<PAGE>

                                                                     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,             2000         1999         1998         1997         1996
=====================================================================================================
<S>                                    <C>          <C>          <C>          <C>          <C>

Revenues
  Water service
  Residential                          $  759,697   $  733,956   $  691,279   $  658,955   $  617,846
    Commercial                            278,463      262,940      249,564      235,561      224,354
    Industrial                             82,406       77,953       78,092       73,596       72,101
    Public and other                      153,302      149,531      146,299      137,289      122,951
  Other water revenues                     11,859       11,997       13,983       11,064        9,868
-----------------------------------------------------------------------------------------------------
                                        1,285,727    1,236,377    1,179,217    1,116,465    1,047,120
  Wastewater service                       24,389       24,480       20,820       14,909       15,378
  Management fees                          40,474           --           --           --           --
-----------------------------------------------------------------------------------------------------
                                       $1,350,590   $1,260,857   $1,200,037   $1,131,374   $1,062,498
                                       ==============================================================
Water sales (million gallons)
    Residential                           171,548      175,487      168,617      169,307      164,700
    Commercial                             82,455       81,857       79,115       78,542       77,319
    Industrial                             46,348       45,862       46,361       46,088       46,009
    Public and other                       40,784       41,477       40,110       39,831       36,152
-----------------------------------------------------------------------------------------------------
                                          341,135      344,683      334,203      333,768      324,180
                                       ==============================================================
Net income*                            $  161,061   $  138,949   $  150,439   $  137,691   $  116,820
Earnings per common share
  on average shares outstanding*       $     1.61   $     1.40   $     1.54   $     1.42   $     1.26
Common dividends paid per share        $      .90   $      .86   $      .82   $      .76   $      .70

AT YEAR-END
Water customers (thousands)                 2,541        2,476        2,446        2,400        2,380
Wastewater customers (thousands)               40           40           39           25           24
Total assets                           $6,134,798   $5,952,206   $5,458,658   $4,992,023   $4,682,097
Preferred stocks with mandatory
  redemption requirements
    American Water Works Company, Inc. $       --   $   40,000   $   40,000   $   40,000   $   40,000
    Subsidiaries                           32,902       34,020       37,298       39,734       41,060
Long-term debt
    American Water Works Company, Inc. $  159,000   $  211,000   $  216,500   $  131,000   $  132,000
    Subsidiaries                        2,112,165    2,182,097    2,115,687    1,965,924    1,796,170
Market price of common stock
  at year-end                          $    29.38   $    21.25   $    33.75   $    27.31   $    20.63

</TABLE>

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


22

<PAGE>


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

THE STRATEGIES OF AMERICAN WATER WORKS COMPANY

The Company's goal is to consistently enhance long-term shareholder
value.  Our strategies to produce value are:  investing in the business
of water services, providing management services to water and wastewater
utilities, and delivering value added services and products.

    Historically, the Company primarily invested in acquisitions of
water and wastewater utilities that complemented our existing service
territories or that enhanced the Company's geographic diversification.
In addition, the Company has invested in the common equity of its
utility subsidiaries so that they could reinforce, rehabilitate and
replace existing service infrastructure and provide for growth within
existing service territories.

    The Parent Company's investment in its subsidiaries has increased
from $1.6 billion at year-end 1997 to $1.9 billion at year-end 2000.
The schedule at the top of page 24 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 equity, debt and bank loans.

    Earnings to common shareholders have risen from $133.7 million in
1997 to $157.4 million in 2000.  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 of operating the Parent Company.

    The schedule at the bottom of page 24 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.


DESCRIPTION OF THE BUSINESS

AMERICAN WATER WORKS COMPANY AND
THE AMERICAN WATER SYSTEM

The core business of American Water Works Company is the ownership
of common stock of companies that enable American Water Works to be a
full water resource provider.  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 function s
independently, yet shares in the benefits of size and identity afforded
by the American Water System.

    However, the water utility industry 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 and wastewater utilities, through the expansion of its unregulated
businesses and by emphasizing shared services among its utility
subsidiaries.


REGULATED UTILITY SERVICE

The 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 goal 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 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.
American Water Services is focused on the growing contract operations
segment of the water and wastewater market, including municipal,
industrial, and military clients.  Municipally owned water and
wastewater utilities face the same challenges associated with providing
high quality service as our own utility subsidiaries.  They need access
to specialized expertise and capital resources to meet these challenges.
American Water Services continues our long-standing record of providing
these services and has broadened the array of options available for
management services, technical assistance, and capital participation.

    It currently manages and operates 175 water and wastewater
facilities, providing service to approximately one million people in
nine states, eight of which also have communities served by our utility
subsidiaries.


                                                                            23

<PAGE>

                     AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
--------------------------------------------------------------------------------
ANALYSIS OF GROWTH IN AMERICAN WATER WORKS COMPANY'S
INVESTMENT IN SUBSIDIARIES

<TABLE>
<CAPTION>

(000)                                             2000         1999         1998         1997
=============================================================================================
<S>                                         <C>          <C>          <C>          <C>
Investment in subsidiaries at December 31   $1,937,896   $1,819,412   $1,708,659   $1,556,631
Investment in subsidiaries at January 1      1,819,412    1,708,659    1,556,631    1,438,681
---------------------------------------------------------------------------------------------
Change during the year                      $  118,484   $  110,753   $  152,028   $  117,950
                                            =================================================
Sources of additional investment
  Undistributed earnings of subsidiaries    $   43,268   $   37,677   $   49,481   $   49,802
  Investment in subsidiary securities           75,216       73,076      102,547       68,148
---------------------------------------------------------------------------------------------
  Change during the year                    $  118,484   $  110,753   $  152,028   $  117,950
                                            =================================================
Net income of subsidiaries                  $  184,206   $  166,537   $  168,764   $  152,085
Return on January 1 investment
  in subsidiaries                                10.1%         9.7%        10.8%        10.6%
Subsidiaries' common stock dividend
  payout ratio                                     77%          77%          71%          67%
---------------------------------------------------------------------------------------------
Dividends from subsidiaries                    140,938      128,860      119,283      102,283
---------------------------------------------------------------------------------------------
Parent Company's use of cash
  Preferred dividends                            3,700        3,984        3,984        3,984
  Other cash requirements
    (includes merger related cash
    requirements of $12,704 in 1999)            18,821       33,185       16,742       14,387
---------------------------------------------------------------------------------------------
                                                22,521       37,169       20,726       18,371
---------------------------------------------------------------------------------------------
Available for common dividends                 118,417       91,691       98,557       83,912
Common dividends declared                       88,103       79,370       71,389       66,424
Cash payout ratio                                  74%          87%          72%          79%
Available after dividends                       30,314       12,321       27,168       17,488
Parent Company cash at beginning of year         4,702       18,042          879           75
---------------------------------------------------------------------------------------------
                                                35,016       30,363       28,047       17,563
Investment in securities of subsidiaries       (75,216)     (73,076)    (102,547)     (68,148)
Notes and advances to subsidiaries, net             10          692         (672)          10
---------------------------------------------------------------------------------------------
                                               (40,190)     (42,021)     (75,172)     (50,575)
---------------------------------------------------------------------------------------------
Net bank borrowings                            (46,500)      46,500      (59,500)      21,400
Proceeds from long-term debt                        --           --      120,000           --
Intercompany borrowings, net                    97,039           --       (3,013)       3,013
Proceeds from common stock, net                 30,066       40,723       36,227       28,041
Redemption of securities                       (40,000)     (40,500)        (500)      (1,000)
---------------------------------------------------------------------------------------------
                                                40,605       46,723       93,214       51,454
---------------------------------------------------------------------------------------------
Parent Company cash at end of year          $      415   $    4,702   $   18,042   $      879
                                            =================================================
</TABLE>

ANALYSIS OF CHANGE IN INCOME

<TABLE>
<CAPTION>
(000)                                             2000         1999         1998         1997
=============================================================================================
<S>                                         <C>          <C>          <C>          <C>
Net income to common stock-current year     $  157,361   $  134,965   $  146,455   $  133,707
Net income to common stock-prior year          134,965      146,455      133,707      112,836
---------------------------------------------------------------------------------------------
Change in income                                22,396      (11,490)      12,748       20,871
Change in Parent Company operating cost
  (includes after tax merger costs
  of $6,422 in 1999)                            (4,727)       9,263        3,931       (3,703)
---------------------------------------------------------------------------------------------
Change in investment income                 $   17,669   $   (2,227)  $   16,679   $   17,168
                                            =================================================
Sources of change in investment income
  Additional investment in subsidiaries     $   11,213   $   14,818   $   12,788   $   28,236
  Change in rate of return on investment
    (includes $6,483 of after tax merger
    costs in 1999)                               6,456      (17,045)       3,891      (11,068)
---------------------------------------------------------------------------------------------
Total change in investment income           $   17,669   $   (2,227)  $   16,679   $   17,168
                                            =================================================
</TABLE>


24

<PAGE>

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


WATER RESOURCE MANAGEMENT

American Water Resources is a subsidiary formed to offer water and
wastewater related products and services that provide value to our
customers and shareholders.  American Water Resources is entering the
consumer market by offering various products and services to the existing
customer base.  American Water Resources has introduced a program to
provide ide protection against leaks for customer owned water service lines
of the Company's utility subsidiaries and is offering a pilot program to
provide home water conditioning products.  It plans additional offerings.


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.  In April 2001, this subsidiary will open a national
customer service center, and later in the year will be opening another
facility to consolidate treasury and accounting functions.

    American Water Capital is a subsidiary that was formed in 2000 to
provide a single source of debt capital for the Company and its utility
subsidiaries.  By consolidating its financing requirements the Company
created cash management efficiencies and has access to a broader investor
base.


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 2000 began with 24 acquisitions that were then awaiting
regulatory approval.  During the year, contract negotiations for 10 more
acquisitions were completed.  Of that total of 34 transactions, 12 were
finalized during 2000, adding approximately 38,000 new customers.  At
year-end there were 22 pending acquisitions.

    On October 15, 1999 the Company entered into an agreement to acquire
all of the water and wastewater assets of Citizens Communications Company,
a multi-utility holding company.  The transaction calls for American Water
Works' utility subsidiaries to acquire the water and wastewater assets of
Citizens and its subsidiaries in Arizona, California, Ill inois, Indiana,
Ohio and Pennsylvania.  This transaction accounts for six of the pending
acquisitions.  When completed, it will add approximately 305,000 water and
wastewater customers to the American Water System.  The largest group of
customers being acquired in this transaction is 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.

    Regulatory agencies in Pennsylvania, Indiana and Ohio have approved the
acquisition of Citizen's water and wastewater assets in those states and
evidentiary hearings have been completed in Arizona and Illinois.
Decisions are anticipated in Arizona during the first quarter of 2001, in
Illinois during the second quarter of 2001 and in California dur ing the
third quarter of 2001.

    The Office of Ratepayer Advocates of the California Public Utilities
Commission (CPUC) issued a report on October 16, 2000 opposing the
Company's acquisition of the California water and wastewater assets of
Citizens.  The Company strongly disagrees with this report and has filed
rebuttal testimony with the CPUC contesting the report's analysis and
conclusions.  Members of the staff of the Illinois Commerce Commission have
also submitted testimony opposing the Citizens acquisition.  Consummation
of the Citizens transaction requires approval by regulatory agencies in
each of the states in which the assets are located.  The Company continues
to work to complete this acquisition, but recognizes th at there is no
assurance that approval will be obtained on a timely basis, if at all.

    On October 28, 1999 the Company executed a definitive agreement to
acquire all of the outstanding common stock of SJW Corp.  On March 1, 2001
the Company and SJW announced that, in light of additional delays outlined
in a new procedural scheduling order issued by the CPUC on February 20,
2001, they had mutually agreed to terminate the merger agreement between
them immediately.  The CPUC scheduling order extended the date for a final
decision regarding review of the merger application to at least September
2001, and thereby made it impossible to plan and effectively implement the
transaction contemplated by the agreement.

<TABLE>
<CAPTION>
CONSTRUCTION EXPENDITURES BY CATEGORY
(000)                                   2000        1999        1998        1997        1996
============================================================================================
<S>                                 <C>         <C>         <C>         <C>         <C>
Water plant
  Sources of supply                 $ 18,505    $ 18,038    $ 19,744    $ 17,841    $ 12,210
  Treatment and pumping              106,321     114,830     113,725     102,011      84,024
  Transmission and distribution      151,079     191,700     180,545     157,635     131,531
  Services, meters and fire hydrants  68,331      70,998      69,606      64,050      52,982
  General structures and equipment    24,054      66,019      52,347      48,246      31,267
Wastewater plant                       8,927       5,766       3,250       4,646       1,800
--------------------------------------------------------------------------------------------
                                    $377,217    $467,351    $439,217    $394,429    $313,814
                                    ========================================================
</TABLE>


                                                                            25

<PAGE>

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



    In Pennsylvania, a subsidiary of the Company is acquiring the water and
wastewater assets of the City of Coatesville for $48 million.  The
Coatesville system serves 8,600 water customers and 6,500 wastewater
customers, making this purchase of municipally-owned assets the largest
privatization project of its kind in the nation.

    The remaining 14 acquisitions for which signed agreements are in hand
will give the Company's utility subsidiaries approximately 15,000
additional customers.

    In 1999, 21 acquisitions added approximately 518,000 new customers.
The most significant of these transactions was the acquisition of National
Enterprises Inc., a privately owned holding company with operations
primarily in the water utility business.  National Enterprises'
subsidiaries provided water utility service to more than 500,000 customers
in Illinois, Indiana, Missouri and New York.  Since most of National
Enterprises' customers were in the mid-west this acquisition significantly
furthered the Company's strategy of geographic diversification.  As a part
of the National Enterprises acquisition, the Company also acquired
investments in two publicly traded companies, ITC/\DeltaCom, Inc. and
Powertel, Inc., and in privately owned ITC Holding Company, Inc.  The
Company completed 22 acquisitions in 1998 that added approximately 27,000
new customers.

    More information about acquisitions can be found in Notes 3 and 4 to
the financial statements.


CAPITAL SPENDING PROGRAM

Investment in new facilities in 2000 totaled $377 million, which is 19%
below the 1999 construction expenditures of $467 million.  Construction
activities planned for 2001 total approximately $410 million.

    With the benefit of comprehensive engineering, operational and
financial planning, each utility 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 any 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.  The percentage decrease in 2000
construction costs from those of the prior year is within a normal range of
such changes.  It is anticipated that approximately $2 billion will be
invested in new facilities between now and the end of 2005.  The full
investment in this construction program is expected to be recognized in
regulatory decisions.

    Source of supply improvements accounted for approximately 5% of the
year's construction expenditures.  Projects included the construction of
new groundwater sources in Joplin and Mexico, Missouri; San Marino,
California; Frenchtown, Mt. Olive Township and Logan Township, New Jersey;
and Pike County and Coolbaugh Township, Pennsylvania.  The source of supply
in St. Joseph, Missouri was converted to a groundwater source and a new
surface water source was developed to support the recently constructed
Fayette County, West Virginia treatment plant.

    Investment in treatment and pumping facilities comprised about 28% of
the 2000 construction expenditures.  The reliability of the water treatment
facilities in Alton, Illinois and St. Joseph, Missouri were significantly
increased by the completion of treatment plants at each of these locations.
An innovative treatment plant was constructed in James burg, New Jersey for
radium removal.  Additional new treatment facilities were completed in
Fayette County, West Virginia and Pekin, Illinois.  A new wastewater
treatment plant was constructed in Coolbaugh Township, Pennsylvania.  Major
treatment plant upgrades were completed in Huntington and Charleston, West
Virginia; Norristown and New Castle, Pennsylvania; Bel Air, Maryland;
Hopewell, Virginia; Mexico and Warrensburg, Missouri; and Monterey,
California.  Additional finished water storage was provided at the Cairo,
Illinois and Monterey, California plants.

    Transmission and distribution facilities accounted for approximately
40% of the 2000 construction expenditures.  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 sources of supply and treatment facilities between neighboring
systems.  Prominent projects include continuing regionalization efforts in
Beaver, Monroe and Clarion Counties in Pennsylvania; and Kanawha, Cabell
and Boone Counties in West Virginia.  Other major distribution/transmission
projects were completed in St. Louis County, Missouri; Peoria and
Brooklyn, Illinois; Brownsville and Wilkes Barre, Pennsylvania; and
Lexington, Kentucky to improve system hydraulics or enhance system growth.
Distribution storage tanks were constructed in Chattanooga, Tennessee;
Putnam County, West Virginia; Mt. Olive Township, New Jersey; Merrillville,
Indiana; Parkville, Missouri; West Norriton Township and Coolbaugh
Township, Pennsylvania.

    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 of supply reliability, adequacy of
water treatment facilities and distribution systems, and the potential for
regional water supply solutions and acquisitions.  In 2000, planning
reports were issued for the Terre Haute and Muncie service areas in
Indiana; the Coronado, Duarte, San Marino, and Thousand Oaks service areas
in California; the Atlantic County, Cape May Court House, and Ocean
City/Strathmore service areas in New Jersey; the Butler and Ellwood service
areas in Pennsylvania; and Chattanooga, Tennessee systems.  Studies are
underway for utility subsidiaries in California, Connecticut, Hawaii,
Illinois, Indiana, Kentucky, Massachusetts, New Jersey, New York,
Pennsylvania, Virginia and West Virginia.  These continuing studies
encompass 44 service areas.


BUSINESS SERVICES PROJECTS

During 2000 the Company announced the consolidation of its various
customer service centers and financial services operations.

    The new national customer service center in Alton, Illinois is
scheduled to begin operation in the second quarter of 2001, and will
enhance the Company's ability to respond to the needs of its customers.
This center will be more cost-effective and


26

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


equipped with technology far beyond what can be provided by the
individual subsidiaries.

    Beginning in the third quarter of 2001 a new shared services center
will assume responsibility for various accounting and treasury functions.
The new shared services center will improve the Company's financial
processes and significantly reduce costs.


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.  In August 2000 an earlier court decision that the Company
has a perpetual franchise was affirmed, and the case is now closed.

    In Illinois, the cities of Pekin and Peoria have also been 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 is vigorously contesting these proposed takeovers.

    In Pekin, the residents have voted to retain Illinois-American's
ownership of the water system.  The November non-binding referendum results
have, at least temporarily, placed the issue of eminent domain by that city
on hold.  Illinois- American and the City of Peoria are involved in a court
proceeding over the applicability of an 1889 franchise agreement that the
city believes grants it a unilateral right to purchase the Company's
assets there.


WATER AND WASTEWATER MANAGEMENT SERVICES

The mission of American Water Services is to provide water and
wastewater utility operating and management services to clients in the
United States.  During its initial year of operation as a wholly owned
subsidiary of American Water Works Company, a new management team was
selected to lead this enterprise.

    This business focuses on providing wastewater services to communities
already served with water by our utility subsidiaries and pursues new
opportunities to serve communities not currently served by the American
Water System.  The business also offers contract management services to
industrial clients that operate their own water and wastewater treatment
facilities and to military clients interested in outsourcing the operations
and ownership of their utility facilities.

    The current United States market for contract services is approximately
$1.6 billion in annual revenues, with most of the recent growth in
design-build contracts and industrial operation and maintenance services.
The governmental operation and maintenance services segment of the market
has been growing at an annual rate of approximately 14%, and should
continue to grow at that rate.  Competition within this market was active
in 2000 and should continue to grow as this market expands.  Several
foreign competitors have established market share in the United States
which has intensified the competitiveness of this business.

    The Company intends to be a key player within the full-service water
and wastewater management market.  The ability of American Water Services
to be competitive and to actively participate in this market's growth is
significantly enhanced by American Water Works Company's presence in the
United States regulated utility market.  American Water Services is the
seventh largest operations and maintenance contractor in the United States.

    During 2000, American Water Services added new contracts for East Palo
Alto, California (interim management contract to be converted to long term
contract); expanded the scope of the Danville, Virginia contract; and
secured a contract to assess the utility facilities of Ft. Bragg, North
Carolina and to negotiate a 50-year contract to own and operate
Ft. Bragg's water and wastewater facilities.  American Water Services also
renewed all contracts eligible for renewal in 2000, including Hazleton,
Meadville, Butler, Rush Township, and Schuylkill Valley, Pennsylvania;
Narrows, Virginia; and Dedham-Westwood, Massachusetts.


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 1998 through 2000, and it is not expected to materially
affect 2001 results.

    The results of operations for the year ended December 31, 2000 reflect
the operations of American Water Services.  Prior to January 1, 2000 the
results of operations of the Company's former contract management business
joint venture were accounted for under the equity method.

<TABLE>
<CAPTION>
OPERATING REVENUES
(000)                          2000          1999          1998
===============================================================
<S>                      <C>           <C>           <C>
Water service            $1,285,727    $1,236,377    $1,179,217
Wastewater service           24,389        24,480        20,820
Management fees              40,474            --            --
---------------------------------------------------------------
                         $1,350,590    $1,260,857    $1,200,037
                         ======================================

</TABLE>

OPERATING REVENUES

Revenues for 2000 increased 7% or almost $90 million, to $1.351 billion
from the $1.261 billion recorded in 1999.  Contract management revenues
from American Water Services accounted for $40.5 million of this revenue
increase.  The remainder of the increase resulted from rate increases and
the addition of 65,000 customers through acquisitions and growth in
existing service territories.  These growth factors served to offset the
sales volume losses caused by abnormal summer weather conditions.  The
volume of water sold decreased 1% to 341.1 billion gallons in 2000 compared
with 1999.


                                                                            27

<PAGE>

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



    Rate authorizations adjusted the water service rates in effect for ten
utility subsidiaries during 2000.  These authorizations are expected to
increase annual revenues by $27.2 million.  Operating revenues for 2000
included approximately $8.9 million that resulted from these rate orders.
A more detailed discussion of authorizations to increase rates in 2000
appears on page 32.

    Five applications requesting additional annual revenues of $30 million
were awaiting regulatory decisions as of the end of 2000.  A $17.6 million
request by one of the Company's Missouri subsidiaries accounts for more
than one-half of the total requests pending approval.  A $9 million request
in Illinois that comprised the majority of the remainder of those requests
resulted in an order effective February 21, 2001 that granted an increase
in annual revenues of $7.2 million.

    Revenues of $1.261 billion in 1999 were 5% above those for 1998.  Nine
utility subsidiaries received rate orders in 1999, authorizing increases in
annual revenues aggregating $59.3 million.  Operating revenues for 1999
included approximately $15.8 million which resulted from these rate orders.
The 344.7 billion gallons of water sold in 1999 was 3% above sales in 1998.

<TABLE>
<CAPTION>

PERCENTAGE OF REVENUES BY CUSTOMER CLASS
                                           2000    1999    1998
===============================================================
<S>                                       <C>     <C>     <C>
Residential                               56.2%   58.2%   57.6%
Commercial                                20.6%   20.8%   20.8%
Industrial                                 6.1%    6.2%    6.5%
Public and other                          11.3%   11.9%   12.2%
Other water revenues                       1.0%    1.0%    1.2%
Wastewater service                         1.8%    1.9%    1.7%
Management fees                            3.0%      --      --
---------------------------------------------------------------
                                         100.0%  100.0%  100.0%
                                         ======================

</TABLE>

RESIDENTIAL

Residential water service revenues in 2000 amounted to $759.7 million,
an increase of 4% over those for 1999.  This 2000 revenue improvement
followed an increase of 6% in 1999.  The volume of water sold to
residential customers decreased by 2% in 2000 to 171.5 billion gallons.
The average unit price of residential water increased by 6% in 2000 and
by 2% in 1999.


COMMERCIAL

Revenues from commercial customers in 2000 rose by 6% to $278.5
million, following an increase of 5% in 1999.  Commercial customers
purchased 82.5 billion gallons of water in 2000, 1% more than in 1999.
The average unit price of commercial water increased by 5% in 2000 and
by 2% in 1999.


INDUSTRIAL

Industrial water use of 46.3 billion gallons in 2000 was 1% greater
than in 1999.  Revenues from industrial sales of $82.4 million in 2000 were
6% above those recorded in 1999 and the average unit price of water
increased 5%.  In 1999, revenues from industrial sales were equal to those
for 1998 and the average unit price of water increased by 1%.


PUBLIC AND OTHER

Public and other revenues in 2000 increased by 3% to $153.3 million
following an increase of 2% in 1999.  Revenues derived from municipal
governments for fire protection services and customers requiring special
private fire service facilities totaled $62.6 million in 2000, exceeding
1999 revenue from these customers by 2%.  The 40.8 billion gallons of water
sold to governmental entities and resale customers in 2000 was 2% less than
the quantities sold in 1999.  Revenues generated by these sales in 2000
totaled $90.7 million and exceeded 1999 revenues by 3%.


PERCENTAGE OF WATER SALES (GALLONS)
BY CUSTOMER CLASS

<TABLE>
<CAPTION>
                                          2000    1999    1998
==============================================================
<S>                                      <C>     <C>     <C>
Residential                              50.3%   50.9%   50.4%
Commercial                               24.1%   23.8%   23.7%
Industrial                               13.6%   13.3%   13.9%
Public and other                         12.0%   12.0%   12.0%
--------------------------------------------------------------
                                        100.0%  100.0%  100.0%
                                        ======================

</TABLE>

WASTEWATER SERVICE

Utility subsidiaries provided wastewater service in Hawaii and to
portions of the Company's service areas in New Jersey, Pennsylvania,
Indiana, Missouri, West Virginia and Kentucky.  Revenues from these
services amounted to $24.4 million in 2000, $24.5 million in 1999 and $20.8
million in 1998.  The growth in wastewater revenues in 1999 reflects the
April 1998 acquisition of the operations in Hawaii.


MANAGEMENT FEES

These fees represent charges for management services provided to
municipal, industrial and military clients by American Water Services.
It currently manages and operates 175 water and wastewater facilities in
nine states.


OPERATING EXPENSES

<TABLE>
<CAPTION>
(000)                               2000       1999       1998
==============================================================
<S>                             <C>        <C>        <C>
Operation and
  maintenance expenses          $603,305   $566,948   $536,519
Depreciation and amortization    165,888    151,641    139,661
General taxes                    125,219    122,674    118,132
--------------------------------------------------------------
                                $894,412   $841,263   $794,312
                                ==============================
</TABLE>


OPERATING EXPENSES

Operating expenses in 2000 increased by 6% to $894.4 million, following
a 6% increase in 1999.

    Operation and maintenance expenses totaled $603.3 million in 2000,
6% higher than in 1999.  This increase is solely due to the inclusion of
American Water Services' expenses in consolidated operations for the first
time in 2000.  Operation and maintenance expenses had increased by 6% in
1999.  Excluding $5.6 million of costs related to resisting unwe lcome
takeover attempts in Tennessee and Illinois, operation and maintenance
expenses increased by 4.5% in 1999.


28

<PAGE>

                   AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
------------------------------------------------------------------------------

    Associate-related costs include wage and salary, group insurance, and
pension expense.  These costs, representing 41% of operation and
maintenance expenses, decreased 2% in 2000 after a 2% increase in 1999.

    The primary components of associate-related costs are wage and salary
expenses, which were up 2% to $205.1 million in 2000 following a 1%
increase in 1999.  The number of associates employed at year-end totaled
5,050, compared to 4,970 at the close of 1999 and 5,128 at the end of 1998.
Excluding the 227 associates at American Water Services who were included
in the 2000 number only, the number of associates decreased by 147
during 2000.

    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, decreased by 6% to $40.3 million in 2000
after a 10% increase in 1999.  The decreased group insurance expense in
2000 reflects lower postretirement benefit costs due to a change in
actuarial assumptions which were partially offset by increased group
insurance premiums for active associates.

    Pension expense was $.1 million in 2000 compared to $6.5 million in
1999.  In 2000 the Company terminated a restrictive contract with an
insurance company that limited investment opportunities and returns.  This
change resulted in a settlement gain that offset periodic pension cost in
2000, and is expected to increase the long-term investment return on plan
assets.  Pension expense also decreased in 2000 due to a change in
actuarial assumptions.  Pension cost in excess of the amount contributed to
the pension plans is deferred by certain regulated subsidiaries pending
future recovery in rates charged for water services as contributions are
made to the plans.  These subsidiaries have recorded their portion of the
settlement gain as a reduction of the regulatory asset.

    At December 31, 2000 the Company lowered the discount rate assumption
used for its pension and postretirement benefit plans to reflect current
high-quality corporate bond yields.  This change is expected to result in
increased benefit plan expense in 2001.


OPERATION AND MAINTENANCE EXPENSES

<TABLE>
<CAPTION>
(000)                               2000       1999       1998
==============================================================
<S>                             <C>        <C>        <C>
Associate-related costs         $245,464   $250,649   $244,695
Fuel and power                    54,116     48,661     46,332
Purchased water                   47,869     45,404     43,407
Chemicals                         23,643     22,749     23,639
Waste disposal                    18,610     16,137     15,336
Maintenance materials
  and services                    40,396     39,152     36,846
Operating supplies and services  124,121    102,173     86,647
Customer billing and accounting   28,219     26,168     23,846
Other                             20,867     15,855     15,771
--------------------------------------------------------------
                                $603,305   $566,948   $536,519
                                ==============================

</TABLE>

    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 production costs increased by 8% in 2000 after a 3% rise
in 1999.  The production costs of the regulated subsidiaries in 2000 was 2%
greater than in 1999, and the unit cost of water produced was up 4% in 2000
after remaining level in 1999.

    Maintenance materials and services, which include emergency repairs as
well as costs for preventive maintenance, increased by 3% in 2000 following
a 6% increase in 1999.

    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 21% in 2000 after an 18% increase in 1999.  The large increase
in 2000 is primarily attributable to the inclusion of American Water
Services' costs.  The expenses in this category in 1999 included $5.6
million of costs connected with the takeover attempts of the Company's
operations in Chattanooga, Tennessee and Peoria, Illinois.

    Customer billing and accounting expenses increased by 8% in 2000 and by
10% in 1999.  The increase in 1999 reflects higher charge-offs of
uncollectible customer accounts.

    Other operation and maintenance expenses include casualty and liability
insurance premiums and regulatory costs.  These expenses increased by 32%
in 2000 after increasing by 1% in 1999.  The large increase in 2000 was due
to an increase in insurance claims.

    Depreciation and amortization increased by 9% in both 2000 and 1999.
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 2% in 2000 after a
4% rise in 1999.  Gross receipts and franchise taxes that are a function of
revenues, increased by 4% in 2000.  Property and capital stock taxes are
assessed on the basis of tax values assigned to assets and capitalization,
and these taxes in 2000 were 4% above those in 1999.


OTHER INCOME AND INCOME DEDUCTIONS

Interest expense rose 8% to $191.8 million in 2000 compared to 1999.
This expense had increased by 6% in 1999.  The increases in 2000 and 1999
are primarily attributable to an increase in long and short-term debt to
fund the construction of new water service assets.

    The total allowance for funds used during construction (AFUDC) recorded
in 2000 was $13.7 million, compared to $22.4 million in 1999 and $16.1
million in 1998.  The amount of AFUDC recorded reflects the level of
construction of new water service assets.  The utility subsidiaries record
AFUDC 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 National
Enterprises merger.  These costs consist primarily of severance costs as
well as vesting of certain benefits, professional fees and other costs.


                                                                            29

<PAGE>

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

    Other income deductions in 2000 reflect $4.5 million of one-time
charges related to rate orders received in Missouri and Kentucky.  The most
significant of these charges was related to the missouri public service
commission's decision to deny recognition of certain investments in the
former treatment plant the Company deemed essential to provide water
service while a new treatment plant was being constructed.  The Company is
appealing both of these orders.  Other income deductions in 1999 and 1998
include the Company's share of losses at its former contract management
joint venture.


INCOME TAXES

Income taxes increased by 15% in 2000, following a 4% decrease in 1999.
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

<TABLE>
<CAPTION>
(000)                                   2000       1999       1998
==================================================================
<S>                                 <C>        <C>        <C>
Gross receipts and franchise taxes  $ 43,425   $ 41,839   $ 40,014
Property and capital stock taxes      55,680     53,458     53,705
Payroll taxes                         16,243     18,445     16,911
Other general taxes                    9,871      8,932      7,502
State income taxes                    17,453     14,282     13,575
Federal income taxes                  87,853     77,118     81,973
------------------------------------------------------------------
                                    $230,525   $214,074   $213,680
                                    ==============================

</TABLE>

NET INCOME TO COMMON STOCK

Net income to common stock in 2000 was $157.4 million, compared to net
income to common stock before merger costs of $147.9 million in 1999 and
$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 national enterprise 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.


COMPREHENSIVE INCOME

Other comprehensive income reflected a net loss of $67.2 million in
2000, compared to net gains of $59.3 million in 1999 and $29.1 million in
1998.  The Company's other comprehensive income represents the after tax
unrealized gain or loss on passive investments in publicly traded
companies.  The most significant holdings are in ITC/\DeltaCom, Inc. and
Powertel, Inc., two telecommunications firms acquired in the merger with
National Enterprises, and an investment in SJW Corp.

    Comprehensive income was $90.2 million in 2000 compared to $194.3
million in 1999 and $175.6 million in 1998.


CONSOLIDATED CAPITALIZATION

<TABLE>
<CAPTION>
                COMMON   PREFERRED      LONG-TERM
(000)           EQUITY       STOCK           DEBT
=================================================
<S>         <C>            <C>         <C>
   2000     $1,669,677     $52,693     $2,432,560
   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
-------------------------------------------------

<CAPTION>

CONSOLIDATED CAPITALIZATION RATIOS
                COMMON   PREFERRED      LONG-TERM
                EQUITY       STOCK           DEBT
=================================================
<S>                <C>          <C>           <C>
   2000            40%          1%            59%
   1999            39%          2%            59%
   1998            37%          3%            60%
   1997            37%          3%            60%
   1996            37%          3%            60%
-------------------------------------------------

</TABLE>
Note: Long-term debt includes amounts due within one year.


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 -- commercial paper, 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.

    New shares of 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 2000 Stock Award and 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 and stock purchase plan.


30

<PAGE>

                   AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
------------------------------------------------------------------------------

    The Company's utility subsidiaries fund construction programs and
supplement cash flow through the use of short-term borrowings.  In June
2000 the Company created American Water Capital to provide a single source
of debt capital for the Company and its utility subsidiaries.  As a result
of consolidating subsidiary credit lines and cash management activities in
American Water Capital, the Company was able to reduce the consolidated
credit requirements by approximately $150 million.  American Water Capital
derives its credit worthiness from a strong support agreement with the
Company, which is considered the equivalent of an unconditional guarantee
of the obligations of American Water Capital.  As a result, American Water
Capital was rated A- by Standard and Poor's and Baa1 by Moodys Investor
Service at December 31, 2000.

    During 2000 American Water Capital instituted a $600 million commercial
paper program, the first of its kind in the water utility industry.
American Water Capital also has a $600 million bank credit facility
involving twelve domestic and international banks that supports the
commercial paper program.  The issuance of commercial paper reduces the
amount available under the bank credit facility.  At December 31, 2000 $170
million of commercial paper and $233 million of bank borrowings were
outstanding.  Ample credit lines are available to provide funds needed for
2001 construction requirements and to maintain short-term borrowings not
yet refinanced on a long-term basis.  Short-term borrowings are repaid
with internally generated cash, and the proceeds obtained from selling debt
securities either publicly or to institutional investors on a private
placement basis.

    During 2000, three subsidiaries issued $10 million of mortgage bonds at
interest rates between 7.92% and 8.04% and one subsidiary issued $29
million of tax-exempt debt at an interest rate of 5.90%.  Proceeds from the
sale of the bonds were used to repay short-term borrowings, fund
construction programs, and to refinance existing debt.

    The utility subsidiaries plan to fund construction programs, continue
acquisitions and repay short-term borrowings and maturing bonds in 2001
with the issuance of approximately $309 million of long-term debt, and with
additional common equity investments from the Company.  In addition, during
2001 the Company will arrange acquisition financing of approximately $850
million to fund the closing of the Citizens Communications water and
wastewater sector acquisition.  Management intends to fund these
transactions permanently through a combination of long-term debt and equity
or hybrid equity securities.  Effective February 7, 2001 American Water
Capital had the ability to issue up to $1.6 billion aggregate principal
amount of debt securities under a shelf registration filed with the
Securities and Exchange Commission.  In addition, the Company may issue
approximately $350 million in equity or hybrid equity securities within a
year after completing the Citizens acquisition.  Excluding any short-term
borrowing incurred in connection with this pending transaction, the
combined amount of short-term borrowings and bonds maturing within one year
is expected to decline to approximately $325 million in 2001.  A discussion
of the acquisition and capital spending programs begins on page 25.


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.

    Economic regulation deals with many competing, and often conflicting,
public pressures and policy goals.  Rate adjustment proceedings normally
are initiated by the utility.  After appropriate investigation by
commission staff and intervenors, public hearings are held.  These
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 regulatory process is to set rates that will cover the
reasonable operating costs of providing quality service to customers and
which will also allow the utility the opportunity to earn a fair return on
the investment necessary to provide that service.  A rate proceeding
generally focuses on four areas:

o The amount of investment in facilities which provide public service
o The operating costs and taxes associated with providing the service
o The capital costs for the funds used to provide the facilities
o The tariff design which allocates revenue requirements equitably
  across the customer base

    The regulatory rate setting process is time-consuming.  Utility
management anticipates the time required for the regulatory process and
files for rate adjustments or other proceedings that will reflect as
closely as possible the cost of providing service at the time the rates
become effective.  Management pursues methods of offsetting any adverse
financial impact of regulatory lag and a number of approaches have proven
successful in achieving this result.  For example, five states permit the
use of forward- looking test years to set rates that are more reflective of
costs that are likely to be incurred during the period the rates will be
effective.  In addition, five subsidiaries have received rate orders
allowing recovery of interest and depreciation expense related to the
interim period from the time a major construction project is placed in
service until new rates reflecting the cost of the project are placed into
effect.  Six 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.  Seven subsidiaries have implemented staged
rate increases over several years, reflecting additional annual investments
and expenses approximately when they are incurred, and relieving the need
to file annual rate increase requests.


                                                                            31

<PAGE>

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

    Through legislation or administrative rulemaking, three states allow
utilities to recover certain costs of distribution system infrastructure
replacement without the necessity of filing a full rate proceeding.  Since
distribution system infrastructure replacement is a significant element of
capital expenditures made by subsidiaries, such programs can reduce
regulatory lag, and increase the time between full rate cases.

    Additionally, eight regulatory jurisdictions permit forms of rate
design known as single tariff pricing.  This is a concept which sets
similar rates for service to customers of subsidiaries with multiple
service districts.  It allows simplification of administration, and 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, while permitting
flexibility in timing of utility subsidiary financing.

    During the past year, regulatory commissions authorized ten
subsidiaries to increase rates for service by an annual amount of $27.2
million.  The primary driving force for price increases was to reflect a
return on the additional investment in essential water service facilities.
This has been the case for a number of years and will continue to be the
situation for the foreseeable future, as a result of the ongoing need for
additional capital investments to reinforce and replace water utility
infrastructure and to comply with increasing water quality requirements.

    On August 31, 2000, the Missouri Public Service Commission issued an
order in the Missouri-American Water Company rate case granting additional
annual revenues of $10.2 million.  The primary factors in this rate
proceeding were the completion of a new water treatment facility at
St. Joseph at a cost of $70.1 million and other capital investment of
approximately $14.3 million since the last rate case.  Various intervenors
have filed appeals contesting the amount of increase the Commission
authorized and Missouri-American has appealed elements of the Commission's
Order, including certain disallowances related to construction costs and
amortization of the former treatment facility.  These appeals are pending
before several Missouri circuit courts.

    The West Virginia Public Service Commission approved implementation of
several scheduled rate increases that were negotiated as part of a joint
settlement of West Virginia-American's last general rate case.  The total
amount of increase is $5.6 million.  This includes the third step of a
general increase, and step increases related to West-Virginia American's
investment in water treatment plant improvements.  The Fayette Plateau
regional water project, a public private partnership, providing service to
over 8,000 customers, was completed and placed in service during the year,
accounting for a portion of the increased rates.

    Effective April 19, 2000 the Connecticut Department of Public Utility
Control approved a revenue increase of $2.6 million on an annual basis for
the Connecticut-American Water Company.  The largest portion of this rate
filing was associated with a $7.5 million investment associated with
renovation of the Putnam Water Treatment Facility.  Investments in the
Bargh Reservoir dam, Putnam dam, and Putnam clearwell improvements totaled
another $5.9 million recognized in this proceeding.

    A general rate case for the Monterey Division California-American Water
Company was resolved by settlement between the parties resulting in an
allowed increase in rates of $.9 million on an annual basis beginning in
March 2000.  The Monterey settlement 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 June 2000, the Company
received an offset rate increase for its Coronado Division of $.9 million
related to an increase in purchased water cost from its supplier, the City
of San Diego.  In addition, two step increases providing additional annual
revenues of $.7 million were also authorized.

    Kentucky-American Water Company was awarded an increase in annual
revenues of $2.2 million effective December 12, 2000.  The rate base
component of the Kentucky-American rate increase was due to numerous
construction projects which have taken place, or are planned for the year
2001, since Kentucky is one of the commissions that permits projected rate
case elements.  The Commission has granted a petition Kentucky-American
filed requesting a re-hearing regarding several issues.


ADDITIONAL ANNUAL REVENUES AUTHORIZED BY RATE DECISIONS

<TABLE>
<CAPTION>
(000)                            2000     1999     1998
=======================================================
<S>                           <C>      <C>      <C>
Arizona                       $    --  $   811  $    --
California                      2,481      780       --
Connecticut                     2,628       --       --
Illinois                           --       --      750
Indiana                            --   14,219    2,000
Iowa                               --       --    1,836
Kentucky                        2,171       --       --
Maryland                           --      360       --
Michigan                           --       --       80
Missouri                       10,233       --    3,800
New Hampshire                     545       --       --
New Jersey                         --   13,083       --
New Mexico                         --       --      790
New York                          539      100      440
Ohio                            1,310       --      733
Pennsylvania                      780   24,600       --
Virginia                          936      776       --
West Virginia                   5,561    4,522    6,287
-------------------------------------------------------
                              $27,184  $59,251  $16,716
                              =========================

</TABLE>


32

<PAGE>

                   AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
------------------------------------------------------------------------------

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 table
provides 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.


<TABLE>
<CAPTION>
INTEREST RATE RISK
                                                                                                    Fair Value
                                                                                                   at Dec. 31,
(000)                       2001      2002      2003     2004      2005   Thereafter        Total         2000
==============================================================================================================
<S>                     <C>       <C>       <C>       <C>       <C>       <C>          <C>          <C>
Fixed-rate
  long-term debt,
  including current
  portion               $160,944  $146,088  $207,998  $49,470   $63,134   $1,802,010   $2,429,644   $2,478,382
Average interest rate      7.07%     7.01%     7.00%    6.95%     6.92%        6.89%

Fixed-rate preferred
  stocks with
  mandatory redemption
  requirements          $  1,028  $  2,208  $    648  $   648   $   648   $   27,722   $   32,902   $   34,395
Average interest rate      8.11%     8.12%     8.11%    8.14%     8.16%        8.19%

<CAPTION>
                                                                                                    Fair Value
                                                                                                   at Dec. 31,
(000)                      2000       2001      2002      2003     2004   Thereafter        Total         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     7.14%      7.11%     7.05%     7.04%    6.99%        6.97%

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%     8.12%     8.15%    8.18%        8.20%

</TABLE>


ENVIRONMENTAL

The Safe Drinking Water Act was last amended by Congress in 1996, and
requires the U.S. Environmental Protection Agency (EPA) to develop certain
drinking water regulations over a prescribed timeline.  Those regulations
included new health limits for contaminants, and the EPA was also required
to establish new treatment standards.  In addition, Congress mandated that
annual notices be mailed to consumers about the quality of drinking water,
a national plan be established to certify water plant operators, more
stringent bottled water standards, the development of guidance for water
conservation, a prohibition against non-viable water systems from starting
up, and provision for low interest loans for projects which improve the
purity of drinking water.

    Many of these mandates have already been met by EPA, and the agency is
working diligently to meet the others.  In 2001, EPA expects to finalize
regulation for a revised arsenic limit, a radon limit, a limitation on
handling filter backwash water, and a way to determine the need to
disinfect groundwater.  A lower limit for disinfection by-products that
became final in late 1998 becomes mandatory in late 2001.  American Water
System utilities are prepared to meet that mandate.  EPA also intends to
propose a revised, lower limit for disinfection by-products in 2001 to
become effective approximately 2008.

    The Company has been intimately involved in all these rule makings, and
has developed cost estimates for all proposed rules.  Through collaboration
with EPA using the American Water System's national water quality and
construction cost database, and national scope of operations, the Company
has assisted the Agency in developing the most practical regulations.  It
is the specific intent of the Company to know in advance what capital
requirements are associated with future health mandates, so it can plan for
that investment accordingly.  The American Water System has a history of
complying with new regulations before the mandatory deadline.  The Company
also recognizes the value of satisfying our customers' desire for pleasing
water, and our associates are committed to meeting those expectations.


                                                                            33

<PAGE>

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

    The American Water System's record of compliance with the Safe Drinking
Water Act in 2000 was outstanding.  However, the Company's water quality
commitment goes beyond the minimum requirements.  A voluntary EPA
Partnership for Safe Water has been embraced by the Company as part of its
commitment to provide higher quality drinking water than required by
regulation.  Through a cooperative effort between federal and state health
agencies, and water utilities, this Partnership requires a special effort
to produce outstanding quality water, and to conduct a very thorough
assessment of treatment facilities in order to identify even further
quality improvements.  Once those steps and milestones are reached, the EPA
may grant an award.  This type of voluntary program offers public health
protection in lieu of federal mandates.  The Company's accomplishments have
been acknowledged by receipt of 34 EPA awards by the utility subsidiaries.

    The record for other environmental compliance is equally impressive.
Environmental legislation such as the Clean Water Act, the Resource
Conservation and Recovery Act, and the Toxic Substances Control Act require
prevention of air, water and land contamination.  Wastes generated during
water treatment and wastewater treatment must be properly treated and
disposed of.  American Water System utility subsidiaries recycle a large
portion of liquid waste, in order to conserve water, and they hold permits
to properly dispose of other materials to the land or watercourses.  In
addition, hazardous materials such as chemicals used in water treatment and
oil products used in vehicles are appropriately contained to prevent
release to the environment.  Periodic environmental audits are conducted to
ensure compliance with laws and regulations.  Each utility maintains plans
to notify the appropriate agencies and to clean up any accidental discharge
which might occur.

    In the future, it is expected that EPA will continue to develop more
stringent standards for drinking water to protect public health to an even
greater extent, and will develop more limiting regulation of materials that
may be released to the environment.  The American Water System continues to
emphasize the criticality of keeping abreast of such future developments,
to be involved in the development of such rules, and to meet all
requirements imposed on the business entities.  While these new regulations
result in increased capital and operating costs, those costs are expected
to be recognized in rates as they reflect better service to the customer
and protection of the environment.


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), as amended.  This statement establishes accounting
and reporting standards for derivative instruments and hedging activities.
SFAS 133 was issued by the Financial Accounting Standards Board (FASB) 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.

    The adoption of this new accounting standard is not expected to have a
significant effect on the Company's financial position or results of
operations.  The Company's contracts that meet the definition of a
derivative are for normal purchases and normal sales, are expected to
result in a physical delivery, and are of quantities expected to be used or
sold over a reasonable period in the normal course of business.  The
Company has no 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 in
accordance with 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:  the success of pendi ng applications
for rate increases; inability to obtain, or to meet conditions imposed for,
regulatory approval of pending acquisitions; 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 judgement of personnel;
changes in, or the failure to comply with governmental regulations,
particularly those affecting the environment and water quality; and other
factors described in the 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.


34

<PAGE>
                   AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
------------------------------------------------------------------------------
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING

The management of the Company is responsible for the preparation of the
following financial statements and for their integrity and objectivity.
These financial statements conform to accounting principles generally
accepted in the United States of America and, where required, include
amounts which represent management's best judgments and estimates.  The
Company's management also prepared the other information in this Annual
Report and is responsible for its accuracy and consistency with the
financial statements.

    The Company maintains internal control systems to enable it to fulfill
its obligations for responsible financial reporting.  These systems include
an Internal Audit Department which monitors internal controls and reports
directly to the Audit Committee of the Board of Directors.  Management
views the purpose of internal auditing as an independent examination and
assessment of Company activities related to compliance with policy,
procedures and the law as well as the safeguarding of assets.

    The Audit Committee of the Board of Directors consists of five
independent directors who meet with the Company's senior financial
personnel, internal auditors and independent accountants.  They report
their findings to the Board of Directors and recommend a firm of
independent accountants.

    The Company's independent accountants, Price-waterhouseCoopers LLP, are
engaged to conduct an independent audit of the Company's financial
statements in accordance with auditing standards generally accepted in the
United States of America.  Their audit includes obtaining a sufficient
understanding of the internal control structure to establish a basis for
reliance thereon in determining the nature, extent and timing of the tests
applied in the audit of the financial statements.  Their opinion on the
fairness of the reported operating results, cash flows and financial
condition appears below.

/s/ ELLEN C. WOLF
Ellen C. Wolf
Vice President and Chief Financial Officer

January 30, 2001


------------------------------------------------------------------------------
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, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 2000 in conformity with accounting principles generally
accepted in the United States of America.  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 of America, 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 our opinion.


/s/ PRICEWATERHOUSECOOPERS LLP

Philadelphia, Pennsylvania

January 30, 2001,
except as to Note 4 which is as of March 1, 2001


                                                                            35
<PAGE>

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

<TABLE>
<CAPTION>
At December 31,                                          2000            1999
=============================================================================
<S>                                                <C>             <C>

ASSETS
Property, plant and equipment
  Utility plant - at original cost
    less accumulated depreciation                  $5,202,833      $4,939,408
  Utility plant acquisition adjustments, net           75,294          51,697
  Nonutility property, net of
    accumulated depreciation                           37,831          36,265
  Excess of cost of investments in
    subsidiaries over book equity
    at acquisition, net                                55,590          57,118
-----------------------------------------------------------------------------
Total property, plant and equipment                 5,371,548       5,084,488
-----------------------------------------------------------------------------
Current assets
  Cash and cash equivalents                            28,571          43,100
  Customer accounts receivable                        103,975          91,353
  Allowance for uncollectible accounts                 (2,575)         (2,346)
  Unbilled revenues                                    83,878          78,205
  Miscellaneous receivables                            15,117          10,936
  Materials and supplies                               20,683          20,058
  Deferred vacation pay                                10,923          10,902
  Restricted funds                                        224          14,558
  Other                                                16,900          11,915
-----------------------------------------------------------------------------
Total current assets                                  277,696         278,681
-----------------------------------------------------------------------------
Regulatory and other long-term assets
  Regulatory asset - income taxes
    recoverable through rates                         216,652         214,349
  Other investments                                    73,997         181,579
  Debt and preferred stock expense                     47,630          48,289
  Deferred pension expense                             23,479          32,872
  Deferred postretirement benefit expense              10,129          10,264
  Deferred treatment plant costs                        4,748           5,811
  Deferred business services project expenses           4,796              --
  Deferred tank painting costs                         16,829          14,178
  Restricted funds                                      8,343           6,557
  Other                                                78,951          75,138
-----------------------------------------------------------------------------
Total regulatory and other long-term assets           485,554         589,037
-----------------------------------------------------------------------------
TOTAL ASSETS                                       $6,134,798      $5,952,206
                                                   ==========================
</TABLE>


36

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

                                                           2000           1999
==============================================================================
<S>                                                  <C>            <C>

CAPITALIZATION AND LIABILITIES
Capitalization
  Common stockholders' equity                        $1,669,677     $1,634,798
  Preferred stocks with mandatory
    redemption requirements                                  --         40,000
  Preferred stocks without mandatory
    redemption requirements                              11,673         11,673
  Preferred stocks of subsidiaries with
    mandatory redemption requirements                    32,902         34,020
  Preferred stocks of subsidiaries without
    mandatory redemption requirements                     8,118          8,118
  Long-term debt
    American Water Works Company, Inc.                  159,000        211,000
    Subsidiaries                                      2,112,165      2,182,097
------------------------------------------------------------------------------
Total capitalization                                  3,993,535      4,121,706
------------------------------------------------------------------------------
Current liabilities
  Short-term debt                                       412,179        239,864
  Current portion of long-term debt                     161,395         38,355
  Accounts payable                                       52,447         67,064
  Taxes accrued, including federal income                25,960         16,030
  Interest accrued                                       42,641         43,672
  Accrued vacation pay                                   11,564         11,532
  Other                                                  67,865         75,191
------------------------------------------------------------------------------
Total current liabilities                               774,051        491,708
------------------------------------------------------------------------------
Regulatory and other long-term liabilities
  Advances for construction                             216,125        207,891
  Deferred income taxes                                 605,343        610,460
  Deferred investment tax credits                        40,098         40,585
  Accrued pension expense                                50,414         63,095
  Accrued postretirement benefit expense                 13,930         12,471
  Other                                                  37,823         29,453
------------------------------------------------------------------------------
Total regulatory and other long-term liabilities        963,733        963,955
------------------------------------------------------------------------------
Contributions in aid of construction                    403,479        374,837
------------------------------------------------------------------------------
Commitments and contingencies                                --             --
------------------------------------------------------------------------------
TOTAL CAPITALIZATION AND LIABILITIES                 $6,134,798     $5,952,206
                                                     =========================
</TABLE>

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


                                                                            37

<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)

<TABLE>
<CAPTION>
For the years ended December 31,                2000         1999         1998
==============================================================================
<S>                                       <C>          <C>          <C>
CONSOLIDATED INCOME AND
COMPREHENSIVE INCOME

Operating revenues                        $1,350,590   $1,260,857   $1,200,037
------------------------------------------------------------------------------
Operating expenses
  Operation and maintenance                  603,305      566,948      536,519
  Depreciation and amortization              165,888      151,641      139,661
  General taxes                              125,219      122,674      118,132
------------------------------------------------------------------------------
                                             894,412      841,263      794,312
------------------------------------------------------------------------------
Operating income                             456,178      419,594      405,725

Other income (deductions)
  Interest                                  (191,783)    (178,215)    (168,779)
  Allowance for other funds used
    during construction                        7,804       11,849        9,803
  Allowance for borrowed funds used
    during construction                        5,891       10,577        6,312
  Amortization of debt expense                (2,770)      (2,754)      (2,494)
  Preferred dividends of subsidiaries         (3,165)      (3,311)      (3,408)
  Merger related costs                            --      (20,535)        (352)
  Other, net                                  (5,788)      (6,856)        (820)
------------------------------------------------------------------------------
                                            (189,811)    (189,245)    (159,738)
------------------------------------------------------------------------------
Income before income taxes                   266,367      230,349      245,987
Provision for income taxes                   105,306       91,400       95,548
------------------------------------------------------------------------------
Net income                                   161,061      138,949      150,439
Dividends on preferred stocks                  3,700        3,984        3,984
------------------------------------------------------------------------------
Net income to common stock                   157,361      134,965      146,455
------------------------------------------------------------------------------

Other comprehensive income
  Unrealized gain (loss) on securities      (113,552)     102,604       47,083
  Income taxes on other comprehensive
    income                                    46,394      (43,281)     (17,959)
------------------------------------------------------------------------------
Other comprehensive income (loss), net       (67,158)      59,323       29,124
------------------------------------------------------------------------------
Comprehensive income                      $   90,203   $  194,288   $  175,579
                                          ====================================

Average shares of basic common
  stock outstanding                           97,988       96,544       95,234
Basic and diluted earnings per common
  share on average shares outstanding     $     1.61   $     1.40   $     1.54
                                          ====================================

CONSOLIDATED RETAINED EARNINGS
Balance at beginning of year              $1,001,029   $  945,434   $  870,368
Add: net income                              161,061      138,949      150,439
Less: treasury stock issuances                   801           --           --
------------------------------------------------------------------------------
                                           1,161,289    1,084,383    1,020,807
------------------------------------------------------------------------------
Deduct: dividends paid
  Preferred stock                              3,244        3,528        3,528
  Preference stock                               456          456          456
  Common stock - $.90 per share in 2000,
    $.86 per share in 1999, $.82 per
    share in 1998                             88,103       76,479       65,781
  National Enterprises Inc. common stock          --        2,891        5,608
------------------------------------------------------------------------------
                                              91,803       83,354       75,373
------------------------------------------------------------------------------
Balance at end of year                    $1,069,486   $1,001,029   $  945,434
                                          ====================================

</TABLE>

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


38

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


<TABLE>
<CAPTION>

For the years ended December 31,                2000         1999         1998
==============================================================================
<S>                                        <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                 $ 161,061    $ 138,949    $ 150,439
Adjustments
  Depreciation and amortization              165,888      151,641      139,661
  Provision for deferred income taxes         27,431       31,411       29,922
  Provision for losses on accounts
    receivable                                 8,608        7,731        6,832
  Allowance for other funds used
    during construction                       (7,804)     (11,849)      (9,803)
  Employee stock plan expenses                 3,330        5,185        5,648
  Employee benefit expenses greater
    (less) than funding                       (1,698)       4,217       (1,848)
  Deferred business services
    project expense                           (4,586)          --           --
  Deferred tank painting costs                (3,188)      (3,349)      (4,081)
  Deferred rate case expense                  (2,108)      (2,024)      (1,894)
  Amortization of deferred charges            10,671       13,985       10,709
  Other, net                                  (6,205)      (1,352)      (7,443)
  Changes in assets and liabilities,
    net of effects from acquisitions
    Accounts receivable                      (24,169)     (10,934)     (16,327)
    Unbilled revenues                         (5,114)      (2,262)      (4,064)
    Other current assets                      (5,370)      (1,978)      (1,130)
    Accounts payable                         (14,644)      (3,150)      13,208
    Taxes accrued, including federal income    9,423       (8,751)       5,591
    Interest accrued                          (1,031)       1,809        4,212
    Other current liabilities                 (7,349)      20,113       (7,437)
------------------------------------------------------------------------------
Net cash from operating activities           303,146      329,392      312,195
------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures                   (377,217)    (467,351)    (437,627)
Allowance for other funds used during
  construction                                 7,804       11,849        9,803
Acquisitions                                 (51,821)     (41,764)     (46,203)
Proceeds from the disposition of property,
  plant and equipment                          6,827        2,703        1,484
Removal costs from property, plant and
  equipment retirements                      (14,309)     (15,409)      (7,543)
Restricted funds                              12,548        1,737      (14,786)
------------------------------------------------------------------------------
Net cash used in investing activities       (416,168)    (508,235)    (494,872)
------------------------------------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt                  47,908      128,332      330,174
Proceeds from common stock, net of
  issuance costs                              33,304       36,617       29,942
Net borrowings (repayments) under
  short-term debt agreements                 172,315      150,024      (46,172)
Advances and contributions for
  construction, net of refunds                31,565       43,121       38,719
Debt issuance costs                           (2,262)      (5,376)      (8,070)
Repayment of long-term debt                  (46,800)     (82,830)     (75,042)
Redemption of preferred stocks               (41,118)      (3,278)      (2,438)
Dividends paid                               (91,803)     (83,354)     (75,373)
Purchase of common stock for treasury         (4,616)      (1,190)          --
------------------------------------------------------------------------------
Net cash from financing activities            98,493      182,066      191,740
------------------------------------------------------------------------------
Net increase (decrease) in cash and
  cash equivalents                           (14,529)       3,223        9,063
Cash and cash equivalents at
  beginning of year                           43,100       39,877       30,814
------------------------------------------------------------------------------
Cash and cash equivalents at end of year   $  28,571    $  43,10     $  39,877
                                           ===================================
Cash paid during the year for:
  Interest, net of capitalized amount      $ 196,841    $ 180,475    $ 169,044
                                           ===================================
  Income taxes                             $  57,725    $  69,015    $  75,510
                                           ===================================
</TABLE>

Common stock issued in lieu of cash in
connection with the Employee Stock
Ownership Plan, the Savings Plan for
Employees and the 2000 Stock Award and
Incentive Plan totaled $1,488 in 2000,
$5,428 in 1999 and $6,854 in 1998. Common
stock placed into treasury in connection
with the Employee Stock Ownership Plan,
the Savings Plan for Employees and the
2000 Stock Award and Incentive Plan
totaled $4,872 in 2000 and $3,675 in 1999.
Capital lease obligations of $1,590 were
recorded in 1998.

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


                                                                            39

<PAGE>

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



At December 31,                                            2000           1999
==============================================================================
COMMON STOCKHOLDERS' EQUITY:
  Common stock - $1.25 par value, authorized
    300,000,000 shares, issued 98,819,845
    shares in 2000 and 97,303,759 shares
    in 1999                                          $  123,525     $  121,630
  Paid-in capital                                       454,568        424,434
  Retained earnings                                   1,069,486      1,001,029
  Accumulated other comprehensive income                 25,303         92,461
  Unearned compensation                                    (359)        (1,056)
  Treasury stock at cost - 129,216 shares in
    2000 and 109,675 shares in 1999                      (2,846)        (3,700)
------------------------------------------------------------------------------
                                                      1,669,677      1,634,798
------------------------------------------------------------------------------

At December 31, 2000, common shares
reserved for issuance in connection
with the Company's stock plans were
80,865,863 shares for the Stockholder
Rights Plan, 2,796,096 shares for the
Dividend Reinvestment and Stock
Purchase Plan, 565,493 shares for the
Employees' Stock Ownership Plan,
532,381 shares for the Savings Plan
for Employees and 3,434,935 shares for
the 2000 Stock Award and Incentive Plan.

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, redeemed at
    par value on December 1, 2000                            --         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%                                  4,610          4,917
    5% to less than 6%                                    4,669          4,726
    6% to less than 7%                                    1,455          1,559
    7% to less than 8%                                    3,984          4,034
    8% to less than 9%                                   23,050         23,350
    9% to less than 10%                                   3,112          3,272
    10% to less than 11%                                    140            280
-------------------------------------------------------------------------------
                                                         41,020         42,138
-------------------------------------------------------------------------------

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 $1,028 in
2001, $2,208 in 2002, $648 in 2003,
$648 in 2004 and $648 in 2005.

Redemptions of preferred stock amounted
to $41,118 in 2000 and $3,278 in 1999.


40

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

                                                  CURRENT
                                               MATURITIES         2000         1999
===================================================================================
<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            2,000        8,000       10,000
-----------------------------------------------------------------------------------
                                                   52,000      159,000      211,000
-----------------------------------------------------------------------------------

LONG-TERM DEBT OF SUBSIDIARIES:
  Interest rate
    1% to less than 2%                                368       16,913        8,486
    3% to less than 4%                                 40          353          393
    4% to less than 5%                                442        3,552        3,994
    5% to less than 6%                                 57      487,922      459,304
    6% to less than 7%                                440      513,182      513,628
    7% to less than 8%                             11,141      706,580      711,221
    8% to less than 9%                             68,200      113,200      177,900
    9% to less than 10%                            26,909      214,646      249,555
    10% to less than 11%                            1,347       53,352       54,699
-----------------------------------------------------------------------------------
                                                  108,944    2,109,700    2,179,180
  Capital leases                                      451        2,465        2,917
-----------------------------------------------------------------------------------
                                                 $109,395    2,112,165    2,182,097
-----------------------------------------------------------------------------------
                                                            $3,993,535   $4,121,706
                                                            =======================
</TABLE>

Maturities of long-term debt of subsidiaries,
including sinking fund requirements, during
the next five-years will amount to $109,395
in 2001, $134,494 in 2002, $80,433 in 2003,
$47,810 in 2004 and $61,229 in 2005.

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.


                                                                            41

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

<TABLE>
<CAPTION>

                                                                       Accumu-
                                                                         lated
                                                                         Other
Common
                                                                       Compre-  Unearned
Stock-
                              Common Stock       Paid-in    Retained   hensive   Compen-     Treasury Stock
holders'
                            Shares  Par Value    Capital    Earnings    Income    sation    Shares  At Cost
Equity
========================================================================================================================
<S>                     <C>          <C>        <C>       <C>          <C>       <C>       <C>      <C>       <C>
BALANCE AT
DECEMBER 31, 1997       94,622,612   $118,278   $350,127    $870,368    $4,014     ($816)      800     ($25)
$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    33,138      (980)      800      (25)
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    92,461    (1,056)  109,675   (3,700)
1,634,798

  Net income                    --         --         --     161,061        --        --        --       --
161,061
  Dividend reinvestment    389,151        486      8,337          --        --        --        --
--        8,823
  Stock purchase         1,029,257      1,287     22,256          --        --        --        --       --
23,543
  Employees' stock
    ownership plan          32,134         40        631          --        --        --        --
--          671
  Savings plan for
    employees               65,544         82      1,293          --        --        --        --
--        1,375
  Incentive plan                --         --     (2,383)         --        --       697        --       --
(1,686)
  Other comprehensive
    income                      --         --         --          --   (67,158)       --        --       --
(67,158)
  Treasury stock                --         --         --        (801)       --        --    19,541
854           53
  Dividends:
    Preferred stocks            --         --         --      (3,700)       --        --        --       --
(3,700)
    Common stock                --         --         --     (88,103)       --        --        --       --
(88,103)
------------------------------------------------------------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 2000       98,819,845   $123,525   $454,568  $1,069,486   $25,303     ($359)  129,216  ($2,846)
$1,669,677

================================================================================================
</TABLE>


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


42

<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 regulated and
unregulated subsidiaries provides water and wastewater service in 23
states.  As public utilities, its regulated subsidiaries function under
rules and regulations prescribed by state regulatory commissions.  The
Company manages and operates water and wastewater facilities through its
unregulated contract management subsidiary, American Water Services.  This
subsidiary 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).  In addition, American Water Resources is a wholly
owned subsidiary whose function is to provide water and wastewater related
services and products.

    The Company, however, reflects one reportable segment for financial
statement purposes as the Company's utility subsidiaries represent similar
entities offering substantially identical water and wastewater services to
similar customers.  The Company's unregulated operations, primarily the
contract management business, has not been reflected as a reportable
segment as revenues, net income and assets associated with these operations
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 of its subsidiaries.  Intercompany accounts and
transactions are eliminated.  Prior to January 1, 2000 the results of
operations of the Company's former contract management business joint
venture were accounted for under the equity method of accounting (see
Contract Management Business in Note 3).

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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.  The
depreciation rates, based on the average balance of depreciable property,
were 2.54% in 2000, 2.51% in 1999 and 2.51% in 1998.

    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 $33,000 of goodwill associated with the Company's
acquisition of its joint venture partner's interest in the contract
management business that is being amortized over a period of 20 years (see
Contract Management Business in Note 3).  The balance of the excess cost of
investments in subsidiaries is primarily attributable to various
acquisitions of utility subsidiaries that occurred prior to October 31,
1970, and it is 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.


                                                                            43

<PAGE>

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



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 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
plans 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 is 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.

    Deferred business services project expenses consist of reengineering
and start-up activities for consolidated customer and shared administrative
service centers that are being established.  These costs are being deferred
as it is expected that these costs will be recovered in the rates charged
for utility service in the future.

    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.  Investments in privately held
companies are carried at cost.

    The principal publicly traded investments are approximately 4,000,000
shares of ITC/\ DeltaCom, Inc. (NASDQ: ITCD), 600,000 shares of Powertel,
Inc. (NASDQ: PTEL) and 50,000 shares of SJW Corp. (AMEX: SJW).  The
cost basis of these publicly traded securities is $23,027, and the fair
value of these investments is determined using quoted market prices.  There
were no realized gains or losses recorded for any of the years presented
below, as the Company did not sell any of the securities during those years.

<TABLE>
<CAPTION>

                                                 2000       1999       1998
===========================================================================
<S>                                          <C>         <C>        <C>
Beginning balance                             $92,461    $33,138    $ 4,014
Unrealized gain (loss) on securities         (113,552)   102,604     47,083
Income taxes on other comprehensive income     46,394    (43,281)   (17,959)
---------------------------------------------------------------------------
Ending balance                                $25,303    $92,461    $33,138
                                              =============================
</TABLE>

    The Company has equity investments in ITC Holding Company, Inc.,
Knology, Inc. and United States Sugar Corporation that are not publicly
traded.  The cost basis of these securities was $9,554 at December 31, 2000.


OTHER CURRENT LIABILITIES

Other current liabilities at December 31, 2000 and 1999 include
payables to banks of $17,288 and $21,621 respectively, which represent
checks issued but not presented to 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.


44

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



    On January 11, 2001 the Internal Revenue Service issued regulations
that excluded lateral service lines from its definition of contributions in
aid of construction that are not included in taxable income.  These
customer connection fees are defined as the cost of installing a connection
or service line from the Company's main lines to the lines owned by the
customer.  The regulations were effective immediately, and the Company is
now paying tax on money or property received for these connections.

RECOGNITION OF REVENUES

Revenues of the regulated utility subsidiaries 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.

    Revenue from American Water Services' long-term service contracts is
recognized over the contract term based on the percentage of costs incurred
during the period compared to the total estimated costs to be incurred over
the entire contract.  Losses on contracts are recognized during the period
in which the loss first becomes known.  Revenue in excess of billings on
service contracts are recorded as unbilled revenue.  Billings in excess of
revenues recognized on service contracts are recorded as a liability on the
Company's balance sheet until the above revenue recognition criteria are
met.  Changes in contract performance and related estimated contract
profitability may result in revisions to costs and revenues and are
recognized in the period in which revisions are determined.

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 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 4,784, 51,837 and 57,831 of potential common shares issuable
in connection with the long-term incentive program in 2000, 1999 and 1998,
respectively, and 45,227 potential common shares for employee stock options
in 2000 (see Note 9).

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), as amended.  This statement establishes accounting
and reporting standards for derivative instruments and hedging activities.
SFAS 133 was issued by the Financial Accounting Standards Board (FASB) 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.

    The adoption of this new accounting standard is not expected to have a
significant effect on the Company's financial position or results of
operations.  The Company's contracts that meet the definition of a
derivative are for normal purchases and normal sales, are expected to
result in a physical delivery, and are of quantities expected to be used or
sold over a reasonable period in the normal course of business.  The
Company has no hedging activities.


                                                                            45

<PAGE>

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


RECLASSIFICATION

Certain reclassifications have been made to conform previously reported
data to the current presentation.


NOTE 3: ACQUISITIONS

NATIONAL ENTERPRISES INC.

On June 25, 1999, the Company completed the acquisition of National
Enterprises Inc., 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 National Enterprises and the assumption of $241,000 of debt.
Subsidiaries of National Enterprises provided water service to
approximately 504,000 customers in Missouri, Illinois, Indiana and
New York.  National Enterprises also had passive investments in the
telecommunications industry owning 4,000,000 shares of ITC/\DeltaCom, Inc.
and 600,000 shares of Powertel, Inc. as well as an interest in privately
held ITC Holding Company, Inc.

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

    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.

WATER UTILITY SUBSIDIARIES OF UNITED WATER
RESOURCES INC.

On May 31, 2000, the Company completed its acquisition of five water
utilities in Missouri, Indiana, Illinois, and Virginia from United Water
Resources Inc. for approximately $50,000 in cash.  These water utilities
provide service to 35,000 customers.

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 now operates as American
Water Services, manages and operates 175 water and wastewater facilities in
nine states.

    Effective January 1, 2000 the results of operations of American Water
Services are being reported on a consolidated basis.  Previously, the
results of the joint venture were being accounted for under the equity
method.

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 this system 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
COMMUNICATIONS COMPANY

On October 15, 1999, the Company entered into an agreement to acquire
all of the water and wastewater utility assets of Citizens Communications
Company (formerly Citizens Utilities Company) (NYSE:CZN) for $835,000 in
cash and debt.  Citizens 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, 2000, the operations being
acquired had revenues of approximately $110,000.

    Regulatory agencies in Pennsylvania, Indiana and Ohio have approved the
acquisition of Citizen's water and wastewater assets in those states and
evidentiary hearings have been completed in Arizona and Illinois.
Decisions are anticipated in Arizona during the first quarter of 2001, in
Illinois during the second quarter of 2001 and in California during the
third quarter of 2001.

    The Office of Ratepayer Advocates of the California Public Utilities
Commission (CPUC) issued a report on October 16, 2000 opposing the
Company's acquisition of the California water and wastewater assets of
Citizens.  The Company strongly disagrees with this report and has filed
rebuttal testimony with the CPUC contesting the report's analysis and
conclusions.  Members of the staff of the Illinois Commerce Commission have
also submitted testimony opposing the Citizens acquisition.  Consummation
of the Citizens transaction requires approval by regulatory agencies in
each of the six states in which the assets are located.  The Company
continues to work to complete this acquisition, but recognizes that there
is no assurance that approval will be obtained on a timely basis, if
at all.


46

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


SJW CORP.

On October 28, 1999, the Company agreed to acquire all of the common
stock of SJW Corp. (AMEX:SJW).  On March 1, 2001 the Company and SJW
announced that, in light of additional delays outlined in a new procedural
scheduling order issued by the California Public Utilities Commission
(CPUC) on February 20, 2001, they had mutually agreed to terminate the
merger agreement between them immediately.  The CPUC scheduling order
extended the date for a final decision regarding review of the merger
application to at least September 2001, and thereby made it impossible to
plan and effectively implement the transaction contemplated by the
agreement.

CITY OF COATESVILLE PENNSYLVANIA WATER AND
WASTEWATER SYSTEMS

On February 15, 2000 one of the Company's subsidiaries agreed to
purchase the City of Coatesville Authority's water and wastewater utility
systems for $48,000.  These systems provide water service to 8,600
customers and wastewater service to 6,500 customers.  It is expected that
the transaction will be completed in the first quarter of 2001.


NOTE 5: UTILITY PLANT

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


                                                       2000          1999
=========================================================================
Water plant
  Sources of supply                              $  287,892    $  262,662
  Treatment and pumping                           1,467,320     1,336,457
  Transmission and distribution                   2,935,265     2,768,971
  Services, meters and fire hydrants              1,062,997       994,843
  General structures and equipment                  476,632       421,621
Wastewater plant                                     81,716        72,606
Construction work in progress                       167,397       234,823
-------------------------------------------------------------------------
                                                  6,479,219     6,091,983
Less-accumulated depreciation                     1,276,386     1,152,575
-------------------------------------------------------------------------
                                                 $5,202,833    $4,939,408
                                                 ========================


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.


NOTE 7: SHAREHOLDERS RIGHTS PLAN

On June 1, 2000 the Company announced that it had amended its
Shareholder Rights Agreement.  The Agreement provides for certain
consequences if more than a stated percentage of the Company's common stock
is acquired by any person or group of persons without prior consent of the
Company's Board of Directors.  The amendment lowered that percentage, and
the percentage of ownership that triggers the dilutive effect of the rights
issued under the Agreement, to 10% of the Company's outstanding common
shares.  The Company is not aware of any efforts to acquire control at
this time.

    Each Right under the amended 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, 10% 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 10% 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.


                                                                            47

<PAGE>

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


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 equity mutual funds, United
States Government securities, guaranteed interest contracts with a major
insurance company and publicly traded bonds.

    The Company realized a $16,574 settlement gain in 2000 in connection
with the purchase of non-participating annuity contracts to cover vested
benefits of certain retirees.  These benefits had previously been provided
through an immediate participation guarantee contract.

    Pension expense in excess of the amount contributed to the pension
plans is deferred by certain regulated subsidiaries pending future recovery
in rates charged for water services as contributions are made to the plans
(see Regulatory Assets in Note 2).  These subsidiaries have recorded their
portion of the settlement gain as a reduction of the regulatory asset.

    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 caused 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
                                      2000        1999        2000        1999
==============================================================================
CHANGE IN BENEFIT OBLIGATION
Benefit obligation
  at January 1                    $548,074    $607,065    $204,441    $208,387
Service cost                        14,198      17,614       6,728       7,581
Interest cost                       39,952      41,151      16,455      14,938
Plan participants'
  contributions                         --          --       1,080         875
Amendments                              --       1,271         637          --
Actuarial (gain) loss               51,057     (94,959)     20,864     (18,192)
Acquisitions                           374          --       1,035          --
Settlement                        (212,660)         --          --          --
Benefits paid                      (17,532)    (24,068)    (11,047)     (9,148)
------------------------------------------------------------------------------
Benefit obligation
  at December 31                  $423,463    $548,074    $240,193    $204,441
                                  ============================================

CHANGE IN PLAN ASSETS
Fair value of plan assets
  at January 1                    $598,302    $556,668    $148,014    $117,351
Actual return on
  plan assets                        7,404      64,463      (3,341)     18,343
Employer contribution                1,109       1,239      15,641      20,593
Plan participants'
  contributions                         --          --       1,080         875
Settlement                        (212,660)         --          --          --
Acquisitions                           374          --          --          --
Benefits paid                      (17,532)    (24,068)    (11,047)     (9,148)
Other                                3,776          --          --          --
------------------------------------------------------------------------------
Fair value of plan assets
  at December 31                  $380,773    $598,302    $150,347    $148,014
                                  ============================================

Funded status at
  December 31                     ($42,690)   $ 50,228    ($89,846)   ($56,427)
Unrecognized net transition
  obligation (asset)                (2,554)     (6,698)     81,681      88,556
Unrecognized prior
  service cost                       7,356      10,163       6,249       5,393
Unrecognized net
  actuarial gain                   (12,526)   (116,788)    (12,014)    (49,993)
------------------------------------------------------------------------------
Net amount recognized             ($50,414)   ($63,095)   ($13,930)   ($12,471)
                                  ============================================

Amounts recognized in the
balance sheet consist of:
Prepaid benefit cost              $    439    $    274    $     --    $     23
Accrued benefit liability          (50,853)    (63,369)    (13,930)    (12,494)
Additional minimum liability        (1,078)     (1,048)         --          --
Intangible asset                     1,078       1,048          --          --
------------------------------------------------------------------------------
Net amount recognized             ($50,414)   ($63,095)   ($13,930)   ($12,471)
                                  ============================================


48

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


    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 $21,847 and $18,131,
respectively, as of December 31, 2000, and $16,787 and $14,414,
respectively, as of December 31, 1999.


                                                2000         1999         1998
==============================================================================
COMPONENTS OF NET PERIODIC
  PENSION BENEFIT COST
Service cost                                 $14,198      $17,614      $16,541
Interest cost                                 39,952       41,151       39,079
Expected return on plan assets               (44,146)     (46,387)     (43,357)
Amortization of transition asset              (1,828)      (2,159)      (2,159)
Amortization of prior service cost             2,405        2,312        2,230
Recognized net actuarial (gain) loss          (5,580)          19         (964)
------------------------------------------------------------------------------
Net periodic pension benefit cost              5,001       12,550       11,370
Settlement gain                              (16,574)          --           --
------------------------------------------------------------------------------
Total pension (income) cost                 ($11,573)     $12,550      $11,370
                                            ==================================

COMPONENTS OF NET PERIODIC OTHER
  POSTRETIREMENT BENEFIT COST
Service cost                                 $ 6,728      $ 7,581      $ 6,224
Interest cost                                 16,455       14,938       13,452
Expected return on plan assets               (11,976)      (9,759)      (7,808)
Amortization of transition obligation          6,812        6,812        6,813
Amortization of prior service cost               455          458          458
Recognized net actuarial (gain) loss          (2,407)         213         (699)
------------------------------------------------------------------------------
Net periodic other
  postretirement benefit cost                $16,067      $20,243      $18,440
                                            ==================================



                                                                   Other
                                          Pension              Postretirement
                                          Benefits                Benefits
                                      2000        1999        2000        1999
==============================================================================
WEIGHTED-AVERAGE ASSUMPTIONS
  AS OF DECEMBER 31
Discount rate                        7.50%       8.00%       7.50%       8.00%
Expected return on plan assets       9.00%       8.50%       8.30%       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
and obligation for postretirement health care benefits, is an 8.0% annual
rate in 2001 that is assumed to decrease gradually to a 5.0% annual rate
in 2007 and remain at that level thereafter.

    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                           $ 3,497          $ (2,933)
Effect on other postretirement
  benefit obligation                                 $30,996          $(26,626)


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 $3,373 in 2000, $3,491 in
1999 and $3,391 in 1998.

    Included in the above expenses were the Company's matching
contributions to the primary savings plan totaling $2,958 for 2000, $2,781
for 1999 and $2,705 for 1998 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 recorded
as an expense contributions of $1,765 for 2000, $1,805 for 1999 and $1,706
for 1998 that it made to the plan.  The trustee of the plan may purchase
shares of the Company's common stock from the Company, in the open market,
or in a private transaction.


                                                                            49

<PAGE>

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


NOTE 9: STOCK-BASED COMPENSATION

On May 4, 2000 the Company's shareholders approved the 2000 Stock Award
and Incentive Plan (2000 Plan).  The Plan replaced the Company's previous
Long-Term Performance-Based Incentive Plan (Previous Plan) that had been in
effect since 1994.  Under the Previous Plan, awards could be paid in the
form of cash, restricted shares of common stock, or a combination of both.
The 2000 Plan allows the Company to continue to grant long-term
performance-based awards similar to those that could be paid under the
Previous Plan, and also authorizes a broad range of other awards, including
options, reload options, deferred stock, performance awards, stock
appreciation rights and other stock-based awards, as well as cash-based
awards.  Up to 4,276,551 shares of common stock may be issued under the
2000 Plan, of which 3,434,935 shares were available to be granted at
December 31, 2000.

STOCK OPTIONS

On May 4, 2000 the Board of Directors approved the issuance of
non-qualified stock options to executives and other key associates as
permitted under the 2000 Plan.  Under this plan the options generally are
granted at prices not less than the market value of the stock at the date
of grant, become exercisable ratably over a three-year period beginning
one-year from the date of grant, and expire ten years from the date of
grant.  The options immediately vest in the event of a change in control.
The Company applies the intrinsic value-based methodology in accounting for
stock options.  Accordingly, no compensation expense has been recognized
for stock option awards.  Had compensation cost for stock option awards
under the 2000 Plan been determined by using the fair value at the grant
date, the Company's net income, basic and diluted earnings per share would
have been $158,996, $1.58 and $1.58, respectively, for the year ended
December 31, 2000.  The foregoing impact of compensation cost was
determined using a modified Black-Scholes methodology and the following
assumptions:

 Risk-Free    Weighted                   Expected
 Interest      Average       Expected    Dividend   Fair Value at
   Rate     Expected Life   Volatility     Yield     Grant Date
==================================================================
   6.58%       7 years        28.70%       3.99%       $22.58

    Option activity was as follows for the year ended December 31, 2000:


                               Options to        Weighted-
                                 Purchase          Average
                                   Shares   Exercise Price
==========================================================
Outstanding at
  January 1, 2000                      --               --
Granted                           809,806           $22.58
Exercised                              --               --
Cancelled                         (28,175)          (22.56)
----------------------------------------------------------
Outstanding at
  December 31, 2000               781,631           $22.58
                                  ========================


    In 2000, a total of 195,706 options were granted under the Company's
long-term incentive program for the three-year performance cycle beginning
on January 1, 2000.  Also in 2000, all of the participants in the long-term
incentive program's three-year performance cycles beginning on January 1,
1998 and 1999 accepted the opportunity to relinquish their participation in
those cycles in exchange for a total of 614,100 options.  There were 19,975
exercisable at December 31, 2000.

RESTRICTED STOCK

Under the 2000 Plan and the Previous Plan, designated executives and
other key associates are eligible to receive restricted stock 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
companies are met.  The fair value of the restricted stock is being charged
to expense over each three-year performance cycle.  The Company awarded
19,796 shares with a value of $380 in 2000, 30,788 shares with a value of
$893 in 1999, and 70,450 shares with a value of $2,069 in 1998.  The market
value of the common stock expected to be awarded 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:

                                                2000         1999         1998
==============================================================================
Gross receipts and franchise                $ 43,425     $ 41,839     $ 40,014
Property and capital stock                    55,680       53,458       53,705
Payroll                                       16,243       18,445       16,911
Other general                                  9,871        8,932        7,502
------------------------------------------------------------------------------
                                            $125,219     $122,674     $118,132
                                            ==================================


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:

                                                2000         1999         1998
==============================================================================
STATE INCOME TAXES:
Current                                      $14,265      $10,483      $10,517
Deferred
  Current                                         30          199          (24)
  Non-current                                  3,158        3,600        3,082
------------------------------------------------------------------------------
                                             $17,453      $14,282      $13,575
                                             =================================
FEDERAL INCOME TAXES:
Current                                      $63,545      $47,858      $54,961
Deferred
  Current                                         35        1,449          172
  Non-current                                 25,826       29,248       28,277
  Amortization of deferred
    investment tax credits                    (1,553)      (1,437)      (1,437)
------------------------------------------------------------------------------
                                             $87,853      $77,118      $81,973
                                             =================================

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


                                                2000         1999         1998
==============================================================================
Income tax at statutory rate                $ 93,228      $80,622      $86,095
Increases (decreases)
  resulting from -
    State taxes, net of
      federal taxes                           11,345        9,283        8,824
    Flow through differences                   1,736        1,708        1,311
    Amortization of investment
      tax credits                             (1,553)      (1,437)      (1,437)
    Subsidiary preferred dividends             1,088        1,144        1,177
    Other, net                                  (538)          80         (422)
------------------------------------------------------------------------------
Actual income tax expense                   $105,306      $91,400      $95,548
                                            ==================================

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

                                                           2000           1999
==============================================================================
DEFERRED TAX ASSETS
Advances and contributions                             $197,390       $185,424
Deferred investment tax credits                          16,324         16,731
Other                                                    31,932         32,637
------------------------------------------------------------------------------
                                                        245,646        234,792
------------------------------------------------------------------------------

DEFERRED TAX LIABILITIES
Utility plant, principally due
  to depreciation                                       700,627        647,964
Income taxes recoverable
  through rates                                          93,307         93,167
Other comprehensive income                               16,180         62,574
Other                                                    40,875         41,547
------------------------------------------------------------------------------
                                                        850,989        845,252
------------------------------------------------------------------------------
                                                       $605,343       $610,460
                                                       =======================

    No material valuation allowances were required on deferred tax assets
at December 31, 2000 and 1999.


NOTE 12: LEASES

The Company has entered into operating leases involving certain
facilities and equipment.  Rental expenses under operating leases were
$16,532 for 2000, $15,192 for 1999 and $13,037 for 1998.  Capital leases
currently in effect are not significant.

    At December 31, 2000, the minimum annual future rental commitment under
operating leases that have initial or remaining noncancellable lease terms
in excess of one year are $9,735 in 2001, $8,052 in 2002, $5,633 in 2003,
$3,537 in 2004, $2,304 in 2005 and $8,245 thereafter.


NOTE 13: REVOLVING CREDIT AGREEMENTS

On June 26, 2000 the American Water Works Company announced the formation
of a new wholly owned subsidiary, American Water Capital Corp., a
special purpose corporation that will serve as the primary funding vehicle
for American Water Works and its utility subsidiaries.  American Water
Works has fully and unconditionally guaranteed the securities of American
Water Capital.


                                                                            51

<PAGE>

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


    American Water Capital has a 364-day $600,000 revolving credit
agreement with a group of 12 domestic and international banks.  The initial
renewal date for this facility is June 29, 2001.  Borrowing under the
revolving credit line, at the Company's option, bears interest at a rate
based upon either a defined base rate or the London Interbank Offered Rate
(LIBOR).  The Company pays a commitment fee of 10 basis points on the
entire amount of the commitment (whether borrowed or not borrowed) and a
usage fee of 32.5 basis points (42.5 basis points if borrowings exceed
$200,000).  These fees may fluctuate based upon the Company's current bond
rating.  Under the credit agreement, the Company must maintain certain
financial ratios and meet certain balance sheet tests.  No compensating
balances are required under the agreement.

    During 2000 the Company and its subsidiaries also maintained lines of
credit with various banks, most of which were replaced by American Water
Capital's credit agreement.  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.

    At December 31, 2000 and 1999, there were $412,179 and $239,864 of
short-term bank borrowings outstanding, respectively.  The weighted average
annual interest rate on these borrowings was 7.02% and 5.37%, respectively.

    At December 31, 2000, American Water Capital had $170,367 outstanding
under commercial paper borrowings, all of which was classified as
short-term debt.  American Water Capital's revolving credit agreement
supports these borrowings.  Commercial paper borrowings at December 31,
2000 had a weighted-average interest rate of 7.31%.

    The total of the unused lines of credit and commercial paper borrowings
at December 31, 2000 was $218,821.


NOTE 14: 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
revolving credit debt due to the short-term maturities and variable
interest rates, 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
2000                                                AMOUNT          FAIR VALUE
==============================================================================
Preferred stocks of subsidiaries with
  mandatory redemption requirements                $32,902             $34,395
Long-term debt of the Company                      211,000             211,211
Long-term debt of subsidiaries                   2,218,644           2,267,171


                                                  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


52

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


NOTE 15: COMMITMENTS AND CONTINGENCIES

Construction programs of subsidiaries for 2001 are estimated to cost
approximately $410,000.  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 16: QUARTERLY FINANCIAL DATA (UNAUDITED)

Summarized quarterly financial data for 2000 and 1999 are as follows:

                                           FIRST    SECOND     THIRD    FOURTH
2000                                     QUARTER   QUARTER   QUARTER   QUARTER
==============================================================================
Operating revenues                      $307,759  $346,409  $364,125  $332,297
Operating income                          90,448   120,011   136,135   109,584
Net income                                27,083    45,139    50,731    38,108
Net income to common stock                26,087    44,143    49,735    37,396
Net income per common share             $    .27  $    .45  $    .51  $    .38


                                           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


                                                                            53

<PAGE>

COMPANY INFORMATION

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.

<TABLE>
<CAPTION>
                 Common Stock       5% Preferred Stock    5% Preference Stock
-------------------------------------------------------------------------------
Newspaper listing  AmWtrWks              A Wat pr              A Wat pf
-------------------------------------------------------------------------------
2000             High        Low       High        Low       High         Low
===============================================================================
<S>           <C>        <C>        <C>        <C>        <C>         <C>
1st quarter   $24-1/2    $18-15/16  $18        $17        $18-3/4     $16
2nd quarter    25-3/4     21-1/8     19-1/2     17         20-1/2      17
3rd quarter    27-7/8     23-3/4     19-1/2     17-1/2     19-1/2      17-3/4
4th quarter    29-3/8     23-5/16    19-1/2     18         19-1/2      17-3/4
</TABLE>


<TABLE>
<S>                  <C>                  <C>                   <C>
Quarterly dividend
 paid per share      $.225                $.3125                $.3125
Number of
 shareholders at
 December 31, 2000  41,391                  172                   590

</TABLE>

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
1999             High        Low       High        Low       High         Low
===============================================================================
<S>           <C>        <C>        <C>        <C>        <C>         <C>
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
</TABLE>


<TABLE>
<S>                  <C>                  <C>                   <C>
Quarterly dividend
 paid per share      $.215                $.3125                $.3125
Number of
 shareholders at
 December 31, 1999  43,577                  198                   645
-------------------------------------------------------------------------------
</TABLE>

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).


                                                                            57