to $262.9
million, following an increase of 6% in 1998.  Commercial customers
purchased 81.9 billion gallons of commercial water in 1999, 3% more than
in 1998.  The average unit price of commercial water increased by 2% in
1999, down from a 5% increase in 1998.


INDUSTRIAL

Industrial water use of 45.9 billion gallons in 1999 was 1% lower
than in 1998.  Revenues from industrial sales of $78.0 million in 1999
were equal to those recorded in 1998 and the average unit price of water
increased 1%.  In 1998, revenues from industrial sales were 6% above
those for 1997 due to a 5% increase in the average unit price of water.


PUBLIC AND OTHER

Public and other revenues in 1999 increased by 2% to $149.5 million
following an increase of 7% in 1998.  Revenues derived from municipal
governments for fire protection services and customers requiring special
private fire service facilities totaled $61.6 million in 1999, exceeding
1998 revenue from these customers by 4%.  The 41.5 billion gallons of
water sold to governmental entities and resale customers in 1999 was 3%
greater than the quantities sold in 1998.  Revenues generated by these
sales totaled $87.9 million and exceeded 1998 revenues by 1%.


PERCENTAGE OF WATER SALES (GALLONS)
BY CUSTOMER CLASS
                                          1999    1998    1997
==============================================================
Residential                              50.9%   50.4%   50.8%
Commercial                               23.8%   23.7%   23.5%
Industrial                               13.3%   13.9%   13.8%
Public and other                         12.0%   12.0%   11.9%
--------------------------------------------------------------
                                        100.0%  100.0%  100.0%
                                        ======================


WASTEWATER SERVICE

Utility subsidiaries provided wastewater service in Hawaii and to
portions of the Company's service areas in New Jersey, Pennsylvania,
Missouri, West Virginia, Kentucky and Indiana.  Revenues from these
services amounted to $24.5 million in 1999, $20.8 million in 1998 and
$14.9 million in 1997.  The growth in wastewater revenues reflects the
April 1998 acquisition of the operations in Hawaii.


OPERATING EXPENSES
(000)                               1999       1998       1997
==============================================================
Operation and
  maintenance expenses          $566,948   $536,519   $518,090
Depreciation and amortization    151,641    139,661    121,402
General taxes                    122,674    118,132    110,836
--------------------------------------------------------------
                                $841,263   $794,312   $750,328
                                ==============================


OPERATING EXPENSES

Operating expenses in 1999 increased by 6% to $841.3 million,
following a 6% increase in 1998.

    Operation and maintenance expenses totaled $566.9 million in 1999,
6% higher than in 1998.  These expenses had increased by 4% in 1998.
Excluding $5.6 million of costs related to resisting unwelcome takeover
attempts in Tennessee and Illinois, operation and maintenance expenses
increased by 4.5% in 1999.

    Associate-related costs, representing 44% of operation and
maintenance expenses, increased 2% in 1999 and 1998.

    The primary components of associate-related costs are wage and
salary expenses, which were up 1% to $201.3 million in 1999 following a
1% increase in 1998.  The number of associates employed at year-end
totaled 4,970, which was 3% below the employment level of 5,128 at the
close of 1998, which was approximately equal to the 5,110 associates at
the end of 1997.

    Group insurance expense, which includes the cost of providing
current health care and life insurance benefits as well as the expected
cost of providing postretirement benefits, increased by 10% to $42.8
million in 1999 after a 6% increase in 1998.  The increased group
insurance expense reflects the higher health care costs all large
employers have recently encountered.

    Pension expense increased by 3% in 1999 to $6.5 million following a
15% increase in 1998.  Pension cost is deferred by certain subsidiaries
when it is probable such costs will be recovered in future water service
rates as contributions are made to the plan.  The increased expense in
1998 reflects higher supplemental pension plan expense.


OPERATION AND MAINTENANCE EXPENSES
(000)                               1999       1998       1997
==============================================================
Associate-related costs         $250,649   $244,695   $238,945
Fuel and power                    48,661     46,332     46,612
Purchased water                   45,404     43,407     44,761
Chemicals                         22,749     23,639     21,795
Waste disposal                    16,137     15,336     14,625
Maintenance materials
  and services                    39,152     36,846     35,204
Operating supplies and services  102,173     86,647     75,484
Customer billing and accounting   26,168     23,846     24,368
Other                             15,855     15,771     16,296
--------------------------------------------------------------
                                $566,948   $536,519   $518,090
                                ==============================


    Expenses associated with the collection, treatment, and pumping of
water include the cost of fuel and power, water purchased from other
suppliers, chemicals for water treatment and purification, and waste
disposal.  These costs increased by 3% in 1999 after a 1% rise in 1998.

    The unit cost of water produced was unchanged in 1999, after a 1%
increase in 1998.


30

<PAGE>
                     AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
--------------------------------------------------------------------------------



    Maintenance materials and services, which include emergency repairs
as well as costs for preventive maintenance, increased by 6% in 1999
following a 5% increase in 1998.

    Operating supplies and services include the day-to-day expenses of
office operation, legal and other professional services, as well as
information systems and other office equipment rental charges.  These
costs increased by 18% in 1999 after a 15% increase in 1998.  The
expenses in this category in 1999 include $5.6 million of costs
connected with the take over attempt of the Company's operations in
Chattanooga, Tennessee and Peoria, Illinois.

    Customer billing and accounting expenses increased by 10% in 1999
and decreased by 2% in 1998.  The increase in 1999 reflects higher
charge-offs of uncollectible customer accounts.

    Depreciation and amortization increased by 9% in 1999 and 15% in
1998.  The higher depreciation expense in both years was primarily due
to growth in utility plant in service.

    General taxes, which include gross receipts, franchise, property,
capital stock, payroll and other taxes, increased by 4% in 1999 after a
7% rise in 1998.

    Gross receipts and franchise taxes, which are a function of
revenues, increased by 5% in 1999.  Property and capital stock taxes are
assessed on the basis of tax values assigned to assets and
capitalization.  These taxes in 1999 were equal to those in 1998.


OTHER INCOME AND INCOME DEDUCTIONS

Interest expense rose 6% to $178.2 million in 1999 compared to 1998.
This expense had increased by 5% in 1998.  The increases in 1999 and
1998 can be attributed primarily to an increase in total debt to fund
the construction of new water service assets.

    The total allowance for funds used during construction recorded in
1999 was $22.4 million, which was 39% higher than the $16.1 million
recorded in 1998.  The 1999 increase was the result of the construction
of new water service assets.  The utility subsidiaries record an
allowance for funds used during construction to the extent permitted by
the regulatory authorities.

    Merger related costs of $20.5 million in 1999 and $.4 million in
1998 reflect the one-time costs incurred in connection with the NEI
merger.  These costs consist primarily of severance costs as well as
vesting of certain benefits, professional fees and other costs.

    Other income deductions include the Company's share of losses at its
former contract management joint venture.  This business is now
completely under the Company's ownership, and significant improvements
in it's operating results are anticipated.


INCOME TAXES

Income taxes decreased by 4% in 1999, following a 9% increase in
1998.  Income tax expense in 1999 reflects the decrease in taxable
income primarily related to one-time merger related costs.  Details
regarding the components of the total amount of state and federal income
taxes, and a reconciliation of statutory to reported income tax expense
are included in Note 11 to the financial statements.


SUMMARY OF TAXES
(000)                                   1999       1998       1997
==================================================================
Gross receipts and franchise taxes  $ 41,839   $ 40,014   $ 38,239
Property and capital stock taxes      53,458     53,705     53,890
Payroll taxes                         18,445     16,911     15,347
Other general taxes                    8,932      7,502      3,360
State income taxes                    14,282     13,575     13,326
Federal income taxes                  77,118     81,973     74,664
------------------------------------------------------------------
                                    $214,074   $213,680   $198,826
                                    ==============================


NET INCOME TO COMMON STOCK

Net income to common stock in 1999 before merger costs was $147.9
million, up slightly from $146.8 million in 1998.  In addition, one-time
after tax merger costs of $12.9 million and $.4 million were incurred in
1999 and 1998, respectively, in connection with the NEI transaction.
After accounting for these merger costs, net income to common stock was
$135.0 million in 1999, compared to $146.5 million in 1998 and $133.8
million in 1997.


COMPREHENSIVE INCOME

Other comprehensive income was $59.3 million in 1999, $29.1 million
in 1998 and $4.0 million in 1997.  The Company's other comprehensive
income represents the after tax unrealized gain on passive investments
in two publicly traded telecommunications firms, ITC Deltacom and
Powertel, acquired in the merger with NEI.

    Comprehensive income was $194.3 million in 1999 compared to $175.6
million in 1998 and $137.8 million in 1997.


CONSOLIDATED CAPITALIZATION
                COMMON   PREFERRED      LONG-TERM
(000)           EQUITY       STOCK           DEBT
=================================================
   1999     $1,634,798     $93,811     $2,431,452
   1998      1,481,611      97,089      2,385,950
   1997      1,341,946      97,663      2,129,228
   1996      1,241,167      99,012      2,006,966
   1995        992,240     100,287      1,642,453
-------------------------------------------------


CONSOLIDATED CAPITALIZATION RATIOS
                COMMON   PREFERRED      LONG-TERM
                EQUITY       STOCK           DEBT
=================================================
   1999            39%          2%            59%
   1998            37%          3%            60%
   1997            37%          3%            60%
   1996            37%          3%            60%
   1995            36%          4%            60%
-------------------------------------------------
Note: Long-term debt includes amounts due within one year.


                                                                            31

<PAGE>

--------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS



LIQUIDITY AND CAPITAL RESOURCES

Internal sources of cash flow are provided by retention of a portion
of earnings, amortization of deferred charges, deferral of taxes and
depreciation expense.  Internal cash generation is influenced by weather
patterns, economic conditions and the timing of rate relief.  When
internal cash generation is not sufficient to meet corporate obligations
on a timely basis, external sources of funds are utilized.  The
availability and cost of external cash reflect the consistency and
reliability of earnings.  External sources of cash consist of short-term
bank loans, the sale of securities -- bonds, preferred stock and common
stock -- as well as advances and contributions from developers.

    The Company's Dividend Reinvestment and Stock Purchase Plan allows
shareholders and customers of the utility subsidiaries to purchase up to
$5,000 of common stock each month directly from the Company at a 2%
discount from the then prevailing market price.  The discount may be
discontinued by the Company at any time.

    Common stock may also be issued in connection with the continuation
of the Company's Dividend Reinvestment and Stock Purchase Plan, the
Employees' Stock Ownership Plan, the Savings Plan for Employees and the
Long-Term Performance-Based Incentive Plan.  The Board of Directors has
also authorized management to purchase shares of the Company's common
stock to cover the obligations under the employee benefit plans and
dividend reinvestment stock purchase plan.

    Utility subsidiary companies fund construction programs and
supplement cash flow by borrowing from banks under individual credit
lines established annually.  The Company and its subsidiaries have
committed lines of credit with commercial banks under which they may
borrow up to $500 million, of which $240 million was outstanding at
December 31, 1999.  Ample credit lines are available to provide funds
needed for 2000 construction requirements and to maintain bank
borrowings not yet refinanced on a long-term basis.  Bank borrowings are
repaid with the proceeds obtained from selling bonds and preferred stock
either publicly or to institutional investors on a private placement basis.


MARKET RISK

The Company is exposed to market risk, including changes in interest
rates, certain commodity prices and equity prices.  The exposure to
changes in interest rates is a result of financing through the issuance
of fixed-rate preferred stocks and long-term debt.  The following tables
provide the principal amounts by period of maturity and the weighted
average effective interest rate for all such obligations outstanding in
the period for the Company's obligations that are sensitive to interest
rate changes.  The exposure to equity price risk is generally associated
with the Company's investments in equity securities of several
telecommunications companies.

INTEREST RATE RISK
<TABLE>
<CAPTION>
                                                                                                 Fair Value at
(000)                      2000       2001      2002      2003     2004   Thereafter     Total   Dec. 31, 1999
==============================================================================================================
<S>                     <C>       <C>       <C>       <C>       <C>       <C>          <C>          <C>
Fixed-rate
  long-term debt,
  including current
  portion               $37,932   $160,382  $146,424  $207,919  $64,411   $1,811,044   $2,428,112   $2,332,683
Average interest rate     7.18%      7.15%     7.15%     7.14%    7.11%        7.08%
Fixed-rate preferred
  stocks with
  mandatory redemption
  requirements          $42,031   $    996  $    668  $    608  $   608   $   29,109   $   74,020   $   74,627
Average interest rate     8.31%      8.11%     8.09%     8.15%    8.18%        8.20%
</TABLE>

<TABLE>
<CAPTION>
                                                                                                 Fair Value at
(000)                      1999      2000       2001      2002      2003  Thereafter     Total   Dec. 31, 1998
==============================================================================================================
<S>                     <C>       <C>       <C>       <C>       <C>       <C>          <C>          <C>
Fixed-rate
  long-term debt,
  including current
  portion               $53,085   $37,826   $163,774  $144,313  $205,709  $1,779,127   $2,383,834   $2,616,269
Average interest rate     7.29%     7.25%      7.22%     7.22%     7.22%       7.18%
Fixed-rate preferred
  stocks with
  mandatory redemption
  requirements          $ 3,198   $41,031   $    956  $    788  $    728  $   30,597   $   77,298   $   86,812
Average interest rate     8.24%     8.31%      8.08%     8.13%     8.15%       8.17%
</TABLE>


32

<PAGE>
                     AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
--------------------------------------------------------------------------------



    During 1999, three subsidiaries issued $30.3 million of mortgage
bonds at interest rates between 6.90% and 7.61%.  Three subsidiaries
issued tax-exempt debt totaling $94.7 million at interest rates between
5.00% and 5.10%.  Proceeds from the sale of the bonds were used to repay
bank loans, fund construction programs, and to refinance existing debt.
The Company and its subsidiaries are currently evaluating alternatives
to expand access to the capital markets.  By aggregating the financing
needs of the Company and its subsidiaries into larger offerings, we will
look to access the public markets in addition to the traditional private
market.  This should offer the prospect for more efficient execution in
the capital markets as well as the opportunity to achieve a lower cost
of capital on future financings.

    The Company and its subsidiaries plan to fund construction programs,
continue acquisitions and repay bank borrowings and maturing bonds with
the issuance of approximately $160 million of long-term debt in 2000.
In addition, during 2000 the Company will arrange acquisition financing
of approximately $1.2 billion to fund the closing of the SJW and
Citizens water and wastewater sector acquisitions.  Management intends
to fund these transactions permanently through a combination of
long-term debt and preferred equity securities.  Excluding any
short-term borrowings incurred in connection with these pending
transactions, the combined amount of bank borrowings and bonds maturing
within one year is expected to remain at approximately the current level
in 2000.  A discussion of the acquisition and capital spending programs
begins on page 27.


REGULATION

ECONOMIC

Twenty state commissions regulate the Company's utility
subsidiaries.  They have broad authority to establish rates for service,
prescribe service standards, review and approve rules and regulations
and, in most instances, they must approve long-term financing programs,
transactions between the utility and affiliated interests,
reorganizations, mergers and acquisitions prior to their completion.
The jurisdiction exercised by each commission is prescribed by state
legislation and therefore varies from state to state.

    Commissions range in size from three to seven members.  The
commissioners in Arizona are elected by the voting public.  The three
directors of the Tennessee Regulatory Authority are appointed by the
Governor, the Speaker of the Senate, and the Speaker of the House of
Representatives.  In Virginia, members of the State Corporation
Commission are elected by a joint vote of the two houses of the general
assembly.  In 1999 a new state regulatory commission in New Mexico was
formed consisting of five popularly elected Commissioners from separate
districts.  All other state commissioners regulating subsidiaries are
appointed by the governors of the respective states and the appointments
usually require approval by the state legislature.  The backgrounds of
the individuals serving in these important utility regulatory
commissioner positions cover a broad spectrum.

    Economic regulation deals with many competing, and often
conflicting, public pressures and policy goals.  Rate adjustments
normally are initiated by the utility entity.  Public hearings, which
are economic and service quality fact-finding proceedings, are conducted
in a trial-like setting where evidence is submitted, subject to cross
examination, which then forms the basis for a commission decision.  The
purpose of this process is to set rates for service which ensure the
financial viability of the utility entity and quality service to
customers at reasonable cost.  A rate case generally focuses on four
areas:

o   The amount of investment in facilities which provide public
    service

o   The operating costs associated with providing that service

o   The capital costs for the funds used to provide the facilities
    which serve the public

o   The tariff design which allocates revenue requirements equitably
    across the customer base

    Prudent management dictates that a water utility anticipate the time
required for the regulatory process and file for rate adjustments which
will reflect the cost of providing service at the time the authorized
rates become effective.

    Proceedings involving mergers and acquisitions will focus on the
financial effects on the utility, the rate and service impacts on
customers and generally whether the transaction is in the public
interest.

    The utility subsidiaries aggressively pursue various methods of
offsetting the adverse financial impact of regulatory lag.  Certain
subsidiaries have received rate orders allowing recovery of interest and
depreciation expense related to the interim period from the time a major
construction project was placed in service until new rates reflecting
the cost of the project went into effect.  Several subsidiaries also now
recover in rates a return on utility plant before it is in service
instead of capitalizing an allowance for funds used during construction.

    Additionally, utility subsidiaries with multiple operating districts
within a state have pursued single tariff pricing.  This is a concept
that sets identical rates for service throughout the service territory.
It allows simplification of customer service operations, and also
reduces the complexity of rate proceedings.  This concept also spreads
fixed costs over a larger customer base and helps to mitigate adverse
rate impacts to customers resulting from necessary capital improvements.
It also permits flexibility in timing of utility subsidiary financing.
Single tariff pricing is now in effect in Connecticut, Illinois,
Missouri, New Jersey, Ohio, Pennsylvania and West Virginia.


                                                                            33

<PAGE>

--------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS



    During the past year, regulatory commissions authorized nine
subsidiaries to increase rates for service by an annual amount of $59.3
million.  In most of these decisions the primary factor for these price
increases was to reflect a return on the investment made for essential
water service facilities.

    In Indiana, Pennsylvania and Maryland the subsidiary companies were
able to reach commission approved agreements which resulted in rate
relief earlier than would have been the case under ordinary procedures.
For example, on July 1, 1999, the Indiana Utility Regulatory Commission
approved a settlement which provided Indiana-American Water Company a
revenue increase of $13.25 million (over 90% of the original requested
increase of 21%), further movement toward single tariff pricing, and
rate recognition of $55.3 million in investment related to the Southern
Indiana Regional Water Supply Project.  An additional increase of
$969,000 went into effect in Indiana on January 1, 1999 for the second
step of a case that was settled in 1998.  Likewise, pursuant to
stipulation, on May 28, 1999 Maryland-American received approval of a
general increase of $360,000 (95% of the original request) and a step
increase of $293,000 to be effective in mid-2000.  The order allows
recognition of improvements in the Winter's Run Water Treatment facility
approximately three months earlier than the statutory date.  On December
16, 1999, Pennsylvania-American Water Company received an increase of
$24.6 million with an effective date approximately 45 days earlier than
would have resulted from a fully litigated process.

    California-American Water Company received orders effective January 1,
1999 authorizing step increases for the Los Angeles and Monterey
divisions providing for increased revenues of $314,000 and $466,000,
respectively.  In addition, a general rate case for the Monterey
division was resolved by settlement between the parties resulting in an
allowed increase in rates of $875,000 (3.92%), on an annual basis
beginning in 2000; $444,500 (1.99%), in 2001; and $508,300 (2.15%), in
2002.  In addition, a step increase was filed for the Los Angeles
division requesting additional revenues of $376,800 (2.49%) over present
revenues which will become effective in January 2000.  The Monterey
general rate case also resulted in agreements between the parties
concerning special requests providing for recovery of expenses related
to conservation programs, emergency water treatment projects,
catastrophic events, and rationing programs.  In addition, the company
filed for an offset rate increase for its Coronado division for $626,260
related to a purchase water offset, which will become effective on April
1, 2000.  California-American will also recover $526,000 related to an
under-collection in its purchase water balancing account through use of
a surcharge, which also will become effective on April 1, 2000.

    Arizona-American received an order from the Commission on July 14,
1999 authorizing the company to increase present rates by approximately
$811,000 or 20.08%.  Approximately one half of this amount is related to
recovery of certain Central Arizona Project (CAP) expenses.

    Effective April 6, 1999 the New Jersey Board of Public Utilities
approved a revenue increase of $13.08 million.  The order resulted in
part from settlement negotiations among the parties that resolved
certain issues.  The impact of the decision resulted in partial
recognition of the acquisition adjustment related to the purchase of the
Howell Township Water System and also initiated a formal proceeding to
further review guidelines for acquisitions and related policies.

    The West Virginia Public Service Commission approved automatic rate
increases that were negotiated as part of a joint settlement of West
Virginia-American's last general rate case.  The first increase of 4.5%
became effective on January 1, 2000 and the second increase of 3% is
scheduled to become effective on January 1, 2001.  In addition, "Special
Project" step increases were approved, which provide for revenue
increases associated with the company's investment in phase II of the
Huntington Treatment Plant improvements.

    New York-American Water Company received a rate increase on August
1, 1999, which is the second phase of a three-step rate proceeding.  The
first-step increase was received on August 1, 1998 and another increase
will occur on August 1 of the year 2000.


ADDITIONAL ANNUAL REVENUES AUTHORIZED BY RATE DECISIONS
(000)                       1999     1998      1997
===================================================
Arizona                  $   811  $    --   $   739
California                   780       --     1,354
Illinois                      --      750     7,301
Indiana                   14,219    2,000     6,443
Iowa                          --    1,836        --
Kentucky                      --       --     1,050
Maryland                     360       --        31
Michigan                      --       80        --
Missouri                      --    3,800    10,029
New Jersey                13,083       --     2,157
New Mexico                    --      790        --
New York                     100      440        --
Ohio                          --      733       952
Pennsylvania              24,600       --    27,450
Virginia                     776       --       717
West Virginia              4,522    6,287     2,698
---------------------------------------------------
                         $59,251  $16,716   $60,921
                         ==========================


34

<PAGE>
                     AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
--------------------------------------------------------------------------------



    American Water System personnel participate in regulatory
conferences and meetings, including those conducted by regional
regulatory associations.  The goal in this effort is to increase
understanding of the industry and its unique regulatory requirements.

    The Company appreciates the thoughtful work of the Water Committee
of the National Association of Regulatory Utility Commissioners.  Its
initiatives and the growing public awareness of the importance of
adequate water supply have led to progressive regulation which has
allowed utility subsidiaries to address, on a timely basis, water supply
issues which otherwise would still be unresolved.


ENVIRONMENTAL

Two areas of environmental regulation impact the water utility
industry.  The regulation of drinking water quality is legislated under
the Safe Drinking Water Act, which most recently was amended in August
of 1996.  The regulation of wastes generated during the drinking water
treatment process is legislated under the Clean Water Act, Resource
Conservation and Recovery Act, and Toxic Substances Control Act.  Water
utilities, individually and through industry associations, follow the
development of these legislative mandates closely, and provide technical
guidance to Congress on areas of improvement.  By far, the Safe Drinking
Water Act has the most potential for impact on water utilities, and has
as its objective the improvement of public health.  The utility
subsidiaries are, as a matter of policy, committed to compliance with
all applicable environmental mandates and routinely support
environmental protection initiatives.

    All environmental regulations promulgated under these statutes are
adopted by the United States Environmental Protection Agency (EPA).  Its
broad operating experience, state of the art water quality laboratory
and research efforts afford the American Water System the unique
opportunity to assist the EPA in developing the most practical
regulation possible.

    During 1999, the American Water System compliance record was
outstanding.  Health regulators were again very pleased with American
subsidiaries' performance and customer surveys showed satisfaction with
water quality and service.  Still, the American Water System recognizes
that further improvements are possible, and supports new regulations
aimed at providing an even higher level of protection to consumers and
the environment.

    American Water Works water utility subsidiaries are aggressively
pursuing the standards set for the Partnership for Safe Water.  This
partnership is a voluntary cooperative effort between the EPA and state
health officials, and water utilities.  Joining the partnership means a
commitment to producing an extremely high quality water as determined by
the program.  Attaining the objectives results in being given an EPA
award.  Many American Water System plants have already achieved this
award, and the others are expected to do so in 2000.

    The EPA continues to reduce the allowable amounts of disinfection
by-products in drinking water.  In December 1998, EPA finalized a new
regulation, lowering those allowable limits, and is currently working on
a plan to lower them even more.  Consequently, the trend to use less
chlorine in water treatment will continue.  The Company follows this
regulatory process very closely, and is exploring all the possible
alternatives to chlorine, if such a step is necessary.

    Future EPA drinking water regulations will concentrate on microbial
waterborne diseases, caused by Cryptosporidium and viruses, and also
potent carcinogens like arsenic as well as several pesticides.  The
American Water System is intensively studying these and other
contaminants and will be able to assess the impact of future regulation
and will be ready to comply before it is required.

    All waste from the utility subsidiaries' water treatment processes
are either recycled or disposed.  Solid wastes are disposed in
accordance with current best practices, and with the proper permits from
the authorities.  Wastewaters are discharged to a river or a sewer in
accordance with state permits, or are recycled.  All these activities
are conducted in compliance with regulations.


YEAR 2000 ISSUES

    Preparing for Year 2000 was a high priority for the Company.  The
successful completion of the Company's Year 2000 compliance program
included the implementation of new financial and customer service
software, as well as upgrading and replacing computers and other
equipment.  There have been no operational or information system
failures or problems resulting from the roll over of the date to 2000.


                                                                            35

<PAGE>

--------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS



NEW ACCOUNTING STANDARDS

In 2001, the Company will adopt Statement of Financial Accounting
Standards No. 133 "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133).  This statement establishes accounting and
reporting standards for derivative instruments and hedging activities.
SFAS 133 was issued by the Financial Accounting Standards Board in June
of 1998 and requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure
those instruments at fair value.  SFAS 133, as amended by SFAS 137
"Accounting for Derivative Instruments and Hedging Activities -- Deferral
of the Effective Date of FASB Statement No. 133," requires adoption on
January 1, 2001.  This new accounting standard is not expected to have
any effect on the Company's financial position or results of operations
as the Company has no significant derivative instruments or hedging
activities.


FORWARD LOOKING INFORMATION

Forward looking statements in this report, including, without
limitation, statements relating to the Company's plans, strategies,
objectives, expectations, intentions and adequacy of resources, are made
pursuant to the safe harbor provisions of the U.S. Private Securities
Litigation Reform Act of 1995.  These forward looking statements involve
known and unknown risks, uncertainties and other factors which may cause
the actual results, performance or achievements of the Company to be
materially different from any future results, performance or
achievements expressed or implied by such forward looking statements.
These factors include, among others, the following: general economic
and business conditions; competition; success of operating initiatives,
advertising and promotional efforts; existence of adverse publicity or
litigation; changes in business strategy or plans; quality of
management; availability, terms and development of capital; business
abilities and judgment of personnel; changes in, or the failure to
comply with governmental regulations; and other factors described in
filings of the Company with the SEC.  The Company undertakes no
obligation to publicly update or revise any forward looking statement,
whether as a result of new information, future events or otherwise.


36

<PAGE>
                     AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
--------------------------------------------------------------------------------







--------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS



TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF
AMERICAN WATER WORKS COMPANY, INC.

In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income and comprehensive income and
of retained earnings, of cash flows, of capitalization and of common
stockholders' equity present fairly, in all material respects, the
financial position of American Water Works Company, Inc. and Subsidiary
Companies at December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the
period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States.  These financial statements are
the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits of these statements in accordance with auditing
standards generally accepted in the United States, which 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, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation.  We believe
that our audits provide a reasonable basis for the opinion expressed above.


/s/ PRICEWATERHOUSECOOPERS LLP
    Thirty South Seventeenth Street
    Philadelphia, Pennsylvania

    February 1, 2000


                                                                            37

<PAGE>

--------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)



At December 31,                                          1999             1998
==============================================================================
ASSETS
  Property, plant and equipment
  Utility plant - at original cost
    less accumulated depreciation                  $4,939,408      $ 4,613,027
  Utility plant acquisition adjustments, net           51,697           55,097
  Nonutility property, net of
    accumulated depreciation                           36,265           32,367
  Excess of cost of investments in
    subsidiaries over book equity
    at acquisition, net                                57,118           24,431
------------------------------------------------------------------------------
Total property, plant and equipment                 5,084,488        4,724,922
------------------------------------------------------------------------------
Current assets
  Cash and cash equivalents                            43,100           39,877
  Customer accounts receivable                         91,353           85,018
  Allowance for uncollectible accounts                 (2,346)          (2,263)
  Unbilled revenues                                    78,205           75,943
  Miscellaneous receivables                            10,936            9,308
  Materials and supplies                               20,058           16,786
  Deferred vacation pay                                 8,951           10,127
  Restricted funds                                     14,558           11,917
  Other                                                13,866           13,513
------------------------------------------------------------------------------
Total current assets                                  278,681          260,226
------------------------------------------------------------------------------
Regulatory and other long-term assets
  Regulatory asset - income taxes
    recoverable through rates                         214,349          218,527
  Other investments                                   181,579           79,195
  Debt and preferred stock expense                     48,289           45,645
  Deferred pension expense                             32,872           27,011
  Deferred postretirement benefit expense              10,264           12,538
  Deferred treatment plant costs                        5,811            6,873
  Deferred tank painting costs                         14,178           13,558
  Restricted funds                                      6,557           10,935
  Other                                                75,138           59,228
------------------------------------------------------------------------------
Total regulatory and other long-term assets           589,037          473,510
------------------------------------------------------------------------------
TOTAL ASSETS                                       $5,952,206       $5,458,658
                                                   ===========================


38

<PAGE>
                     AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
--------------------------------------------------------------------------------



                                                           1999           1998
==============================================================================
CAPITALIZATION AND LIABILITIES
Capitalization
  Common stockholders' equity                        $1,634,798     $1,481,611
  Preferred stocks with mandatory
    redemption requirements                              40,000         40,000
  Preferred stocks without mandatory
    redemption requirements                              11,673         11,673
  Preferred stocks of subsidiaries with
    mandatory redemption requirements                    34,020         37,298
  Preferred stocks of subsidiaries without
    mandatory redemption requirements                     8,118          8,118
  Long-term debt
    American Water Works Company, Inc.                  211,000        216,500
    Subsidiaries                                      2,182,097      2,115,687
------------------------------------------------------------------------------
Total capitalization                                  4,121,706      3,910,887
------------------------------------------------------------------------------
Current liabilities
  Bank debt                                             239,864         88,590
  Current portion of long-term debt                      38,355         53,763
  Accounts payable                                       67,064         63,272
  Taxes accrued, including federal income                16,030         23,628
  Interest accrued                                       43,672         41,863
  Accrued vacation pay                                    9,581         10,613
  Other                                                  77,142         51,400
------------------------------------------------------------------------------
Total current liabilities                               491,708        333,129
------------------------------------------------------------------------------
Regulatory and other long-term liabilities
  Advances for construction                             207,891        191,738
  Deferred income taxes                                 610,460        535,106
  Deferred investment tax credits                        40,585         41,976
  Accrued pension expense                                63,095         51,690
  Accrued postretirement benefit expense                 12,471         12,257
  Other                                                  29,453         27,474
------------------------------------------------------------------------------
Total regulatory and other long-term liabilities        963,955        860,241
------------------------------------------------------------------------------
Contributions in aid of construction                    374,837        354,401
------------------------------------------------------------------------------
Commitments and contingencies                                --             --
------------------------------------------------------------------------------
TOTAL CAPITALIZATION AND LIABILITIES                 $5,952,206     $5,458,658
                                                     =========================

The accompanying notes are an integral part of these financial statements.

The results presented in 1999 and the restated results for 1998 reflect the
pooling of interests method of accounting to recognize the acquisition of
National Enterprises Inc.

                                                                            39

<PAGE>
                     AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
AND OF RETAINED EARNINGS
(Dollars in thousands, except per share amounts)



For the years ended December 31,                1999         1998         1997
==============================================================================
CONSOLIDATED INCOME AND
COMPREHENSIVE INCOME

Operating revenues                        $1,260,857   $1,200,037   $1,131,374
------------------------------------------------------------------------------
Operating expenses
  Operation and maintenance                  566,948      536,519      518,090
  Depreciation and amortization              151,641      139,661      121,402
  General taxes                              122,674      118,132      110,836
------------------------------------------------------------------------------
                                             841,263      794,312      750,328
------------------------------------------------------------------------------
Operating income                             419,594      405,725      381,046

Other income (deductions)
  Interest                                  (178,215)    (168,779)    (161,437)
  Allowance for other funds used
    during construction                       11,849        9,803        7,035
  Allowance for borrowed funds used
    during construction                       10,577        6,312        5,258
  Amortization of debt expense                (2,754)      (2,494)      (2,148)
  Preferred dividends of subsidiaries         (3,311)      (3,408)      (3,522)
  Merger related costs                       (20,535)        (352)          --
  Other, net                                  (6,856)        (820)        (551)
------------------------------------------------------------------------------
                                            (189,245)    (159,738)    (155,365)
------------------------------------------------------------------------------
Income before income taxes                   230,349      245,987      225,681
Provision for income taxes                    91,400       95,548       87,990
------------------------------------------------------------------------------
Net income                                   138,949      150,439      137,691
Dividends on preferred stocks                  3,984        3,984        3,984
------------------------------------------------------------------------------
Net income to common stock                   134,965      146,455      133,707
------------------------------------------------------------------------------

Other comprehensive income
  Unrealized gains on securities             102,604       47,083        5,348
  Income taxes on other comprehensive
    income                                   (43,281)     (17,959)      (1,334)
------------------------------------------------------------------------------
Other comprehensive income, net               59,323       29,124        4,014
------------------------------------------------------------------------------
Comprehensive income                      $  194,288   $  175,579   $  137,721
                                          ====================================

Average shares of basic common
  stock outstanding                           96,544       95,234       94,080
Basic and diluted earnings per common
  share on average shares outstanding     $     1.40   $     1.54   $     1.42
                                          ====================================

CONSOLIDATED RETAINED EARNINGS
Balance at beginning of year              $  945,434   $  870,368   $  803,085
Add: net income                              138,949      150,439      137,691
------------------------------------------------------------------------------
                                           1,084,383    1,020,807      940,776
------------------------------------------------------------------------------
Deduct: dividends paid
  Preferred stock                              3,528        3,528        3,528
  Preference stock                               456          456          456
  Common stock - $.86 per share in 1999,
    $.82 per share in 1998, $.76 per
    share in 1997                             76,479       65,781       60,084
  National Enterprises Inc. common stock       2,891        5,608        6,340
------------------------------------------------------------------------------
                                              83,354       75,373       70,408
------------------------------------------------------------------------------
Balance at end of year                    $1,001,029   $  945,434   $  870,368
                                          ====================================


The accompanying notes are an integral part of these financial statements.

The results presented in 1999 and the restated results for 1998 and
1997 reflect the pooling of interests method of accounting to recognize
the acquisition of National Enterprises Inc.


40

<PAGE>
                     AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)



For the years ended December 31,                1999         1998         1997
==============================================================================
CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                  $138,949     $150,439     $137,691
Adjustments
  Depreciation and amortization              151,641      139,661      121,402
  Provision for deferred income taxes         31,411       29,922       33,925
  Provision for losses on accounts
    receivable                                 7,731        6,832        7,468
  Allowance for other funds used
    during construction                      (11,849)      (9,803)      (7,035)
  Employee stock plan expenses                 5,185        5,648        6,301
  Employee benefit expenses greater
    (less) than funding                        4,217       (1,848)       1,427
  Deferred tank painting costs                (3,349)      (4,081)      (1,733)
  Deferred rate case expense                  (2,024)      (1,894)      (2,219)
  Deferred treatment plant costs               2,075       (1,803)      (2,654)
  Amortization of deferred charges            13,985       10,709        9,388
  Other, net                                  (3,427)      (5,640)      (2,059)
  Changes in assets and liabilities,
    net of effects from acquisitions
    Accounts receivable                      (10,934)     (16,327)      (8,640)
    Unbilled revenues                         (2,262)      (4,064)      (1,962)
    Other current assets                      (1,978)      (1,130)      (2,902)
    Accounts payable                          (3,150)      13,208        6,986
    Taxes accrued, including federal income   (8,751)       5,591        3,953
    Interest accrued                           1,809        4,212        1,225
    Other current liabilities                 20,113       (7,437)       8,517
------------------------------------------------------------------------------
Net cash from operating activities           329,392      312,195      309,079
------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures                   (467,351)    (437,627)    (394,429)
Allowance for other funds used during
  construction                                11,849        9,803        7,035
Acquisitions                                 (41,764)     (46,203)      (3,072)
Proceeds from the disposition of property,
  plant and equipment                          2,703        1,484        3,952
Removal costs from property, plant and
  equipment retirements                      (15,409)      (7,543)     (10,824)
Restricted funds                               1,737      (14,786)       8,321
------------------------------------------------------------------------------
Net cash used in investing activities       (508,235)    (494,872)    (389,017)
------------------------------------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt                 128,332      330,174      208,700
Proceeds from common stock, net of
  issuance costs                              36,617       29,942       23,040
Net borrowings (repayments) under
  line-of-credit agreements                  150,024      (46,172)     (12,628)
Advances and contributions for
  construction, net of refunds                43,121       38,719       36,888
Debt issuance costs                           (5,376)      (8,070)      (4,762)
Repayment of long-term debt                  (82,830)     (75,042)     (86,438)
Redemption of preferred stocks                (3,278)      (2,438)      (1,349)
Dividends paid                               (83,354)     (75,373)     (70,408)
Purchase of common stock for treasury         (1,190)          --           --
------------------------------------------------------------------------------
Net cash from financing activities           182,066      191,740       93,043
------------------------------------------------------------------------------
Net increase in cash and cash equivalents      3,223        9,063       13,105
Cash and cash equivalents at
  beginning of year                           39,877       30,814       17,709
------------------------------------------------------------------------------
Cash and cash equivalents at end of year    $ 43,100     $ 39,877     $ 30,814
                                            ==================================
Cash paid during the year for:
  Interest, net of capitalized amount       $180,475     $169,044     $162,332
                                            ==================================
  Income taxes                              $ 69,015     $ 75,510     $ 67,605
                                            ==================================


Common stock issued in lieu of cash in
connection with the Employee Stock Ownership
Plan, the Savings Plan for Employees and the
Long-Term Performance-Based Incentive Plan
totaled $5,428 in 1999, $6,854 in 1998 and
$5,438 in 1997.  Capital lease obligations
of $1,590 were recorded in 1998.

The accompanying notes are an integral part of these financial statements.

The results presented in 1999 and the restated results for 1998 and 1997
reflect the pooling of interests method of accounting to recognize the
acquisition of National Enterprises Inc.


                                                                            41


<PAGE>

--------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CAPITALIZATION
(Dollars in thousands, except per share amounts)



At December 31,                                            1999           1998
==============================================================================
COMMON STOCKHOLDERS' EQUITY:
  Common stock -- $1.25 par value, authorized
    300,000,000 shares, outstanding 97,303,759
    shares in 1999 and 95,831,790 shares
    in 1998                                          $  121,630     $  119,789
  Paid-in capital                                       424,434        384,255
  Retained earnings                                   1,001,029        945,434
  Accumulated other comprehensive income                 92,461         33,138
  Unearned compensation                                  (1,056)          (980)
  Treasury stock at cost -- 109,675 shares in
    1999 and 800 shares in 1998                          (3,700)           (25)
------------------------------------------------------------------------------
                                                      1,634,798      1,481,611
------------------------------------------------------------------------------

At December 31, 1999, common shares reserved for
issuance in connection with the Company's stock
plans were 80,865,863 shares for the Stockholder
Rights Plan, 4,214,504 shares for the Dividend
Reinvestment and Stock Purchase Plan, 597,627
shares for the Employees' Stock Ownership Plan,
597,925 shares for the Savings Plan for Employees
and 296,347 shares for the Long-Term
Performance-Based Incentive Plan.  During 1999,
108,875 shares were acquired and placed into
treasury in connection with the Long-Term
Performance-Based Incentive Plan and 800 shares
were placed into treasury as a result of the NEI
merger.

PREFERRED STOCKS WITH MANDATORY REDEMPTION REQUIREMENTS:
  Cumulative preferred stock - $25 par value,
    authorized 1,770,000 shares
  8.5% series (non-voting), outstanding
    1,600,000 shares, due for redemption at
    par value on December 1, 2000                        40,000         40,000
------------------------------------------------------------------------------

PREFERRED STOCKS WITHOUT MANDATORY REDEMPTION REQUIREMENTS:
  Cumulative preferred stock - $25 par value
    5% series (one-tenth of a vote per share),
    outstanding 101,777 shares                            2,544          2,544
  Cumulative preference stock - $25 par value,
    authorized 750,000 shares
    5% series (non-voting), outstanding 365,158
    shares                                                9,129          9,129
  Cumulative preferential stock - $35 par value,
    authorized 3,000,000 shares
    (one-tenth of a vote per share), no
    outstanding shares                                       --             --
------------------------------------------------------------------------------
                                                         11,673         11,673
------------------------------------------------------------------------------

PREFERRED STOCKS OF SUBSIDIARIES:
  Dividend rate
    3.9% to less than 5%                                  4,917          5,931
    5% to less than 6%                                    4,726          5,285
    6% to less than 7%                                    1,559          1,823
    7% to less than 8%                                    4,034          4,084
    8% to less than 9%                                   23,350         24,370
    9% to less than 10%                                   3,272          3,503
    10% to less than 11%                                    280            420
------------------------------------------------------------------------------
                                                         42,138         45,416
------------------------------------------------------------------------------


Preferred stock agreements of certain subsidiaries
require annual sinking fund payments in varying
amounts and permit redemption at various prices at
the option of the subsidiaries on thirty days
notice, or, in the event of involuntary
liquidation, at par value plus accrued dividends.
Sinking fund payments for the next five years will
amount to $2,031 in 2000, $996 in 2001, $668 in
2002, $608 in 2003 and $608 in 2004.

Redemptions of preferred stock amounted to $3,278
in 1999 and $2,438 in 1998.


42

<PAGE>
                     AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                  CURRENT
                                               MATURITIES         1999         1998
===================================================================================
<S>                                               <C>       <C>          <C>
LONG-TERM DEBT OF
AMERICAN WATER WORKS COMPANY, INC.:
  7.41% Series C debentures, due May 1, 2003           --   $   81,000   $   81,000
  6.21% Series D debentures, due July 2, 2001          --       50,000       50,000
  6.28% Series D debentures, due July 2, 2002          --       10,000       10,000
  6.28% Series D debentures, due July 2, 2003          --       45,000       45,000
  6.32% Series D debentures, due July 2, 2004          --       15,000       15,000
  7.02% Senior Notes, due August 1, 2005               --       10,000       10,000
  6.34% Installment loan due September 1, 2001         --           --        5,500
-----------------------------------------------------------------------------------
                                                       --      211,000      216,500
-----------------------------------------------------------------------------------

LONG-TERM DEBT OF SUBSIDIARIES:
  Interest rate
    1% to less than 2%                            $   250        8,486        5,880
    3% to less than 4%                                 39          393          433
    4% to less than 5%                                424        3,994        4,418
    5% to less than 6%                                 52      459,304      370,685
    6% to less than 7%                                420      513,628      511,257
    7% to less than 8%                              1,141      711,221      703,361
    8% to less than 9%                              1,100      177,900      179,000
    9% to less than 10%                            30,609      249,555      280,164
    10% to less than 11%                            3,897       54,699       58,596
-----------------------------------------------------------------------------------
                                                   37,932    2,179,180    2,113,794
  Capital leases                                      423        2,917        1,893
-----------------------------------------------------------------------------------
                                                  $38,355    2,182,097    2,115,687
-----------------------------------------------------------------------------------
                                                            $4,121,706   $3,910,887
                                                            =======================
</TABLE>

Maturities of long-term debt of subsidiaries,
including sinking fund requirements, during the
next five years will amount to $38,355 in 2000,
$108,833 in 2001, $134,827 in 2002, $80,357 in
2003 and $47,752 in 2004.

Long-term debt of subsidiaries is substantially
secured by utility plant and by a pledge of
certain securities of subsidiaries and affiliates.

The accompanying notes are an integral part of
these financial statements.

The results presented in 1999 and the restated
results for 1998 reflect the pooling of interests
method of accounting to recognize the acquisition
of National Enterprises Inc.


                                                                            43
<PAGE>
                     AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY
(Dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                                              Accumulated
                                                                                                    Other       Common
                                                                     Unearned                      Compre-       Stock-
                              Common Stock       Paid-in    Retained   Compen-   Treasury Stock   hensive      holders'
                            Shares  Par Value    Capital    Earnings   sation   Shares  At Cost    Income       Equity
======================================================================================================================
<S>                     <C>          <C>        <C>       <C>        <C>       <C>      <C>       <C>       <C>
BALANCE AT
DECEMBER 31, 1996       93,358,302   $116,698   $322,193    $803,085   ($784)      800     ($25)       --   $1,241,167

  Net income                    --         --         --     137,691      --        --       --        --      137,691
  Dividend reinvestment    291,236        364      6,235          --      --        --       --        --        6,599
  Stock purchase           555,109        693     11,777          --      --        --       --        --       12,470
  Employees' stock
    ownership plan         134,182        168      2,761          --      --        --       --        --        2,929
  Savings plan for
    employees              222,940        279      4,741          --      --        --       --        --        5,020
  Incentive plan            60,843         76      2,420          --     (32)       --       --        --        2,464
  Other comprehensive
    income                      --         --         --          --      --        --       --     4,014        4,014
  Dividends:
    Preferred stocks            --         --         --      (3,984)     --        --       --        --       (3,984)
    Common stock                --         --         --     (66,424)     --        --       --        --      (66,424)
----------------------------------------------------------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 1997       94,622,612    118,278    350,127     870,368    (816)      800      (25)    4,014    1,341,946

  Net income                    --         --         --     150,439      --        --       --        --      150,439
  Dividend reinvestment    249,250        312      7,082          --      --        --       --        --        7,394
  Stock purchase           600,036        750     17,267          --      --        --       --        --       18,017
  Employees' stock
    ownership plan          95,499        119      2,903          --      --        --       --        --        3,022
  Savings plan for
    employees              193,943        242      5,593          --      --        --       --        --        5,835
  Incentive plan            70,450         88      1,283          --    (164)       --       --        --        1,207
  Other comprehensive
    income                      --         --         --          --      --        --       --    29,124       29,124
  Dividends:
    Preferred stocks            --         --         --      (3,984)     --        --       --        --       (3,984)
    Common stock                --         --         --     (71,389)     --        --       --        --      (71,389)
----------------------------------------------------------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 1998       95,831,790    119,789    384,255     945,434    (980)      800      (25)   33,138    1,481,611

  Net income                    --         --         --     138,949      --        --       --        --      138,949
  Dividend reinvestment    291,808        365      7,896          --      --        --       --        --        8,261
  Stock purchase           839,288      1,050     22,714          --      --        --       --        --       23,764
  Employees' stock
    ownership plan         109,932        137      3,040          --      --        --       --        --        3,177
  Savings plan for
    employees              200,153        251      5,699          --      --        --       --        --        5,950
  Incentive plan            30,788         38        830          --     (76)       --       --        --          792
  Other comprehensive
    income                      --         --         --          --      --        --       --    59,323       59,323
  Treasury stock                --         --         --          --      --   108,875   (3,675)       --       (3,675)
  Dividends:
    Preferred stocks            --         --         --      (3,984)     --        --       --        --       (3,984)
    Common stock                --         --         --     (79,370)     --        --       --        --      (79,370)
----------------------------------------------------------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 1999       97,303,759   $121,630   $424,434  $1,001,029 ($1,056)  109,675  ($3,700)  $92,461   $1,634,798
                        ==============================================================================================
</TABLE>


The accompanying notes are an integral part of these financial statements.

The results presented in 1999 and the restated results for prior years reflect
the pooling of interests method of accounting to recognize the acquisition of
National Enterprises Inc.


44

<PAGE>
                     AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)



NOTE 1: ORGANIZATION AND OPERATION

American Water Works Company, Inc. through its utility subsidiaries
provides water and wastewater service in 22 states.  As public utilities,
these subsidiaries function under rules and regulations prescribed by state
regulatory commissions.  The Company also manages and operates water and
wastewater facilities in seven states through its unregulated contract
management subsidiary, which had been operated as a joint venture until
December 31, 1999 when the Company acquired its partner's interest (see
Contract Management Business in Note 3).

    The Company, however, reflects one reportable segment for financial
statement purposes as the Company's utility subsidiaries represent similar
entities offering substantially identical services to similar customers.
Wastewater service and the Company's share of the contract management
business joint venture have not been reflected as reportable segments as
revenues, net income and assets associated with these services are less
than 10% of those for the Company as a whole.


NOTE 2: SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the
parent company and all subsidiaries.  Intercompany accounts and
transactions are eliminated.  The results of operations of the Company's
former contract management business joint venture have been accounted for
under the equity method (see Contract Management Business in Note 3).


USE OF ESTIMATES

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


REGULATION

The utility subsidiaries have incurred various costs and received
various credits which have been reflected as regulatory assets and
liabilities on the Company's consolidated balance sheet.  Accounting for
such costs and credits as regulatory assets and liabilities is in
accordance with Statement of Financial Accounting Standards No. 71
"Accounting for the Effects of Certain Types of Regulation" (SFAS 71).
This statement sets forth the application of generally accepted accounting
principles for those companies whose rates are established by or are
subject to approval by an independent third-party regulator.  Under SFAS
71, utility companies defer costs and credits on the balance sheet as
regulatory assets and liabilities when it is probable that those costs and
credits will be recognized in the rate making process in a period different
from the period in which they would have been reflected in income by an
unregulated company.  These deferred regulatory assets and liabilities are
then reflected in the income statement in the period in which the same
amounts are reflected in the rates charged for service.


PROPERTY, PLANT AND EQUIPMENT

Additions to utility plant and replacements of retirement units of
property are capitalized.  Costs include material, direct labor and such
indirect items as engineering and supervision, payroll taxes and benefits,
transportation and an allowance for funds used during construction.  The
costs incurred to acquire and internally develop computer software for
internal use are capitalized as a unit of property.  Repairs, maintenance
and minor replacements of property are charged to current operations.  The
cost of property units retired in the ordinary course of business plus
removal cost (less salvage) is charged to accumulated depreciation.  The
cost of property, plant and equipment is generally depreciated using the
straight-line method over the estimated service lives of the assets.

    Utility plant acquisition adjustments include the difference between
the purchase price of utility plant and its original cost (less accumulated
depreciation) and are generally being amortized over a period of 40 years.

    The excess of cost of investments in subsidiaries over book equity at
acquisition includes approximately $33,000 of goodwill associated with the
Company's acquisition of its joint venture partner's interest in the
contract management business (see Contract Management Business Acquisition
in Note 3).  The balance of the excess cost of investments in subsidiaries
is attributable to various acquisitions of utility subsidiaries.

    Utility plant acquisition adjustments and the excess of cost of
investments in subsidiaries over book equity at acquisition, prior to
October 31, 1970, are not being amortized because in the opinion of
management there has been no diminution in value.


CASH AND CASH EQUIVALENTS

Substantially all of the Company's cash is invested in interest bearing
accounts.  The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
Cash equivalents consist primarily of investment grade commercial paper,
bank certificates of deposit and United States Government securities.  Cash
equivalents are stated at cost plus accrued interest which approximates
market value.


MATERIALS AND SUPPLIES

Materials and supplies are stated at average cost.


REGULATORY ASSETS

The Company has recorded a regulatory asset for the additional revenues
expected to be realized as the tax effects of temporary differences
previously flowed through to customers


                                                                            45

<PAGE>

--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)



reverse.  These temporary differences are primarily related to the
difference between book and tax depreciation on property placed in service
before the adoption by the regulatory authorities of full normalization for
rate making purposes.

    The regulatory asset for income taxes recoverable through rates is net
of the reduction expected in future revenues as deferred taxes previously
provided, attributable to the difference between the state and federal
income tax rates under prior law and the current statutory rates, reverse
over the average remaining service lives of the related assets.

    Debt expense is amortized over the lives of the respective issues.
Call premiums on the redemption of long-term debt, as well as unamortized
debt expense, are deferred and amortized to the extent they will be
recovered through future service rates.  Expenses of preferred stock issues
without sinking fund provisions are amortized over 30 years from date of
issue; expenses of issues with sinking fund provisions are charged to
operations as shares are retired.

    Pension expense in excess of the amount contributed to the pension plan
is deferred by certain subsidiaries.  These costs will be recovered in
future service rates as contributions are made to the pension plan.

    Postretirement benefit expense in excess of the amount recovered in
rates through 1997 has been deferred by certain subsidiaries.  These costs
are now recognized in the rates charged for water service and will be fully
recovered over a 20-year period ending in 2012 as authorized by the
regulatory authorities.

    Deferred treatment plant costs consist of operating expenses, including
depreciation and property taxes, and the carrying charges associated with
several water treatment plants and related facilities from the time the
assets were placed in service until recovery of such costs were allowed in
future service rates.  These costs have been recognized in the rates
charged for water service and are being amortized over a 10-year period as
authorized by the regulatory authorities.

    Tank painting costs are generally deferred and amortized to current
operations on a straight-line basis over periods ranging from 4 to 20
years, as authorized by the regulatory authorities in their determination
of rates charged for service.


OTHER INVESTMENTS AND ACCUMULATED
OTHER COMPREHENSIVE INCOME

Other investments include primarily equity securities of publicly and
privately held companies.  Investments in publicly traded securities are
classified as available for sale and are recorded in the balance sheet at
fair market value with the change in market value, net of the tax effect,
recorded as part of comprehensive income.  The cost basis of these publicly
traded securities is $17,215, and the fair value of these investments is
determined using quoted market prices.  Investments in privately held
companies are carried at cost.  The principal publicly traded investments
are 4,000,000 shares of ITC Deltacom (NASDQ: ITCD) and 600,000 shares of
Powertel (NASDQ: PTEL).  The Company also has a significant investment in
privately held ITC Holding.

    The components of accumulated other comprehensive income at December 31
are as follows:


                                                    1999       1998       1997
==============================================================================
Beginning balance                                $33,138    $ 4,014     $   --
Unrealized gains on securities                   102,604     47,083      5,348
Income taxes on other
  comprehensive income                           (43,281)   (17,959)    (1,334)
------------------------------------------------------------------------------
Ending balance                                   $92,461    $33,138     $4,014
                                                 =============================


OTHER CURRENT LIABILITIES

Other current liabilities at December 31, 1999 and 1998 include
payables to banks of $21,621 and $17,033 respectively, which represent
checks issued but not presented to the banks for payment, net of the
related bank balance.


ADVANCES AND CONTRIBUTIONS IN AID OF CONSTRUCTION

Utility subsidiaries may receive advances and contributions to fund
construction necessary to extend service to new areas.  As determined by
the regulatory authorities, advances for construction are refundable for
limited periods of time as new customers begin to receive service.  Amounts
which are no longer refundable are reclassified to contributions in aid of
construction.  Utility plant funded by advances and contributions is
excluded from rate base and is generally not depreciated for rate making
purposes.  Generally, advances and contributions received during the period
January 1, 1987 through June 12, 1996 have been included in taxable income
and the related property is depreciable for tax purposes.  As a result of a
tax law change, advances and contributions received subsequent to June 12,
1996 are excluded from taxable income and the related property is not
depreciable for tax purposes.


RECOGNITION OF REVENUES

Service revenues for financial reporting purposes include amounts
billed to customers on a cycle basis and unbilled amounts based on
estimated usage from the date of the latest meter reading to the end of the
accounting period.


INCOME TAXES

The Company and its subsidiaries participate in a consolidated federal
income tax return.  Federal income tax expense for financial reporting
purposes is provided on a separate return basis, except that the federal
income tax rate applicable to the consolidated group is applied to separate
company taxable income and the benefit of net operating losses, principally
at the parent company level, is recognized currently.

    Certain income and expense items are accounted for in different time
periods for financial reporting than for income tax reporting purposes.
Deferred income taxes have been provided on the difference between the tax
bases of assets and liabilities and the amounts at which they are carried
in the financial


46

<PAGE>
                     AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
--------------------------------------------------------------------------------



statements.  These deferred income taxes are based on the enacted tax
rates to be in effect when such temporary differences are expected to
reverse.  The utility subsidiaries also recognize regulatory assets and
liabilities for the effect on revenues expected to be realized as the tax
effects of temporary differences previously flowed through to customers
reverse.

    Investment tax credits have been deferred and are being amortized to
income over the average estimated service lives of the related assets.


ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION (AFUDC)

AFUDC is a non-cash credit to income with a corresponding charge to
utility plant which represents the cost of borrowed funds and a return on
equity funds devoted to plant under construction.  The utility subsidiaries
record AFUDC to the extent permitted by the regulatory authorities.


ENVIRONMENTAL COSTS

Environmental expenditures that relate to current operations or provide
a future benefit are expensed or capitalized as appropriate.  Remediation
costs that relate to an existing condition caused by past operations are
accrued when it is probable that these costs will be incurred and can be
reasonably estimated.


ASSET IMPAIRMENT

Long-lived assets and certain identifiable intangible assets held and
used by the Company are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of the assets, on a
separate entity basis, may not be recoverable.  If the sum of the future
cash flows expected to result from the use of the assets and their eventual
disposition is less than the carrying amount of the assets, an impairment
loss is recognized.  Measurement of an impairment loss is based on the fair
value of the assets.  A regulatory asset is charged to earnings if and when
future recovery in rates of that asset is no longer probable.


EARNINGS PER SHARE

The average number of shares used to calculate diluted earnings per
share includes 51,837, 57,831 and 76,996 of potential common shares
issuable in connection with the Company's Long-Term Performance-Based
Incentive Plan (see Note 9) in 1999, 1998 and 1997, respectively.


NEW ACCOUNTING STANDARDS

In 2001, the Company will adopt Statement of Financial Accounting
Standards No. 133 "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133).  This statement establishes accounting and
reporting standards for derivative instruments and hedging activities.
SFAS 133 was issued by the Financial Accounting Standards Board in June of
1998 and requires that an entity recognize all derivatives as either assets
or liabilities in the statement of financial position and measure those
instruments at fair value.  SFAS 133, as amended by SFAS 137 "Accounting
for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133," requires adoption on January 1,
2001.  This new accounting standard is not expected to have any effect on
the Company's financial position or results of operations as the Company
has no significant derivative instruments or hedging activities.


RECLASSIFICATION

Certain reclassifications have been made to conform previously reported
data to the current presentation.  The results presented in 1999 and the
restated results for previous periods reflect the pooling of interests
method of accounting to recognize the acquisition of National Enterprises
Inc.  (see National Enterprises Inc. in Note 3).


NOTE 3: ACQUISITIONS

NATIONAL ENTERPRISES INC.

On June 25, 1999, the Company completed the acquisition of National
Enterprises Inc. (NEI), a privately owned company, in a transaction valued
at $700,000.  The transaction was accomplished through a tax free exchange
of 14,937,000 shares of the Company's stock for all of the outstanding
shares of NEI and the assumption of $241,000 of debt.  Subsidiaries of NEI
provided water service to approximately 504,000 customers in Missouri,
Illinois, Indiana and New York.  NEI also had passive investments in the
telecommunications industry owning 4,000,000 shares of ITC Deltacom and
600,000 shares of Powertel, as well as an interest in privately held ITC
Holdings.

    This business combination has been accounted for as a pooling of
interests and, accordingly, the consolidated financial statements for
periods prior to the combination have been restated to include the accounts
and results of operations of NEI.

    During 1999 the Company recorded a charge of $20,535, and related tax
benefits of $7,630, reflecting the one-time costs incurred in connection
with the merger.  The merger related costs consist primarily of severance
costs as well as vesting of certain benefits, professional fees and other
costs.  The merger related costs have been reported on a separate line in
the consolidated statement of income and comprehensive income.

    The results of operations previously reported by the Company and the
combined amounts presented in the accompanying consolidated financial
statements are summarized in the following table:


                                  Six Months    Twelve Months    Twelve Months
                                       Ended            Ended            Ended
                               June 30, 1999    Dec. 31, 1998    Dec. 31, 1997
==============================================================================
Operating revenues
  Company                           $509,281       $1,017,812       $  954,199
  NEI                                 87,110          182,225          177,175
------------------------------------------------------------------------------
  Combined                          $596,391       $1,200,037       $1,131,374
                                    ==========================================

Net income
  Company                           $ 56,458       $  131,048       $  119,128
  NEI                                 (2,914)          19,391           18,563
------------------------------------------------------------------------------
  Combined                          $ 53,544       $  150,439       $  137,691
                                    ==========================================


                                                                            47

<PAGE>

--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)



CONTRACT MANAGEMENT BUSINESS

On December 31, 1999, the Company finalized the purchase of its joint
venture partner Anglian Water's interest in AmericanAnglian Environmental
Technologies for $32,000.  This business, which in the future will operate
as American Water Services, manages and operates 175 water and wastewater
facilities in seven states.


HAWAII WASTEWATER SYSTEM

On April 1, 1998, the Company acquired East Honolulu Community
Services, Inc. ("EHCS"), a suburban Honolulu wastewater utility located on
the eastern tip of Oahu, Hawaii.  The Company acquired EHCS for $17,300
from Maunalua Associates, Inc., a subsidiary of Kemper Corporation.  This
utility, now operating as Hawaii-American Water Company, provides
wastewater service to approximately 10,000 customers in the community of
Hawaii Kai.


NOTE 4: PENDING ACQUISITIONS

WATER AND WASTEWATER ASSETS OF CITIZENS UTILITIES

On October 18, 1999, the Company announced it had agreed to purchase
the water and wastewater utility assets of Citizens Utilities Company
(NYSE:CZN) for $835,000 in cash and debt.  Citizens Utilities provides
water and wastewater service to 305,000 customers in Arizona, California,
Illinois, Indiana, Ohio and Pennsylvania.  For the latest fiscal year ended
December 31, 1999, the operations being acquired had revenues of $102,000.
It is anticipated that the transaction will be completed in the second half
of 2000, following regulatory approvals and completion of other
requirements.


SJW CORP.

On October 29, 1999, the Company announced an agreement had been
reached to acquire all the common stock of SJW Corp.  (SJW) for
approximately $390,000 in cash, or $128 per share, and the assumption of
$90,000 in debt.  SJW is a publicly traded holding company (AMEX:SJW)
headquartered in San Jose, California.  SJW Corp., through its subsidiary
San Jose Water Company, provides water service to 216,000 customers in
San Jose and nearby communities.

    SJW also owns 1,100,000 shares of California Water Service Group
(NYSE:CWT) and SJW Land Company, which owns a parking facility, a
commercial property and undeveloped real estate in San Jose.  For the
latest fiscal year ended December 31, 1999, SJW, Corp. had revenues of
$117,000, net income of $16,000 and total assets of $372,000.  It is
expected that the transaction, which will be accounted for as a purchase,
will be completed in the second half of 2000, following approval of SJW's
shareholders, regulatory approvals and completion of other requirements.


WATER UTILITY SUBSIDIARIES OF UNITED WATER RESOURCES INC.

On July 13, 1999, the Company announced it had agreed to acquire from
United Water Resources Inc. five water utilities in Missouri, Indiana,
Illinois and Virginia for approximately $49,000 in cash.  These water
utilities provide service to 35,000 customers.  On January 31, 2000 the
acquisition of two of these utilities was completed, and the remaining
three acquisitions are expected to be completed in the first half of 2000
upon the receipt of regulatory approvals.


NOTE 5: UTILITY PLANT

The components of utility plant by category at December 31 are as
follows:

                                                            1999          1998
==============================================================================
Water plant
  Sources of supply                                   $  262,662    $  251,013
  Treatment and pumping                                1,336,457     1,239,189
  Transmission and distribution                        2,768,971     2,613,070
  Services, meters and fire hydrants                     994,843       933,382
  General structures and equipment                       421,621       332,646
Wastewater plant                                          72,606        67,899
Construction work in progress                            234,823       227,150
------------------------------------------------------------------------------
                                                       6,091,983     5,664,349
Less-accumulated depreciation                          1,152,575     1,051,322
------------------------------------------------------------------------------
                                                      $4,939,408    $4,613,027
                                                      ========================


NOTE 6: DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN

The Company's Dividend Reinvestment and Stock Purchase Plan provides
for optional cash purchases of newly issued common stock of the Company.
In addition to permitting record holders of common stock to have all or
part of their dividends automatically reinvested in additional shares of
common stock, the plan permits stockholders to purchase up to five thousand
dollars of common stock each month directly from the Company.

    The plan was amended, as of March 15, 1998, to provide for new shares
purchased under the plan to be priced at a 2% discount from the applicable
average market price.  Previously shares purchased with reinvested
dividends or optional cash purchases were priced at the applicable average
market price.


48

<PAGE>
                     AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
--------------------------------------------------------------------------------



NOTE 7: SHAREHOLDERS RIGHTS PLAN

On February 4, 1999 the Company's Board of Directors adopted a new
Shareholder Rights Plan to replace the Rights Plan adopted 10 years ago
which expired on March 2, 1999.

    Each Right under the new plan entitles shareholders to buy one share of
the Company's common stock at an exercise price of $150.  Each Right
entitles its holder to purchase, at the Right's then-current exercise
price, shares of the Company's common stock, or a number of shares of an
acquiring company's stock, which would have a market value of two times the
exercise price.  The Rights become exercisable if there is a public
announcement that a person or group acquires, or commences a tender offer
to acquire, 25% or more of the outstanding shares of the Company.  The
Rights also become exercisable if the Company is acquired in a merger or a
person or group acquires 35% or more of the outstanding shares of the
Company.

    The Rights are redeemable, in whole, but not in part, by the Company at
a price of $.0005 per Right under certain circumstances.  The Rights do not
have voting or dividend rights and, until they become exercisable, have no
dilutive effect on the earnings per share of the Company.


NOTE 8: EMPLOYEE BENEFITS

PENSION AND OTHER POSTRETIREMENT BENEFITS

The Company maintains noncontributory defined benefit pension plans
covering substantially all associates.  Benefits under the plans are based
on the associate's years of service and compensation.

    The Company's funding policy is to contribute at least the minimum
amount required by the Employee Retirement Income Security Act of 1974.
Pension plan assets are invested in a number of investments including a
guaranteed interest contract with a major insurance company, equity mutual
funds, United States Government securities and publicly traded bonds.  The
actual return on plan assets over the last three years reflects the higher
than expected returns in the general capital markets.

    The Company also has several unfunded noncontributory supplemental
non-qualified pension plans that provide additional retirement benefits to
certain associates of the Company and its subsidiaries.

    The Company maintains postretirement benefit plans providing varying
levels of medical and life insurance to eligible retirees.  The adoption of
a new accounting standard for other postretirement benefits resulted in a
transition obligation of $143,391 at January 1, 1993 which is being
amortized over 20 years.  The Company's policy is to fund postretirement
benefit costs accrued.  Plan assets are invested in equity and bond mutual
funds.


                                                                   Other
                                          Pension              Postretirement
                                          Benefits                Benefits
                                      1999        1998        1999        1998
==============================================================================
CHANGE IN BENEFIT OBLIGATION
Benefit obligation
  at January 1                    $607,065    $550,828    $208,387    $193,112
Service cost                        17,614      16,541       7,581       6,224
Interest                            41,151      39,079      14,938      13,452
Plan participants'
  contributions                         --          --         875         668
Amendments                           1,271         945          --      (2,276)
Actuarial (gain) loss              (94,959)     18,018     (18,192)      7,187
Benefits paid                      (24,068)    (22,637)     (9,148)     (9,980)
Other                                   --       4,291          --          --
------------------------------------------------------------------------------
Benefit obligation
  at December 31                  $548,074    $607,065    $204,441    $208,387
                                  ============================================

CHANGE IN PLAN ASSETS
Fair value of plan assets
  at January 1                    $556,668    $524,613    $117,351    $ 93,654
Actual return on
  plan assets                       64,463      48,625      18,343      14,600
Employer contribution                1,239       1,776      20,593      18,452
Plan participants'
  contributions                         --          --         875         625
Benefits paid                      (24,068)    (22,637)     (9,148)     (9,980)
Other                                   --       4,291          --          --
------------------------------------------------------------------------------
Fair value of plan assets
  at December 31                  $598,302    $556,668    $148,014    $117,351
                                  ============================================

Funded status at
  December 31                     $ 50,228    $(50,397)   $(56,427)   $(91,036)
Unrecognized net transition
  obligation (asset)                (6,698)     (8,857)     88,556      95,368
Unrecognized prior
  service cost                      10,163      11,204       5,393       5,851
Unrecognized net
  actuarial gain                  (116,788)     (3,734)    (49,993)    (23,004)
Contributions made
  post-measurement date                 --          94          --         564
------------------------------------------------------------------------------
Net amount recognized             $(63,095)   $(51,690)   $(12,471)   $(12,257)
                                  ============================================

Amounts recognized in the
balance sheet consist of:
Prepaid benefit cost                  $274        $421         $23          $5
Accrued benefit cost               (63,369)    (52,111)    (12,494)    (12,262)
Additional minimum liability        (1,048)     (4,656)         --          --
Intangible asset                     1,048       4,656          --          --
------------------------------------------------------------------------------
Net amount recognized             $(63,095)   $(51,690)   $(12,471)   $(12,257)
                                  ============================================

    The projected benefit obligation and accumulated benefit obligation for
pension plans with accumulated benefit obligations in excess of plan assets
(the supplemental plans are unfunded) were $16,787 and $14,414,
respectively, as of December 31, 1999, and $19,749 and $16,388,
respectively, as of December 31, 1998.


                                                                            49

<PAGE>

--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)



                                                1999         1998         1997
==============================================================================
COMPONENTS OF NET PERIODIC
  PENSION BENEFIT COST
Service cost                                 $17,614      $16,541      $14,439
Interest cost                                 41,151       39,079       36,646
Expected return on plan assets               (46,387)     (43,357)     (39,560)
Amortization of transition asset              (2,159)      (2,159)      (2,159)
Amortization of prior service cost             2,312        2,230        1,426
Recognized net actuarial (gain) loss              19         (964)        (944)
------------------------------------------------------------------------------
Net periodic pension benefit cost            $12,550      $11,370      $ 9,848
                                             =================================

COMPONENTS OF NET PERIODIC OTHER
  POSTRETIREMENT BENEFIT COST
Service cost                                 $ 7,581      $ 6,224      $ 5,378
Interest cost                                 14,938       13,452       12,989
Expected return on plan assets                (9,759)      (7,808)      (5,914)
Amortization of transition obligation          6,812        6,813        6,813
Amortization of prior service cost               458          458          623
Recognized net actuarial (gain) loss             213         (699)      (1,296)
------------------------------------------------------------------------------
Net periodic other
  postretirement benefit cost                $20,243      $18,440      $18,593
                                             =================================



                                                                   Other
                                          Pension              Postretirement
                                          Benefits                Benefits
                                      1999        1998        1999        1998
==============================================================================
WEIGHTED-AVERAGE ASSUMPTIONS
  AS OF DECEMBER 31
Discount rate                        8.00%       6.75%       8.00%       6.75%
Expected return on plan assets       8.50%       8.50%       7.90%       7.90%
Rate of compensation increase        4.75%       4.75%       4.75%       4.75%

    The health care cost trend rate, used to calculate the Company's cost
for postretirement health care benefits, is a constant 5.5% annual rate,
except for a 7.0% annual rate in 1999 that is assumed to decrease gradually
to a 5.5% annual rate in 2003 and remain at that level thereafter for
pre-acquisition retirees of certain Pennsylvania water utility operations
acquired in 1996.

    Assumed health care cost trend rates have a significant effect
on the amounts reported for the other postretirement benefit plan.
A one-percentage-point change in assumed health care cost trend rates
would have the following effects:


                                             One-Percentage-   One-Percentage-
                                              Point Increase    Point Decrease
==============================================================================
Effect on total of service and
  interest cost components                       $ 3,800          $ (2,989)
Effect on other postretirement
  benefit obligation                             $25,053          $(20,472)


SAVINGS PLANS FOR EMPLOYEES

The Company maintains 401(k) savings plans that allow substantially all
associates to save for retirement on a tax-deferred basis.  Compensation
expense associated with these savings plans was $3,491 in 1999, $3,391 in
1998 and $2,973 in 1997.

    Included in the above expenses were the Company's matching
contributions to the primary savings plan totaling $2,781 for 1999, $2,705
for 1998 and $2,304 for 1997 that are invested in a fund of Company common
stock.  The trustee of this plan may purchase shares of the Company's
common stock at the prevailing market price from the Company, in the open
market, or in a private transaction.


EMPLOYEES' STOCK OWNERSHIP PLAN

The Company maintains an Employees' Stock Ownership Plan which provides
for beneficial ownership of Company common stock by most associates who are
not included in a bargaining unit.  Each participating associate can elect
to contribute an amount that does not exceed 2% of their wages.  In
addition to the associate's participation, the Company makes a contribution
equivalent to 1/2% of each participant's qualified compensation, and
matches 100% of the contribution by each participant.  The Company expensed
contributions of $1,805 for 1999, $1,706 for 1998, and $1,674 for 1997 that
it made to the plan.  The trustee of the plan may purchase shares of the
Company's common stock at the prevailing market price from the Company, in
the open market, or in a private transaction.


NOTE 9: LONG-TERM PERFORMANCE-BASED INCENTIVE PLAN

The Company and its subsidiaries have a Long-Term Performance-Based
Incentive Plan.  Under the plan, designated executives and other key
associates are eligible to receive awards if performance cycle goals based
on earnings-per-share growth and total return to Company shareholders, in
comparison to a designated peer group of water companies, are met.  The
plan is administered by the Compensation and Management Development
Committee of the Board of Directors.  The Committee will determine the
value or range of values, including the maximum value, of awards to each
participant.  Awards may be paid in the form of cash, restricted shares of
common stock, or a combination of both.  The cost of the plan is being
charged to expense over each three-year performance cycle.  Such expense
was $863 in 1999, $1,541 in 1998, and $2,715 in 1997.  The market value of
common stock expected to be awarded under the plan has been recorded as
unearned compensation and is shown as a separate component of common
stockholders' equity.


50

<PAGE>
                     AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
--------------------------------------------------------------------------------



NOTE 10: GENERAL TAXES

Components of general tax expense for the years presented in the
consolidated statement of income and comprehensive income are as follows:

                                                1999         1998         1997
==============================================================================
Gross receipts and franchise                $ 41,839     $ 40,014     $ 38,239
Property and capital stock                    53,458       53,705       53,890
Payroll                                       18,445       16,911       15,347
Other general                                  8,932        7,502        3,360
------------------------------------------------------------------------------
                                            $122,674     $118,132     $110,836
                                            ==================================


NOTE 11: INCOME TAXES

Components of income tax expense for the years presented in the
consolidated statement of income and comprehensive income are as follows:

                                                1999         1998         1997
==============================================================================
STATE INCOME TAXES:
Current                                      $10,483      $10,517      $10,364
Deferred
  Current                                        199          (24)         146
  Non-current                                  3,600        3,082        2,816
------------------------------------------------------------------------------
                                             $14,282      $13,575      $13,326
                                             =================================
FEDERAL INCOME TAXES:
Current                                      $47,858      $54,961      $43,611
Deferred
  Current                                      1,449          172          (56)
  Non-current                                 29,248       28,277       32,546
  Amortization of deferred
    investment tax credits                    (1,437)      (1,437)      (1,437)
------------------------------------------------------------------------------
                                             $77,118      $81,973      $74,664
                                             =================================

    A reconciliation of income tax expense at the statutory federal income
tax rate to actual income tax expense is as follows:

                                                1999         1998         1997
==============================================================================
Income tax at statutory rate                 $80,622      $86,095      $78,989
Increases (decreases)
  resulting from -
    State taxes, net of
      federal taxes                            9,283        8,824        8,662
    Flow through differences                   1,708        1,311        1,179
    Amortization of investment
      tax credits                             (1,437)      (1,437)      (1,437)
    Subsidiary preferred dividends             1,144        1,177        1,198
    Other, net                                    80         (422)        (601)
------------------------------------------------------------------------------
Actual income tax expense                    $91,400      $95,548      $87,990
                                             =================================


    The following table provides the components of the net deferred tax
liability at December 31:

                                                           1999           1998
==============================================================================
DEFERRED TAX ASSETS
Advances and contributions                             $185,424       $173,936
Deferred investment tax credits                          16,731         16,804
Other                                                    32,637         30,474
------------------------------------------------------------------------------
                                                        234,792        221,214
------------------------------------------------------------------------------

DEFERRED TAX LIABILITIES
Utility plant, principally due
  to depreciation                                       647,964        601,319
Income taxes recoverable
  through rates                                          93,167         94,455
Other comprehensive income                               62,574         19,293
Other                                                    41,547         41,253
------------------------------------------------------------------------------
                                                        845,252        756,320
------------------------------------------------------------------------------
                                                       $610,460       $535,106
                                                       =======================

    No material valuation allowances were required on deferred tax assets
at December 31, 1999 and 1998.


NOTE 12: LEASES

The Company has entered into operating leases involving certain
facilities and equipment.  Rental expenses under operating leases were
$15,192 for 1999, $13,037 for 1998 and $12,247 for 1997.  Capital leases
currently in effect are not significant.

    At December 31, 1999, the minimum annual future rental commitment under
operating leases that have initial or remaining noncancellable lease terms
in excess of one year are $10,513 in 2000, $7,439 in 2001, $5,372 in 2002,
$3,727 in 2003, $2,479 in 2004 and $4,160 thereafter.


NOTE 13: COMMITMENTS AND CONTINGENCIES

Construction programs of subsidiaries for 2000 are estimated to cost
approximately $448,000.  Commitments have been made in connection with
certain construction programs.

    The Company is routinely involved in condemnation proceedings and legal
actions relating to several utility subsidiaries.  In the opinion of
management, none of these matters will have a material adverse effect, if
any, on the financial position or results of operations of the Company.


NOTE 14: COMPENSATING BALANCES AND BANK DEBT

During 1999 the Company and its subsidiaries maintained lines of credit
with various banks.  The total of the unused lines of credit at December
31, 1999 was $60,500 for the Company and $200,345 for the subsidiaries.

    Borrowings under such lines of credit generally are payable on demand
and bear interest at variable rates.  Agreements with lending banks
generally do not have compensating balance requirements.


                                                                            51

<PAGE>

--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)



    The maximum amount of short-term bank borrowings outstanding during
1999 was $239,864, and the average amount outstanding during the year was
$129,377.  The weighted average annual interest rate on these borrowings
during 1999 was 5.79%, and the interest rate at December 31, 1999 was 5.37%.


NOTE 15: FAIR VALUES OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:

    Current assets and current liabilities: The carrying amount reported
in the balance sheet for current assets and current liabilities, including
bank debt, approximates their fair values.

    Preferred stocks with mandatory redemption requirements and long-term
debt: The fair values of the Company's preferred stocks with mandatory
redemption requirements and long-term debt are estimated using discounted
cash flow analyses based on the Company's current incremental financing
rates for similar types of securities.

    The carrying amounts and fair values of the Company's financial
instruments at December 31 are as follows:


                                                  CARRYING
1999                                                AMOUNT          FAIR VALUE
==============================================================================
Preferred stocks of the Company with
  mandatory redemption requirements                $40,000             $40,668
Preferred stocks of subsidiaries with
  mandatory redemption requirements                 34,020              33,959
Long-term debt of the Company                      211,000             205,793
Long-term debt of subsidiaries                   2,217,112           2,126,890


                                                  CARRYING
1998                                                AMOUNT          FAIR VALUE
==============================================================================
Preferred stocks of the Company with
  mandatory redemption requirements                $40,000             $44,298
Preferred stocks of subsidiaries with
  mandatory redemption requirements                 37,298              42,514
Long-term debt of the Company                      251,500             265,290
Long-term debt of subsidiaries                   2,132,334           2,350,979



NOTE 16: QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1999 and 1998 are as follows:

                                           FIRST    SECOND     THIRD    FOURTH
1999                                     QUARTER   QUARTER   QUARTER   QUARTER
==============================================================================
Operating revenues                      $277,416  $318,975  $353,578  $310,888
Operating income                          74,928   111,298   136,343    97,025
Net income                                20,422    33,122    52,847    32,558
Net income to common stock                19,426    32,126    51,851    31,562
Net income per common share                 $.20      $.33      $.54      $.33


                                           FIRST    SECOND     THIRD    FOURTH
1998                                     QUARTER   QUARTER   QUARTER   QUARTER
==============================================================================
Operating revenues                      $265,289  $301,156  $333,515  $300,077
Operating income                          79,675   105,495   128,353    92,202
Net income                                23,696    39,612    53,588    33,543
Net income to common stock                22,700    38,616    52,592    32,547
Net income per common share                 $.24      $.41      $.55      $.34



52

<PAGE>









RANGE OF MARKET PRICES
AWK is the trading symbol of American Water Works Company, Inc. on the
New York Stock Exchange on which the Common Stock, 5% Preferred Stock and
5% Preference Stock of the Company are traded.

                 Common Stock       5% Preferred Stock    5% Preference Stock
-------------------------------------------------------------------------------
Newspaper listing  AmWtrWks              A Wat pr              A Wat pf
-------------------------------------------------------------------------------
1999             High        Low       High        Low       High         Low
===============================================================================
1st quarter   $34-3/4    $28-1/4    $24        $20        $23-1/2     $21
2nd quarter    31-7/16    27-1/2     22-1/2     20-1/2     22-1/2      19
3rd quarter    31-7/16    28-1/8     21-1/2     18-1/2     21-1/4      19-3/16
4th quarter    30         20-1/2     21-1/2     17-1/4     21          17-1/4


Quarterly dividend
 paid per share      $.215                $.3125                $.3125
Number of
 shareholders at
 December 31, 1999  43,577                  198                   645
-------------------------------------------------------------------------------


1998
===============================================================================
1st quarter   $33-5/16   $25-1/4    $22        $19        $22         $19-15/16
2nd quarter    33-3/16    28-1/8     23         20-1/2     24          20
3rd quarter    33-1/4     27-3/8     23-1/2     21-11/16   24          21-5/16
4th quarter    33-3/4     30-1/4     24-3/4     23-1/2     24-3/4      23


Quarterly dividend
 paid per share      $.205                $.3125                $.3125
Number of
 shareholders at
 December 31, 1998  43,256                  203                   688
-------------------------------------------------------------------------------
The common and 5% preferred stocks have voting rights.


OPTIONS TRADING   Options for Company stock (AWK) are traded on the
Philadelphia Stock Exchange (Newspaper listing: PB).



Design/Production: The Creative Department, Inc.
Copywriting: Gerard F. Reimel
Photography: H. Mark Weidman, cover, editorial section;
  Mimi Janosy, Ed Eckstein portraits


                                                                            55