FORM 10-K
                         SECURITIES AND EXCHANGE COMMISSION
                                Washington, D.C. 20549
     (Mark One)
     [ X ]       ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                            SECURITIES EXCHANGE ACT OF 1934
                      For the fiscal year ended December 31, 1997
                                          OR
     [   ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                            SECURITIES EXCHANGE ACT OF 1934

                             Commission file number 1-11023
                                  E'TOWN CORPORATION
                   (Exact name of registrant as specified in its charter)

          New Jersey                                   22-2596330
   (State of incorporation)                (I.R.S. Employer Identification No.)
   600 South Avenue
   Westfield, New Jersey                                 07090
   (Address of principal executive offices)            (Zip Code)
    Registrant's telephone number, including area code:      (908) 654-1234

          Securities registered pursuant to Section 12(b) of the Act:
Title of each class                   Name of each exchange on which registered
Common Stock, without par value                 New York Stock Exchange

                           Commission file number 0-628
                            ELIZABETHTOWN WATER COMPANY
                (Exact name of registrant as specified in its charter)

      New Jersey                                       22-1683171
(State of incorporation)                   (I.R.S. Employer Identification No.)
600 South Avenue
Westfield, New Jersey                                    07090
(Address of principal executive offices)               (Zip Code)
 Registrant's telephone number, including area code:         (908) 654-1234

             Securities registered pursuant to Section 12(b) of the Act:
Title of each class                   Name of each exchange on which registered
      None                                          None

             Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Secrities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.    Yes __X__  No_____


<PAGE>

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of regulation S-K is contained herein, and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.  __X__

On December 31, 1997, the aggregate market value of E'town Corporation's voting
stock held by non-affiliates was $324,901,247.

On December 31, 1997, there were 8,022,253 shares of Common Stock outstanding,
exclusive of treasury shares or shares held by subsidiaries of E'town
Corporation.

Note: All of the Common Stock of Elizabethtown Water Company is owned by E'town
Corporation.

Parts  II and IV incorporate information by reference from the Annual Report to
Shareholders of E'town Corporation for the Year Ended December 31, 1997.
Part III incorporates information by reference from the definitive Proxy
Statement in connection with E'town Corporation's Annual Meeting of Shareholders
to be held on May 21, 1998.
<PAGE>

                         E'TOWN CORPORATION
                     ELIZABETHTOWN WATER COMPANY
                   1997 ANNUAL REPORT ON FORM 10-K
                          TABLE OF CONTENTS
 PART I                                                             Page
     Item 1. Business                                                  1
             Organization                                              1
             Service Area and Customers                                1
              Water Supply                                             2
             Water Treatment Facilities and Water Quality Regulations  3
             Transmission and Distribution                             4
             Energy Supply                                             4
             Environmental Matters                                     5
             Franchises                                                5
             Employee Relations                                        5
             Rate Matters                                              5
             Real Estate Matters                                       6
             Other Developments                                        6
             Executive Officers of the Corporation and Elizabethtown   8
     Item 2. Properties                                                8
     Item 3. Legal Proceedings                                         8
     Item 4. Submission of Matters to a Vote of Security Holders       8

 PART II
     Item 5. Market for the Corporation's Common Stock and Related
              Stockholder Matters                                      9
     Item 6. Selected Financial Data                                  10
     Item 7. Management's Discussion and Analysis of Consolidated
               Financial Condition and Results of Operations          11
     Item 8. Financial Statements and Supplementary Data              16
     Item 9. Changes in and Disagreements with Accountants on
              Accounting and Financial Disclosure                     16

 PART III
     Item 10.Directors and Executive Officers of the Registrant       16
     Item 11.Executive Compensation                                   16
     Item 12.Security Ownership of Certain Beneficial Owners
              and Management                                          16
     Item 13.Certain Relationships and Related Transactions           16

 PART IV
     Item 14.Exhibits, Financial Statement Schedules and Reports
              on Form 8-K                                             16

     SIGNATURES                                                       18

     APPENDIX I
        Elizabethtown Water Company and Subsidiary Consolidated
         Financial Statements for the Years Ended December 31, 1997,
         1996 and 1995 and Independent Auditors' Report


<PAGE>



                              E'TOWN CORPORATION
                           ELIZABETHTOWN WATER COMPANY
                          Annual Report on Form 10-K
                     For the year ended December 31, 1997

                                    PART I
ITEM 1.   Business
ORGANIZATION

     E'town Corporation (E'town or Corporation) was originally incorporated
under the laws of the State of New Jersey in 1985 to serve as a holding
company for Elizabethtown Water Company (Elizabethtown or Company) and its
wholly owned subsidiary, The Mount Holly Water Company (Mount Holly).
Elizabethtown and Mount Holly are regulated water utilities which, as a
consolidated entity, are referred to herein as Elizabethtown Water Company
(Elizabethtown Water Company).  E'town Properties, Inc. (Properties) was
incorporated in 1987 as a wholly owned and non-regulated subsidiary of E'town
to acquire, develop and sell real estate holdings. E'town also owns a 65%
interest in Applied Watershed Management, LLC (AWM). AWM is a joint venture
formed in 1995 to pursue opportunities in water and wastewater facilities for
corporate and municipal clients. Edison Water Company (Edison) is a wholly
owned, non-regulated  subsidiary of E'town formed in July 1997 to operate the
water system of the Township of Edison, New Jersey under a 20-year operating
contract.

    Elizabethtown, Mount Holly and Edison are engaged in the distribution of
water for domestic, commercial, industrial and fire protection purposes and
for resale by other water companies and public bodies.  Elizabethtown and
Mount Holly are public utilities and are regulated by the New Jersey Board of
Public Utilities (BPU).

    Elizabethtown is a New Jersey corporation, one of whose predecessors was
first incorporated in 1854.  The present corporation was formed in 1961 as a
result of a consolidation of Elizabethtown Water Company Consolidated and
Plainfield-Union Water Company. Elizabethtown owns all of the common stock of
Mount Holly, which contributed 3% of the Company's consolidated operating
revenues for 1997.

 SERVICE AREA AND CUSTOMERS

     At December 31, 1997 Elizabethtown and Mount Holly furnished water
service on a retail basis to general customers and to industrial customers
served through 200,320 meters in 54 municipalities in the counties of Union,
Middlesex, Somerset, Mercer, Hunterdon, Ocean, Morris and Burlington in the
central part of New Jersey.

    Elizabethtown also provides, on a wholesale basis, a portion of the water
requirements of eight additional municipalities with their own retail water
systems and of three other investor-owned water companies.  Water for fire
protection service is provided to 53 municipalities and also to commercial
and industrial establishments.

   Edison serves 11,200 customers under its contract to operate the water
system of the Township of Edison, New Jersey.

   The operating revenues of Elizabethtown, Mount Holly and Edison by major
classification of customer for the twelve months ending December 31, 1997 are
as follows:

                                       1
<PAGE>

                General customers                        65.8%
                Sales to other systems                   15.0%
                Larger industrial customers               6.3%
                Fire protection service/miscellaneous    12.9%

          The water systems are substantially all metered except for fire
service.

          Additional operating statistics appear on page 10.

WATER SUPPLY

     The water supply systems of Elizabethtown and Mount Holly are physically
separate.  During 1997, Elizabethtown's pumpage averaged 131.4 million
gallons per day (MGD) and Mount Holly's pumpage averaged 3.7 MGD.
Elizabethtown and Mount Holly believe they have sufficient water supply
sources to meet the current needs of their customers.  Mount Holly plans to
construct additional facilities, as discussed below, to augment its water
supplies.

    In 1997, surface water sources supplied approximately 89% of
Elizabethtown's supply with wells supplying the remaining 11%.  All of Mount
Holly's water is produced from wells although beginning in March 1998, 1.0
million gallons per day is being purchased by Mount Holly from another
purveyor on a temporary basis from surface sources (see below).

   Substantially all of Elizabethtown's surface water is purchased under a
long-term contract with the New Jersey Water Supply Authority (NJWSA) which
requires Elizabethtown to purchase (i) 32 MGD from the state-owned Delaware
and Raritan Canal which transports water from the Delaware River Basin plus
(ii) 70 MGD from the Raritan River Basin which includes the state-owned
Spruce Run-Round Valley Reservoir System.  The safe yield of the Raritan
River Basin and the Delaware and Raritan Canal is 225 MGD of which 151 MGD is
presently allocated to Elizabethtown and others.  The NJWSA has available,
and Elizabethtown purchases, water above the Company's minimum purchase
obligation on an as-needed basis.

   Mount Holly has historically obtained all of its water from wells drilled
into an aquifer, which has been subject to over-pumping. The State adopted
legislation requiring all local purveyors, including Mount Holly, to obtain
alternate supplies and reduce their withdrawals from the affected parts of
the aquifer. Mount Holly designed a project to obtain water from outside the
affected part of the aquifer for delivery into the Mount Holly system.
Management believes that this project (the "Mansfield Project") is the most
cost effective method for Mount Holly to comply with the State's regulations.

    By September 1995, Mount Holly had obtained all New Jersey Department of
Environmental Protection (DEP) approvals for the Mansfield Project and was
ready to start construction when a regional purveyor appealed the granting of
Mount Holly's permits for the project. Under an August 1997 settlement among
Mount Holly, the DEP and the regional purveyor, Mount Holly will purchase 1
million gallons per day from the regional purveyor for two years while the
Mansfield Project is being constructed. Purchases began during March of 1998,
after completion of an interconnection.

    Mount Holly is taking the steps necessary to recover in rates both the
costs of purchased water and the costs of the Mansfield Project. First, Mount
Holly filed a petition with the Board of Public Utilities (BPU) for a
Purchased Water Adjustment Clause (PWAC) to recover the costs of purchased
water through rates. The PWAC filing requests an increase in annual operating


                                       2
<PAGE>

revenues of approximately $1.34 million or 40.3%. Second, Mount Holly and the
parties to Mount Holly's 1995 base rate case are participating before the BPU
in a proceeding to clarify the need for, and the cost-effectiveness of, the
Mansfield Project as the method for Mount Holly to comply with the states
restrictions on diversions from the aquifer. In addition, Mount Holly will
file a base rate case during the second quarter of 1998 to recover a portion
of the costs of the Mansfield Project, estimated at $7.3 million, as well as
$6.0 million in additions to utility plant since Mount Holly's base rates
were last adjusted in January 1996. Finally, Mount Holly intends to file a
base rate case in 1999 for the remaining costs of the Mansfield Project,
estimated to  amount to $11.3 million, to coincide with the completion of the
project and the expiration of the agreement to purchase water from the other
purveyor.

WATER TREATMENT FACILITIES AND WATER QUALITY REGULATIONS

    Elizabethtown owns and operates two treatment plants at the confluence of
the Raritan and Millstone Rivers adjacent to the Delaware and Raritan Canal
to treat surface water purchased from the NJWSA. The plants can withdraw
water from any of the above sources, which is an advantage in the event that
one source becomes contaminated. The Raritan-Millstone Plant  (RM Plant) was
placed in service in 1931 and has continually been upgraded since that time.
The RM Plant has a production capacity of 155 MGD. The Canal Road Water
Treatment Plant (Plant) was placed in service in October 1996 to increase
Elizabethtown's sustainable production capacity and provide the ability to
continue to meet water quality regulations. The Plant has an initial rated
production capacity of 40 MGD and an installed cost of approximately $102
million, excluding an Allowance For Funds Used During Construction (AFUDC).
Elizabethtown also operates smaller treatment facilities to treat groundwater
produced by certain wells. Mount Holly operates similar groundwater treatment
facilities.

    Both the United States Environmental Protection Agency (EPA) and the DEP
regulate the operation of Elizabethtown's and Mount Holly's water treatment
and distribution systems and the quality of the water Elizabethtown and Mount
Holly deliver to their customers. Currently, Elizabethtown and Mount Holly
believe they are in compliance, in all material respects, with all present
federal and state water quality standards, including all regulations
promulgated to date by the EPA pursuant to the Federal Safe Drinking Water
Act, as amended (SDWA), and by the DEP pursuant to similar state
legislation.  Elizabethtown has included certain capital projects in its
three-year capital expenditure plans which it anticipates will be necessary
to comply with regulations that have been proposed by the EPA and DEP.
Recovery of the financing and operating costs of such improvements, plus
those costs for any additional projects which cannot be foreseen at this
time, will be requested in rates.

    Elizabethtown has responded in recent years to water quality regulations
promulgated by DEP and the EPA by replacing groundwater supplies with
increased supplies of surface water. The Company expects this trend to
continue because it is preferable from the standpoint of operational
efficiency and cost to modify treatment processes and facilities at one or
two large plants than to constantly upgrade treatment facilities at multiple
well sites.

Water Quality Regulations
    As required by the SDWA, the EPA has established maximum contaminant
levels (MCLs) for various substances found in drinking water. As authorized
by similar state legislation, the DEP has set MCLs for certain substances
which are more restrictive than the MCLs set by the EPA. In certain cases,
the EPA and DEP have also mandated that certain treatment procedures be
followed in addition to satisfying MCLs established for specific
contaminants.  The DEP is also the USEPA's agent for enforcing the SDWA in
New Jersey and, in that capacity, monitors the activities of Elizabethtown
and Mount Holly and reviews the results of water quality tests performed by
Elizabethtown and Mount Holly for adherence to applicable regulations.
Regulations generally applicable to water utilities, including Elizabethtown
and Mount Holly, include the Lead and Copper Rule (LCR), the MCLs established
for various volatile organic compounds (VOCs), the MCLs proposed for
radionuclides and the Surface Water Treatment Rule (SWTR).

Lead and Copper Rule
    The LCR requires Elizabethtown and Mount Holly to test the quantity of
lead and copper in drinking water at the customer's tap and, if certain
contaminant levels (action levels) are exceeded, to notify customers and
initiate a public information campaign advising customers how to minimize
exposure to lead and copper.  The LCR also requires Elizabethtown to add
corrosion inhibitors to water to minimize leaching of lead from piping,
faucets and soldered joints into water consumed at the tap.  Results from two


                                       3
<PAGE>

separate tests completed during 1992 within Elizabethtown and Mount Holly's
systems did not indicate lead and copper concentrations above the action
levels.  Accordingly, public notification and a public information campaign
have not been required.  Corrosion inhibitor facilities for Elizabethtown
were completed in 1996.

Volatile Organic Compounds
     VOCs include various substances (primarily synthetic organic solvents)
which have percolated into groundwater aquifers from surface sources.
Elizabethtown has found VOCs in excess of the applicable MCLs in certain of
its wells and has either suspended the use of such wells or constructed
aeration towers which remove such contaminants from the water by venting them
into the atmosphere.  Because underground water flows are difficult to map,
it is difficult to predict when and where contamination will occur in the
future. To the extent that contamination in excess of applicable MCLs occurs
at wells lacking aeration towers, Elizabethtown will consider building such
facilities if feasible and cost effective, or closing such wells, thereby
increasing its reliance on surface water. To date, Mount Holly has not been
affected by VOC contamination.

Radionuclides
   Radionuclides are naturally occurring radioactive substances (primarily
radon) found in groundwater.  Like VOCs, radon can be removed from
groundwater using aeration towers.  If the MCLs proposed for all
radionuclides are finally adopted, Elizabethtown believes that it will abandon
wells with aggregate production capacity of approximately 5 MGD, thereby
further increasing Elizabethtown's reliance on surface water. Elizabethtown
currently owns and operates wells with an aggregate safe daily yield of 18
MGD.

Surface Water Treatment Rule
    The operation of Elizabethtown's Raritan-Millstone treatment plant is
subject to the SWTR.  Elizabethtown has assessed the plant's sustainable
production capacity, assuming operation consistent with the requirements of
the SWTR, and determined that improvements to the existing plant are
necessary. Specifically, Elizabethtown has installed additional pumps to
increase capacity and reliability at peak times and has constructed a new
building to house offices and lab facilities. Also, Elizabethtown has
replaced existing chlorine gas disinfection facilities with liquid sodium
hypochlorite to improve community and employee safety and has installed
corrosion inhibitor facilities in conformance with the LCR.

     The Canal Road Water Treatment Plant has been designed and is being
operated for compliance with the SWTR.

TRANSMISSION AND DISTRIBUTION

     As of December 31, 1997, Elizabethtown Water Company's transmission and
distribution system included 2,926 miles of transmission and distribution
mains.  Mains range in size up to 60 inches, substantially all of which are
either ductile iron, cast iron or prestressed concrete pipe. Elizabethtown
conducts an ongoing program to clean and line its older cast iron mains the
cost of which is capitalized and has been included in rate base in
stipulations settling recent rate cases.

    On an ongoing basis, Elizabethtown assesses the capacity of its system to
maintain adequate pressures and initiates plans to construct pumping,
transmission and storage facilities as needed.

ENERGY SUPPLY

     Elizabethtown pumps most of its water with electric power purchased from
two major electric utilities.  The Company has replaced certain electric
pumps with natural gas-fired pumps over the last several years to reduce
energy costs. Elizabethtown also has other diesel powered pumping and
generating facilities at its major treatment plants and at certain transfer
stations to provide basic service during possible electrical shortages.
Elizabethtown has not, to date, experienced any shortage of electric energy,
natural gas or diesel fuel to operate its pumps and has cooperated with its
electric suppliers during their peak periods by operating non-electrical
pumping facilities upon request.

                                       4
<PAGE>

ENVIRONMENTAL MATTERS

     Elizabethtown and Mount Holly are also subject to regulation by the DEP
with respect to water supply plans and specifications for the construction,
improvement, alteration and operation of public water supply systems and with
respect to the quality of any residuals from treatment plants.
     As a normal by-product of treating surface water, Elizabethtown's
existing surface water treatment plants generate silt removed from untreated
river water plus residue from chemicals used in the treatment process.
Historically, Elizabethtown had disposed of this material in landfills.  As a
result of revised regulations governing landfills, Elizabethtown has been
reusing this material on site for flood protection and is presently removing
some material off-site for beneficial reuse.

     Under New Jersey law, environmental matters are addressed by the DEP
before diversion allowances or other water supply projects are authorized. To
date, Elizabethtown has been able to construct all plant facilities and
obtain all diversion authorizations necessary to maintain customer service.
Mount Holly has also been able to construct all facilities and obtain all
diversion authorizations including the diversion permit for the Mansfield
Project discussed previously.

FRANCHISES

    The property and franchises of Elizabethtown and Mount Holly are subject
to rights of eminent domain of the State of New Jersey.  These rights have
been delegated by statutes now in effect to municipalities or groups of
municipalities and have been or may be delegated to various public agencies.
No such rights of eminent domain have been exercised since 1931.

EMPLOYEE RELATIONS

     As of December 31, 1997, the Corporation had a total of 399 full-time
employees, of which approximately half were covered by union contracts.  The
contracts between the Company and the Utility Workers Union of America
(A.F.L.-C.I.O.) were renegotiated on February 1, 1996 and will expire on
January 31, 1999. The contract provided for wage increases of 4% on February
1, 1996, 1997 and 1998, respectively.
        The Company considers relations with both union and non-union
  employees to be satisfactory.

RATE MATTERS

    Elizabethtown and Mount Holly are subject to regulation by the New Jersey
Board of Public Utilities (BPU) with respect to the issuance and sale of
securities, rates and service, classification of accounts, mergers, and other
matters.  Elizabethtown and Mount Holly periodically seek rate relief to
cover the cost of increased operating expenses, increases in financing
expenses due to additional investments in utility plant, and other costs of
doing business.

Elizabethtown
       On October 25, 1996, a rate increase under a stipulation (1996
Stipulation) went into effect for Elizabethtown. This resulted in an increase
in annual operating revenues of approximately $21.8 million. The rate
increase reflected a full allowance for the estimated capital and operating
costs for the Plant and an authorized rate of return on common equity of
11.25%. Elizabethtown, excluding Mount Holly, earned a rate of return on
common equity of 11.0% in 1997. Elizabethtown's authorized rate of return on
common equity is currently 11.25%.

Mount Holly
   Mount Holly earned a rate of return on common equity of 2.8% in 1997,
compared to an authorized rate of return of 11.25%, established in its most
recent rate proceeding. Mount Holly contributed $.02 to E'town's consolidated
earnings per share in 1997. Management expects Mount Holly to increase its


                                       5
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contribution to E'town's earnings per share later in 1998 and into 1999 upon
receipt of additional rate relief so that Mount Holly can realize rates of
return comparable to authorized levels. See "Water Supply," above for further
discussion of Mount Holly's pending rate issues.

 REAL ESTATE MATTERS

    E'town Properties and E'town Corporation own various parcels of
undeveloped land in New Jersey carried as investments of $12.8 million in
Non-Utility Property and Other Investments - Net, in the Consolidated Balance
Sheets of E'town at December 31, 1997. E'town and Properties are proceeding
with plans to sell such properties and expect to invest the sale proceeds
into water and wastewater utility investments that produce a current return.

    Properties sold one parcel in 1997 for a price of $.4 million. The sale
produced a nominal gain. Properties had previously entered into a contract to
sell another parcel to a developer. The parties expected that the contract
would close prior to December 31, 1996, but the developer was unable to
obtain the required municipal approvals. The contract has been extended and
all the material issues appear to have been resolved. Properties expects
several closings during 1998, including the parcel described above which, if
consummated, would result in gains.

    The carrying value of each parcel includes the original cost plus any
real estate taxes, interest and, where applicable, direct costs capitalized
while rezoning or governmental approvals are or were being sought. Such costs
are capitalized until the property is offered for sale, after which time such
costs are expensed. Based on independent appraisals received at various times
prior to 1997, the estimated net realizable value of each property exceeds
its respective carrying value as of December 31, 1997.

OTHER DEVELOPMENTS

    Effective July 1, 1997, E'town, through its Edison Water Company
subsidiary, commenced operation of Edison Township's 11,200 customer water
system under a 20-year contract. E'town paid the township $5.7 million at
closing and expects to spend $5.4 million over the next three years to
upgrade the system, primarily for new meters and main cleaning and lining.
Edison Water Company receives all revenues from the township's system
(pursuant to a rate schedule set forth in the contract), pays all operating
expenses, and retains the balance to amortize its investment and earn a
return on its capital. Edison Water Company expects to realize a return on
its capital in an amount similar to that currently earned by E'town's
regulated operations. Contributions to earnings will be small for the first
five years and then will increase as rate increases specified in the contract
take effect.

    E'town continues to pursue opportunities to operate municipal water and
wastewater systems under long-term contract, primarily in New Jersey. While
each opportunity is unique, such endeavors generally require 'town to make
payments to the municipality and to invest capital to upgrade the utility
systems within the first several years of the contract. Like Edison, E'town
seeks to realize rates of return in these contracts comparable to levels
earned by E'town's regulated utility businesses.

    E'town is negotiating with the city of Elizabeth, New Jersey to operate
its water and wastewater systems under 40- and 20-year contracts,
respectively. These contracts, if successfully negotiated, would require a
$20.0 million payment at closing and expenditures of $26.2 million during the
first three years.  E'town would contract with a firm experienced in managing
large wastewater facilities for the wastewater portion of the services to be
provided.

    On March 6, 1998, E'town exercised an option to acquire Applied Wastewater
Group (AWG), its joint venture partner for the past three years, in a $7.0
million stock-for-stock transaction, and is expected to close the transaction
in the second quarter of 1998. AWG designs, builds and operates wastewater
treatment plants. E'town intends to offer "one-stop shopping" for water and
wastewater services to residential and commercial developers. These services


                                       6
<PAGE>

include the design, financing, construction and operation of water and
wastewater facilities, and, in some instances, purchase of the utilities at
project build-out, thereby adding to E'town's regulated utility customer
base. Based on AW's results in 1997, E'town expects the acquisition to add
modestly to E'town's earnings per share in 1998.

    On January 1, 1997, AWM commenced a three-year contract to operate the
wastewater collection and treatment facilities owned by Environmental
Disposal Corporation (EDC), which serves portions of Bedminster, Far Hills,
and Peapack-Gladstone. AWM is also providing the billing and customer inquiry
services.

                                       7
<PAGE>

Executive Officers of the Corporation and Elizabethtown

      Name                Age             Positions Held



Anne Evans Estabrook      53        Chairman of the Corporation since May 1997.
                                    Vice President of the Corporation since
                                    September 1987. Owner of the Elberon
                                    Development Co., (a real estate holding
                                    company) and President of David 0. Evans,
                                    Inc.(a construction company).

Andrew M. Chapman         42        President of the Corporation since May
                                    1997, Chief Financial Officer of the
                                    Corporation from August 1989 until May 1997
                                    and Treasurer of the Corporation from
                                    November 1990 to May 1997. President of
                                    Elizabethtown since January 1996 and
                                    Executive Vice President of Elizabethtown
                                    from May 1994 to December 1995. He served
                                    as Senior Vice President of Elizabethtown
                                    from April 1993 to May 1994, Chief Financial
                                    Officer of Elizabethtown from November 1990
                                    to December 1995 and Treasurer of
                                    Elizabethtown from August 1989 to May 1994.


Walter M. Braswell        48        Secretary of the Corporation, Properties and
                                    Elizabethtown since December 1990
                                    and Vice President and General Counsel
                                    of Elizabethtown since August 1988.

Norbert Wagner            62        Senior Vice President-Operations of
                                    Elizabethtown since May 1992. Vice
                                    President-Operations since March 1987.

Edward F. Cash            62        Vice President - Customer Services of
                                    Elizabethtown since 1977.

   Item 2. Properties

      All principal plants and other materially important units of property of
  Elizabethtown and Mount Holly are owned in fee. The Company considers that
  the properties of Elizabethtown and Mount Holly are in good operating
  condition.

  Item 3. Legal Proceedings

      In the opinion of management, litigation in which the Corporation or its
  subsidiaries is involved is in the ordinary course of business and will not
  have a material adverse effect on the consolidated financial condition of
  the Corporation.

  Item 4. Submission of Matters to a Vote of Security Holders

     None

                                       8
<PAGE>

                                    PART II

   Item 5. Market for the Corporation's Common Stock and Related Stockholder
         Matters

      This information is included in Exhibit 13, filed herewith, and is
  incorporated herein by reference.  All of the common stock of Elizabethtown
  Water Company is owned by E'town.



                                       9
<PAGE>


Item 6.  Selected Financial Data
                                 E'town Corporation

This information is included in Exhibit 13, filed herewith, and is
  incorporated herein by reference.

                            Elizabethtown Water Company

                                  1997     1996      1995     1994      1993
------------------------------------------------------------------------------
Utility Plant (Thousands)
     Utility Plant - net       $ 572,785 $560,024  $507,858 $437,456  $373,293
     Construction Expenditures
        (excluding AFUDC)        24,612   55,125    73,789    69,981   32,517
     Total Assets                646,318  640,779   580,808  502,848   437,405
Capitalization (Thousands)
     Shareholder's Equity        193,354  182,293   176,685  151,624   125,765
     Preferred Stock              12,000   12,000    12,000    12,000   12,000
     Debt (1)                    249,974  250,963   208,952  164,951   141,952
     Total Capitalization      $ 455,328 $445,256  $397,637 $328,575  $279,717
Capitalization Ratios
     Common Stock                    42%      41%       44%       46%      45%
     Preferred Stock                  3%       3%        3%        4%       4%
     Debt (1)                        55%      56%       53%       50%      51%

Earnings Applicable to
  Common Stock (Thousands)     $ 20,092  $15,942   $16,512   $13,369  $13,783

Operating Statistics
     Revenues (Thousands)
     General Customers         $ 85,195  $68,797   $67,455   $62,923  $63,100
     Other Water Systems         21,900   18,929    18,720    18,082   17,187
     Industrial Wholesale         8,451    7,869     7,947     7,458    6,652
     Fire Service/Miscellaneous  16,242   14,763    14,276    13,570   13,057
     Total Revenues            $ 131,788 $110,358 $108,398  $102,033  $99,996

Water Sales - Millions of Gallons (mg)
     General Customers           24,333   22,890    23,999    23,551   23,883
     Other Water Systems         14,504   15,049    15,569    15,691   15,109
     Industrial Wholesale         3,533    3,567     3,673     3,568    3,213
     System Use and Unaccounted Fo6,948    6,444     6,402     6,570    5,453
     Total Water Sales           49,318   47,950    49,643    49,380   47,658
System Delivery by Source - mg
     Surface                     42,585   41,485    42,646    42,534   40,742
     Wells                        6,689    6,328     6,764     6,690    6,776
     Purchased                       44      137       233       156      140
     Total System Delivery       49,318   47,950    49,643    49,380   47,658
Millions of Gallons Pumped:
     Average Day                    135      131       136       135      131
     Maximum Day                    205      170       183       182      191
General Information
     Meters in Service           200,320  197,791   195,375  191,622   188,677
     Miles of Main                 2,926    2,899     2,869     2,828    2,800
     Fire Hydrants Served         16,228   16,012    15,650    15,291   14,909

==============================================================================
(1) Includes long-term debt, notes payable and long-term debt-current portion.

                                       10
<PAGE>

 Item 7.
              MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

                              E'town Corporation

This information is included in Exhibit 13, filed herewith, and is
incorporated herein by reference.

                  Elizabethtown Water Company and Subsidiary

The water utility operations of Elizabethtown Water Company (Elizabethtown or
Company) and its subsidiary, The Mount Holly Water Company (Mount Holly),
presently constitute the major portion of E'town Corporation (E'town or
Corporation), assets and earnings.  Elizabethtown and Mount Holly are
regulated water companies which, as a consolidated entity are referred to
herein as Elizabethtown Water Company (Elizabethtown Water Company).  Mount
Holly contributed about 3% of the Company's consolidated operating revenues
for 1997. The following analysis sets forth significant events affecting the
financial condition of Elizabethtown at December 31, 1997, and the results of
operations for the years ended December 31, 1997 and 1996.

LIQUIDITY AND CAPITAL RESOURCES
Capital Expenditures Program
In 1997, capital expenditures were $24.6 million, primarily for water utility
plant. For the three years ending December 31, 2000, capital and investment
requirements for Elizabethtown are estimated to be $134.6 million, consisting
of expenditures for water utility plant ($112.7 million for Elizabethtown and
$21.9 million for Mount Holly).

Elizabethtown
 While Elizabethtown's projected capital outlays have dropped from recent
years now that the Canal Road Wate Treatment Plant (Plant) is completed,
Elizabethtown's facilities will continue to be upgraded and expanded to
handle customer growth. Elizabethtown's three-year capital program includes
$62.0 million for routine projects (services, hydrants and main extensions
not funded by developers) and $50.7 million for transmission system upgrades,
a new operations center and other projects. Elizabethtown expects to file for
rate relief periodically to ensure that such costs are adequately reflected
in rates. (See Economic Outlook.)

Mount Holly
During the next three years, Mount Holly expects to spend $21.9 million,
primarily for an additional supply source to comply with state regulations
designed to prevent further depletion of a local aquifer. Mount Holly plans
to file for rate relief to recover these costs, as well as to increase the
rates of return realized by Mount Holly and, therefore, Mount Holly's
contribution to E'town's earnings per share.

Mount Holly obtains all of its water from wells drilled into an aquifer,
which has been subject to over-pumping. The State adopted legislation
requiring all local purveyors, including Mount Holly, to obtain alternate
supplies and reduce their withdrawals from the affected parts of the aquifer.
Mount Holly designed a project to obtain water from outside the affected part
of the aquifer for delivery into the Mount Holly system. Management believes
that this project (the "Mansfield Project") is the most cost effective method
for Mount Holly to comply with the state's regulations.

By September 1995, Mount Holly had obtained all New Jersey Department of
Environmental Protection (DEP) approvals for the Mansfield Project and was
ready to start construction when a regional purveyor appealed the granting of
Mount Holly's permits. Under an August 1997 settlement among Mount Holly, the


                                       11
<PAGE>

DEP and the regional purveyor, Mount Holly will purchase 1 million gallons
per day from the regional purveyor for two years while the Mansfield Project
is being constructed. Purchases began in March of 1998, after completion of
an interconnection.

Mount Holly is taking the steps necessary to recover in rates both the costs
of purchased water and the Mansfield Project. First, Mount Holly filed a
petition with the Board of Public Utilities (BPU) for a Purchased Water
Adjustment Clause (PWAC) to recover through rates the cost of purchased
water. The PWAC filing requests an increase in annual operating revenues of
$1.34 million or 40.3%. Second, Mount Holly and the parties to Mount Holly's
1995 base rate case are participating before the BPU in a proceeding to
reaffirm that the Mansfield Project is needed and is the most cost effective
method for Mount Holly to comply with the states restrictions on diversions
from the aquifer. In addition, Mount Holly will file a base rate case during
the second quarter of 1998 to recover a portion of the remaining costs of the
Mansfield Project, estimated at $7.2 million, as well as $6.0 million in
additions to utility plant since Mount Holly's base rates were last adjusted
in January 1996. Finally, Mount Holly intends to file a base rate case in
1999 for the remaining costs of the Mansfield Project, estimated to amount to
$11.3 million, to coincide with the completion of the project and the
expiration of the agreement to purchase water from the other purveyor.

Capital Resources
During 1997, Elizabethtown Water Company financed 75.2% of its capital
expenditures from internally generated funds (after payment of common stock
dividends). The balance was financed with a combination of short-term
borrowings under a revolving credit agreement, short-term borrowings under
lines of credit, proceeds from capital contributions from E'town (funded by
issuances of Common Stock under the Corporation's Dividend Reinvestment and
Stock Purchase Plan) and long-term New Jersey Economic Development Authority
(NJEDA) Bonds.

For the three-year period ending December 31, 2000, E'town estimates that
48.6% of its currently projected capital expenditures and investments are
expected to be financed with internally generated funds (after payment of
common stock dividends). The balance will be financed with a combination of
proceeds from the sale of E'town common stock, long-term debt, proceeds of
tax-exempt NJEDA bonds, long-term notes and short-term borrowings.  The NJEDA
has granted preliminary approval for the financing of almost all of
Elizabethtown's and Mount Holly's major projects during the next three years
and the Mansfield Project. Elizabethtown expects to pursue tax-exempt
financing to the extent that final allocations are granted by the NJEDA.
Mount Holly has applied to the DEP State Revolving Fund Program for low
interest funding (approximately 3% to 3.5%) for the Mansfield Project.
Elizabethtown's senior debt is currently rated A3 and A by Moody's Investors
Service and Standard & Poor's Ratings Group, respectively.

In June 1997, Elizabethtown issued $50.0 million of tax-exempt Variable Rate
Demand Notes through the NJEDA. The proceeds of the issue were used to repay
amounts outstanding under the Company's revolving credit agreement, which
expired in July 1997.

RESULTS OF OPERATIONS
Net Income for 1997 was $20.1 million as compared to $15.9 million for 1996.
The increase in net income and earnings per share is attributable to the
$21.8 million rate increase for the new Plant in October 1996, which was
offset by the operating and financing costs of the Plant. Net income also
increased $1.4 million, primarily due to variations in the weather,
specifically the dry summer of 1997, as compared to the wet summer of 1996.

Net Income for 1996 was $15.9 million as compared to $16.5 million for 1995.
The most significant factor contributing to the decrease in net income was a
reduction in revenues due to reduced outdoor water consumption in 1996,
compared to 1995.

Operating Revenues increased $21.4 million or 19.4% in 1997 over the
comparable 1996 amount. The increase is primarily comprised of $17.7 million
from a rate increase for Elizabethtown, effective October 1996 and $3.1
million from increased water consumption. The increase in water consumption
is primarily due to the dry summer of 1997.

                                       12
<PAGE>

Operating Revenues increased $2.0 million or 1.8% in 1996 over the comparable
1995 amount. The increase in total revenues was comprised of rate increases
for Elizabethtown and Mount Holly of
$3.9 million and $.5 million, respectively, which were offset by a decrease
in water consumption due to unusually cool, wet summer weather in 1996. The
reduction in water consumption accounted for a decrease in revenues of $2.4
million.

Operation Expenses increased $1.6 million or 3.6% in 1997 over the comparable
1996 amount. Increases resulting from variable costs associated with the
increase in water consumption totaled $.3 million. Labor costs increased $.6
million. The remainder of the increase is attributable to various items,
including operating costs for the Plant, information technology and other
administrative costs.

Operation Expenses increased $.6 million or 1.3% in 1996 over the comparable
1995 amount. Operation expenses decreased $.4 million for certain variable
expenses asscociated with lower water consumption. The successful
implementation of an energy conservation program in the second quarter of
1996 at the Raritan-Millstone Plant reduced energy costs by $.8 million. The
success of various safety programs resulted in a decrease in workers'
compensation premiums of $.3 million. These decreases were offset by
increased labor costs of $1.6 million.

Maintenance Expenses increased $.7 million or 11.8% in 1997 over the
comparable 1996 amount. This increase is primarily attributable to costs
associated with the maintenance of the Plant. The increase also includes $.4
million related to the costs of determining the most cost-effective method
for disposing of byproducts (waste residuals) generated from the water
treatment process at the Raritan-Millstone Plant.

Maintenance Expenses increased $.1 million or .9% in 1996 over the comparable
1995 amount. Elizabethtown had begun to substantially realize the benefits
of various preventive maintenance programs and operating efficiencies
instituted in 1996 and prior years.

Depreciation Expense increased $2.3 million or 23.7% in 1997 compared to
1996. The increase includes $2.1 million for the Plant and $.8 million for
other utility plant additions. A decrease of $.6 million resulted from
Elizabethtown no longer being required by the BPU to depreciate utility plant
acquired through Contributions In Aid of Construction and Customers' Advances
for Construction. This change was agreed to by the parties to Elizabethtown's
last rate case for which an increase was effective in October 1996.

Depreciation Expense increased $1.1 million or 12.3% in 1996, as compared to
1995. The increase is due primarily to a higher level of depreciable plant in
service and includes $.5 million of depreciation expense for the Plant for a
portion of the year.

Revenue Taxes increased $2.7 million or 19.8% in 1997 and $.2 million or 1.7%
in 1996 due to the taxes on increases in operating revenues discussed above.

Real Estate, Payroll and Other Taxes increased $.2 million or 6.8% in 1997
due to additional labor costs, as well as additional property taxes. These
taxes increased $.1 million or 3.5% in 1996 due primarily to increased labor
costs.

Federal Income Taxes as a component of operating expenses increased $3.7
million or 49.8% over the comparable 1996 amount due to the changes in the
components of taxable income discussed herein.

Federal Income Taxes as a component of operating expenses decreased $.6
million or 8.0% in 1996 from the comparable 1995 amount due to the changes in
the components of taxable income discussed herein.

Other Income (Expense) decreased $2.3 million or 83.0% compared to the 1996
amount. A decrease in the equity component of Allowance for Funds Used During
Construction (AFUDC) of $3.5 million resulted from no longer capitalizing the
financing costs associated with the Plant as the facility was placed in
service in October 1996. An increase of $1.2 million for other miscellaneous
items, as well as the offsetting federal income taxes associated with the
Other Income (Expense), account for the remainder of the decrease.

                                       13
<PAGE>

Other Income (Expense) increased $.6 million or 26.1% in 1996 compared to the
1995 amount. An increase in the equity component of AFUDC of $.7 million,
primarily from the construction of the Plant accounted for the substancial
portion of the overall increase.

Total Interest Charges increased $3.8 million or 29.8% in 1997 over the
comparable 1996 amount. The increase includes $3.0 million due to a reduction
in capitalized interest as a result of the Plant being placed in service in
October 1996. Interest expense also increased due to increased borrowings
incurred to finance capital expenditures.

Total Interest Charges increased $1.7 million or 15.2% in 1996 over the
comparable 1995 amount. The increase is due primarily to increased interest
on long-term debt, due to the issuance of $40.0 million of NJEDA tax-exempt
debentures in December 1995 to refinance balances previously incurred under
the revolving credit agreement. A higher level of short-term borrowings under
a revolving credit agreement incurred to finance Elizabethtown's capital
program on an interim basis also contributed to the overall increase. This
increase was offset by an increase in the debt component of AFUDC resulting
from Elizabethtown's higher construction work in progress balances in 1996,
primarily due to the Plant.

ECONOMIC OUTLOOK
Forward Looking Information
Information in this report includes certain forward looking statements within
the meaning of the federal securities laws. Any forward looking statements
are based upon information currently available and are subject to future
events, risks and uncertainties that could cause actual results to differ
materially from those expressed in the statements. Such events, risks and
uncertainties include, without limitation, actions of regulators, the effects
of weather on water consumption, changes in historical patterns of water
consumption and demand, including changes through increased use of
water-conserving devices, conditions in capital markets, increases in
operating expenses due to factors beyond the Company's control, changes in
environmental regulation and associated costs of compliance and other claims
or assessments made upon the Company.

Consolidated earnings for the Company for the next several years will be
determined by management continuing to focus on expansion efforts to increase
sales, as well as control costs through productivity improvements so that
realized returns remain comparable to authorized levels. Capital to finance
investments will be raised from external sources and from capital
contributions from E'town from the sale of real estate parcels.

The Company expects earnings to be down somewhat in 1998, based on an assumed
return to normal weather patterns after the unusually dry summer in 1997 and
because Elizabethtown will be completing its second year since its last rate
adjustment.

Elizabethtown and Mount Holly
Elizabethtown expects to petition the BPU for an increase in rates in the
latter part of 1998 to reflect the increases in construction, financing and
operating costs since base rates were last established in October 1996.

On October 25, 1996, a rate increase under a stipulation (1996 Stipulation)
went into effect for Elizabethtown. This resulted in an increase in annual
operating revenues of approximately $21.8 million. The rate increase
reflected a full allowance for the estimated capital and operating costs for
the Plant and an authorized rate of return on common equity of 11.25%.
Elizabethtown, excluding Mount Holly, earned a rate of return on common
equity of 11.0% in 1997.

Mount Holly earned a rate of return on common equity of 2.8% in 1997,
compared to an authorized rate of return of 11.25%, established in its most
recent base rate proceeding. Management expects Mount Holly to increase its
contribution to earnings later in 1998 and into 1999 upon receipt of
additional rate relief so that Mount Holly can realize rates of return
comparable to authorized levels.

                                       14
<PAGE>

Year 2000
The Company has assessed its various computer information systems for
compliance with the Year 2000. The Company has recently installed a new
enterprise financial system (SAP), which is Year 2000 compliant. In addition,
the Company uses a third-party provider for its customer billing and
information system, which was redesigned in 1997 to provide many enhancements
including Year 2000 compliance. Management believes that all integral operating
systems are Year 2000 compliant and that there will be no significant
additional costs to achieve compliance.



                                       15
<PAGE>

Item 8. Financial Statements and Supplementary Data

The information for E'town is included in Exhibit 13, filed herewith,
  and is incorporated herein by reference.

      The information for Elizabethtown Water Company is on pages 2 through 21
  of Appendix I hereto, incorporated by reference herein.

  Item 9. Changes in and Disagreements with Accountants on Acccounting and
  Financial Disclosure

      None

                                   PART III
  Item 10.  Directors and Executive Officers of the Registrant
      Information with respect to directors of E'town and Elizabethtown is
  included in E'town's Proxy Statement for the 1998 Annual Meeting of
  Stockholders, and is incorporated herein by reference.

      Information regarding the executive officers of both E'town and
  Elizabethtown is included under Item I in Part I of this Form 10-K.

  Item 11.  Executive Compensation

      This information for E'town and Elizabethtown is included in E'town's
  Proxy Statement for the 1998 Annual Meeting of Stockholders, and is
  incorporated herein by reference.

  Item 12.  Security Ownership of Certain Beneficial Owners and Management

      This information is included in E'town's Proxy Statement for the 1998
  Annual Meeting of Stockholders, and is incorporated herein by reference.

  Item 13.  Certain Relationships and Related Transactions

      This information for E'town and Elizabethtown is included in E'town's
  Proxy Statement for the 1998 Annual Meeting of Stockholders, and is
  incorporated herein by reference.

                                    PART IV

   Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K

   The following documents are filed as part of this report:

     1. Financial Statements:

                          Elizabethtown Water Company

 Statements of Consolidated Income for the years ended December 31, 1997, 1996
                                   and 1995.

      Consolidated Balance Sheets as of December 31, 1997 and 1996.

      Statements of Consolidated Capitalization as of December 31, 1997 and
      1996.

                                       16
<PAGE>

      Statement of Consolidated Shareholder's Equity for the years ended
      December 31, 1997, 1996 and 1995.

      Statements of Consolidated Cash Flows for the years ended December 31,
      1997, 1996 and 1995.

      Notes to Consolidated Financial Statements.

                              E'town Corporation

     A portion of the 1997 Annual Report to Shareholders which includes
Management's Discussion and Analysis of Consolidated Financial Condition and
Results of Operations, Consolidated Financial Statements, Notes to
Consolidated Financial Statements, Independent Auditors' Report and Other
Financial and Statistical Data is filed herewith as Exhibit 13 and is herein
incorporated by reference.

                          Elizabethtown Water Company

     Elizabethtown Water Company's consolidated financial statements and notes
thereto are included on pages 2 through 21 of Appendix I hereto, incorporated
by reference herein.

                    E'town and Elizabethtown Water Company

     The Independent Auditors' Reports for E'town (as to certain financial
statement schedules) and Elizabethtown Water Company appear on page 20 herein
and page 1 of Appendix I, respectively.

     2.  Financial Statement Schedules:

     All financial schedules required to be filed contain the same data and
amounts for both E'town and Elizabethtown Water Company, except for
Supplemental Schedule of Property, Plant and Equipment, which includes
property, plant and equipment for each company.

     Schedule II - Valuation and Qualifying Accounts for the Years Ended
December 31, 1997, 1996 and 1995.

     Supplemental Schedule of Property, Plant and Equipment at December 31,
1997 and 1996.

     Other schedules are omitted because of the absence of  the conditions
under which they are required or because the required information is included
in the financial statements or the notes accompanying each company's
financial statements.

     3. Exhibits

          (a) Exhibits for E'town and Elizabethtown Water Company are listed
          in the Exhibit Index, which is incorporated by
          reference herein.

          (b) Reports on Form 8-K: None



                                       17
<PAGE>

                                  SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities
  Exchange Act of 1934, the registrant has duly caused this report to be
  signed on its behalf by the undersigned, thereunto duly authorized.


  E'TOWN CORPORATION

  March 27, 1998
                                    By:   /s/ Anne Evans Estabrook
                                          Chairman and Director

    Pursuant to the requirements of the Securities Exchange Act of 1934, this
  report has been signed below by the following persons on behalf of the
  registrant and in the capacities indicated on March 27, 1998.

  Chairman and Director                        /s/ Anne Evans Estabrook


  President and Director                       /s/ Andrew M Chapman


  Director                                     /s/ Thomas J. Cawley


  Director                                     /s/ Anthony S. Cicatiello


  Director                                     /s/ James W. Hughes


  Director                                     /s/ John Kean


  Director                                     /s/ Barry T. Parker


  Director                                     /s/ Hugo M. Pfaltz, Jr.


  Director                                     /s/ Chester A. Ring III


  Director                                     /s/ Joan Verplanck


  Treasurer                                    /s/ Gail P. Brady
  (Principal Financial Officer)

  Controller                                   /s/ Dennis W. Doll
  (Principal Accounting Officer)



                                       18
<PAGE>



                          SIGNATURES

   Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

ELIZABETHTOWN WATER COMPANY
March 27, 1998
                                    By:   /s/ Anne Evans Estabrook
                                          Chairman and Director

   Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 27, 1998.


   Chairman and Director                       /s/ Anne Evans Estabrook


   President and Director                      /s/ Andrew M. Chapman


   Director                                    /s/ Thomas J. Cawley


   Director                                    /s/ Anthony S. Cicatiello


   Director                                    /s/ James W. Hughes


   Director                                    /s/ John Kean


   Director                                    /s/ Barry T. Parker


   Director                                    /s/ Hugo M. Pfaltz, Jr.


   Director                                    /s/ Chester A. Ring III


   Director                                    /s/ Joan Verplanck


   Vice President - Finance & Treasurer        /s/ Gail P. Brady
   (Principal Financial Officer)

   Controller                                  /s/ Dennis W. Doll
   (Principal Accounting Officer)



                                       19
<PAGE>

INDEPENDENT AUDITORS' REPORT

E'TOWN CORPORATION:

We have audited the  consolidated  financial  statements of E'town  Corporation
and its  subsidiaries  as of December  31,  1997 and 1996,  and for each of the
three years in the period ended  December 31, 1997,  and have issued our report
thereon dated February 18, 1998,  except for the subsequent  event discussed in
Note 11, as to which the date is March 6,  1998;  such  consolidated  financial
statements  and report are included in your 1997 Annual Report to  Shareholders
and are  incorporated  herein  by  reference.  Our  audits  also  included  the
financial  statement  schedules  of E'town  Corporation  and its  subsidiaries,
listed   in   Item   14.   These   financial   statement   schedules   are  the
responsibility of the Companys  management.  Our  responsibility is to express
an opinion  based on our  audits.  In our  opinion,  such  financial  statement
schedules,  when  considered  in relation to the basic  consolidated  financial
statements  taken as a whole,  present  fairly  in all  material  respects  the
information set forth therein.


/s/ Deloitte & Touche


February 18, 1998, except for Note 11
as to which the date is March 6, 1998
Parsippany, New Jersey

                                       20
<PAGE>


                              E'TOWN CORPORATION                  Schedule II
                          ELIZABETHTOWN WATER COMPANY
                     VALUATION AND QUALIFYING ACCOUNTS




Column A                Column B      Column C       Column D      Column E


                                     Additions
                       Balance at    Charged to                   Balance at
                       Beginning of  Costs and      Deductions      End of
Description:             Period       Expenses         (A)          Period

Reserve for
Uncollectible Accounts:

Year Ended 12/31/97      $566,000      $607,929       $561,929      $612,000

Year Ended 12/31/96      $532,000      $600,242       $566,242      $566,000

Year Ended 12/31/95      $463,000      $600,648       $531,648      $532,000








(A)  Write-off of uncollectible accounts, net of recoveries.

<PAGE>

                                 E'TOWN CORPORATION              Supplemental
                            ELIZABETHTOWN WATER COMPANY              Schedule
                           PROPERTY, PLANT AND EQUIPMENT
                           AT DECEMBER 31, 1997 AND 1996



ELIZABETHTOWN WATER COMPANY:               1997            1996
UTILITY PLANT IN SERVICE:
   Intangible Plant                        $250,766         $250,766
   Source of Supply Plant                20,512,918       20,502,583
   Pumping Plant                         57,498,323       54,666,431
   Water Treatment Plant                156,601,131      156,149,004
   Transmission & Distribution Plant    422,283,204      404,946,395
   General Plant                         19,993,728       17,444,418
   Leasehold Improvements                   135,793          120,548
   Acquisition Adjustments                  632,388          632,388

                                       -------------   --------------
       Utility Plant In Service         677,908,251      654,712,533
   Construction Work In Progress          9,300,824        7,994,186

                                       =============   ==============
       Total Utility Plant              687,209,075      662,706,719
                                       =============   ==============

NON-UTILITY PROPERTY - NET                   78,774           80,976

                                       =============   ==============
             TOTAL                     $687,287,849     $662,787,695
                                       =============   ==============

E'TOWN CORPORATION:
UTILITY PLANT (from above)              687,209,075      662,706,719

NON-UTILITY PROPERTY - NET               12,787,851       12,769,953

                                       =============   ==============
             TOTAL                     $699,996,926     $675,476,672
                                       =============   ==============
<PAGE>



                                 EXHIBIT INDEX

      Certain of the following exhibits, designated with an asterisk(*), are
filed herewith.  The exhibits not so designated have heretofore been filed
with the Commission and are incorporated herein by reference to the documents
indicated in brackets following the description of such exhibits.  Exhibits
designated with a (1) are management contracts or compensary
plans or arrangements.

                      E'town Corporation

          Exhibit
          No.                          Description

             3(a) -  Certificate of Incorporation of E'town Corp.
                     [Registration Statement No. 33-42509, Exhibit 4(a)]

             3(b) -  By-Laws of E'town Corp. [Form 10-K for the year 1996,
                     Exhibit 3(b)]

             3(c) -  Certificate of Incorporation of E'town Properties, Inc.
                     [Registration Statement
                      No. 33-32143, Exhibit 4(j)]

             3(d) -  By-Laws of E'town Properties, Inc. [Registration
                     Statement No. 33-32143, Exhibit 4(n)]

             4(a) -  Rights Agreement dated as of February 4, 1991 between
                     E'town and the Rights
                     Agent [Registration Statement No. 33-38566, Exhibit 4(n)]

             4(b) -  Indenture dated as of January 1, 1987 from E'town
                     Corporation to Boatmen's Trust,
                     Trustee, relating to the 6 3/4% Convertible Subordinated
                     Debentures due 2012
                     [Registration Statement No. 33-32143, Exhibit 4(a)]

            *4(c) -  Note Purchase Agreement relating to the 6.79% Senior
                     Notes due December 15, 2007

            10(a) -  Incentive Stock Option Plan [Registration Statement
                     No. 2-99602, Exhibit 28(a)] (1)

            10(b) -  Savings and Investment Plan - 401(k) [Form 10-K for the
                     year 1994, Exhibit 10(b)]

            10(c) -  E'town's 1987 Stock Option Plan [Registration Statement No.
                     33-42509, Exhibit 28] (1)

            10(d) -  Management Incentive Plan [Registration Statement No.
                     33-38566, Exhibit 10(i)] (1)

            10(e) -  E'town's 1998 Stock Option Plan [Definitive Proxy
                     Statement for 1998 Annual Meeting of Stockholders, filed
                     pursuant to Rule 14a-6(b)] (1)

            10(f) -  E'town's 1998  Directors Stock Plan [Definitive Proxy
                     Statement for 1998 Annual Meeting of Stockholders, filed
                     pursuant to Rule 14a-6(b)] (1)

            10(g) -  E'town's 1990 Performance Stock Program [Registration
                     Statement No. 33-46532, Exhibit 10(k)] (1)
<PAGE>

          Exhibit
          No.                          Description

           10(h) -   E'town's Dividend Reinvestment and Stock Purchase Plan
                     [Registration No. 333-16713, Exhibit 4(e)]

           10(i) -   Change of Control Agreement  for Andrew M. Chapman [Form
                     10-Q for the quarter ended March 31, 1995, Exhibit 10](1)

           10(j) -   Contract Between Edison Water Company, E'town Corporation
                     and the Township of Edison to Operate the Water System of
                     the Township of Edison, New Jersey dated as of June 25,
                     1997 [Form 10-Q for the quarter ended June 30, 1997,
                     Exhibit 10(a)]

          *10(k) -   Employment Contract Between E'town Corporation and
                     Anne Evans Estabrook (1)

          *10(l) -   Change in Control Agreement for Anne Evans Estabrook (1)

             *11 -   Statement Regarding Computation of Per Share Earnings

             *13 -   Portion of the 1997 Annual Report to Shareholders which
                     includes Management's Discussion and Analysis of
                     Consolidated Financial Condition and Results of
                     Operations, Consolidated Financial Statements, Notes to
                     Consolidated Financial Statements, Independent Auditors'
                     Report and Other Financial and Statistical Data and is
                     herein incorporated by reference.

             *21 -   Subsidiaries of the Corporation

             *23 -   Consent of Deloitte & Touche, LLP, Independent Auditors

             *27 -   E'town Corporation - Financial Data Schedule

                           Elizabethtown Water Company

            3(a) -  Form of Restated Certificate of Incorporation of
                    Elizabethtown Water Company [Form 10-K for the year ended
                    December 31, 1994, Exhibit 3(a)]

            3(b) -  By-Laws of Elizabethtown Water Company [Form 10-K for the
                    year 1996, Exhibit 3(b)]

            4(a) -  Indenture dated as of November 1, 1994 from Elizabethtown
                    Water Company to The Bank of New York, Trustee, relating to
                    the 7 1/4% Debentures due 2028 [Form 10-K for year ended
                    December 31, 1994, Exhibit 4(a)]

            4(b) -  Indenture dated as of September 1, 1992 from
                    Elizabethtown Water Company to The Bank of New York,
                    Trustee, relating to the 8% Debentures due 2022 [Form 10-K
                    for year ended December 31, 1993, Exhibit 4(a)]

            4(c) -  Indenture dated as of October 1, 1991 from Elizabethtown
                    Water Company to The Bank of New York, Trustee, relating to
                    the 8 3/4% Debentures due 2021 [Registration Statement No.
                    33-46532, Exhibit 4(f)]
<PAGE>

          Exhibit
          No.                          Description

            4(d) -  Indenture dated as of August 1, 1991 from Elizabethtown
                    Water Company to The Bank of New York, Trustee, relating to
                    the 6.60% Debentures due 2021 [Registration Statement No.
                    33-46532, Exhibit 4(g)]

            4(e) -  Indenture dated as of August 1, 1991 from Elizabethtown
                    Water Company to The Bank of New York, Trustee, relating to
                    the 6.70% Debentures due 2021 [Registration Statement No.
                    33-46532, Exhibit 4(h)]

            4(f) -  Indenture dated as of October 1, 1990 from Elizabethtown
                    Water Company to Citibank, N.A., Trustee, relating to the
                    7 1/2% Debentures due 2020 [Registration Statement No.
                    33-38566, Exhibit 4(e)]

            4(g) -  Indenture dated as of December 1, 1989 from Elizabethtown
                    Water Company to Citibank, N.A., Trustee, relating to the
                    7.20% Debentures due 2019 [Registration Statement No.
                    33-38566, Exhibit 4(f)]

            4(h) -  Indenture dated as of December 1, 1995 from Elizabethtown
                    Water Company to The Bank of New York, Trustee, relating to
                    the 5.60% Debentures due 2025

            4(i) -  Indenture dated as of June 1, 1997 from Elizabethtown Water
                    Company to The Bank of New York, Trustee, relating to
                    Variable Rate Demand Debentures, due 2027 (Series B)
                    [Form 10-Q for the quarter ended September 30, 1997,
                    Exhibit 4(i)]

            4(j) -  Indenture dated as of June 1, 1997 from Elizabethtown
                    Water Company to The Bank of New York, Trustee, relating to
                    Variable Rate Demand Debentures, due 2027 (Series A) [Form
                    10-Q for the quarter ended September 30, 1997, Exhibit 4(j)]

           10(a) -  Contract for service to Middlesex Water Company.
                    [Registration Statement No. 33-38566, Exhibit 10(a)]

           10(b) -  Contract for service to Edison Township. [Form 10-Q for the
                    quarter ended June 30, 1997, Exhibit 10(b)

           10(c) -  Contract for service to New  Jersey-American Water Company.
                    [Form 10-K for the year ended December 31, 1993,
                    Exhibit 10(c)]

           10(d) -  Contract for service to City of Elizabeth. [Form 10-K for
                    the year ended December 31, 1992, Exhibit 10(d)]

           10(e) -  Contract for service to Franklin Township.[Registration
                    Statement No. 33-46532, Exhibit 10(e)]

           10(f) -  Contract with the New Jersey Water Supply Authority for the
                    purchase of water from the Raritan Basin. [Registration
                    Statement No. 33-32143, Exhibit 10(e)]

          10(g) -   Supplemental Executive Retirement Plan of Elizabethtown
                    Water Company [Form 10-K for the year ended December 31,
                    1992, Exhibit 10(g)] (1)

 <PAGE>
          Exhibit
          No.                          Description

           10(h) -  Medical Reimbursement Plan of Elizabethtown Water Company
                    [Form 10-K for the year ended December 31, 1992, Exhibit
                    10(h)] (1)

           10(i) -  Supplemental Executive Retirement Plan of Elizabethtown
                    Water Company [Form 10-Q for the year ended September 30,
                    1995, Exhibit 10]

          *10(j) -  Employment Contract Between Elizabethtown Water Company and
                    Anne Evans Estabrook (1)

          *12(a) -  Computation of Ratio of Earnings to Fixed Charges

          *12(b) -  Computation of Ratio of Earnings to Fixed Charges and
                    Preferred Dividends

             *21 -  Subsidiaries of the Company

             *23 -   Consent of Deloitte & Touche LLP, Independent Auditors

             *27 -   Elizabethtown Water Company - Financial Data Schedule.


<PAGE>
                                                                      APPENDIX I


INDEPENDENT AUDITORS'REPORT

TO THE SHAREHOLDER AND BOARD OF DIRECTORS OF ELIZABETHTOWN WATER COMPANY:


We have audited the accompanying  consolidated  balance sheets and statements of
consolidated capitalization of Elizabethtown Water Company and its subsidiary as
of  December  31,  1997 and 1996,  and the related  statements  of  consolidated
income,  shareholder'  equity, and cash flows for each of the three years in the
period ended December 31, 1997. Our audits also included the financial statement
schedules  listed  in the  Index  at Item 14.  These  financial  statements  and
financial   statement   schedules  are  the   responsibility  of  the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements and financial statement schedules based on our audits.

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

In our opinion,  such consolidated  financial  statements present fairly, in all
material respects, the financial position of Elizabethtown Water Company and its
subsidiary  at December 31, 1997 and 1996,  and the results of their  operations
and their cash flows for each of the three  years in the period  ended  December
31, 1997 in conformity with generally accepted accounting  principles.  Also, in
our opinion, such financial statement schedules,  when considered in relation to
the basic consolidated  financial statements taken as a whole, present fairly in
all material respects the information set forth therein.


/s/ Deloitte & Touche

February 18, 1998
Parsippany, New Jersey








                                   -1-
<PAGE>

ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY                           APPENDIX I
STATEMENTS OF CONSOLIDATED INCOME
          (In Thousands)
                                                   Year Ended December 31,
                                               1997          1996         1995

--------------------------------------------------------------------------------
Operating Revenues                          $ 131,788     $ 110,358   $ 108,398
--------------------------------------------------------------------------------
Operating Expenses:
  Operation                                    45,301       43,713       43,132
  Maintenance                                   6,548        5,859        5,806
  Depreciation                                 12,233        9,893        8,808
  Revenue taxes                                16,550       13,820       13,591
  Real estate, payroll and other taxes          3,064        2,869        2,772
  Federal income taxes (Note 3)                11,026        7,360        8,002
--------------------------------------------------------------------------------
        Total operating expenses               94,722       83,514       82,111
--------------------------------------------------------------------------------
Operating Income                               37,066       26,844       26,287
--------------------------------------------------------------------------------
Other Income (Expense):
  Allowance for equity funds used during
    construction (Note 2)                         215        3,725        2,976
  Federal income taxes (Note 3)                  (248)      (1,462)      (1,159)
  Other - net                                     494          452          336
--------------------------------------------------------------------------------
        Total other income (expense)              461        2,715        2,153
--------------------------------------------------------------------------------
Total Operating and Other Income               37,527       29,559       28,440
--------------------------------------------------------------------------------
Interest Charges:
  Interest on long-term debt                   14,030       13,011       10,892
  Other interest expense - net                  2,382        2,640        2,344
  Capitalized interest (Note 2)                  (166)      (3,208)      (2,445)
  Amortization of debt discount and expense-net   376          361          324
--------------------------------------------------------------------------------
        Total interest charges                 16,622       12,804       11,115
--------------------------------------------------------------------------------
Net Income                                     20,905       16,755       17,325
Preferred Stock Dividends                         813          813          813
--------------------------------------------------------------------------------
EARNINGS APPLICABLE TO COMMON STOCK         $  20,092     $ 15,942    $  16,512
================================================================================

See Notes to Consolidated Financial Statements.

                                   -2-
<PAGE>


ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY                            APPENDIX I
CONSOLIDATED BALANCE SHEETS
       (In Thousands)
                                                            December 31,
Assets                                               1997                 1996
--------------------------------------------------------------------------------

Utility Plant-At Original Cost:
   Utility plant in service                      $ 677,909            $ 654,713
   Construction work in progress                     9,300                7,994
--------------------------------------------------------------------------------
         Total utility plant                       687,209              662,707
   Less accumulated depreciation and amortization  114,424              102,683
--------------------------------------------------------------------------------
         Utility plant-net                         572,785              560,024
--------------------------------------------------------------------------------

Non-utility Property                                    79                   81
--------------------------------------------------------------------------------

Current Assets:
   Cash and cash equivalents                        4,226                 3,122
   Customer and other accounts receivable
    (less reserve: 1997, $612, 1996, $566)         17,283                16,725
   Unbilled revenues                                9,663                 9,356
   Materials and supplies-at average cost           1,966                 2,045
   Prepaid insurance, taxes, other                  3,461                 3,742
--------------------------------------------------------------------------------
         Total current assets                      36,599                34,990
--------------------------------------------------------------------------------

Deferred Charges:
   Waste residual management                          936                 1,064
   Unamortized debt and preferred stock expenses    9,656                 8,989
   Taxes recoverable through future rates (Note 3) 21,439                30,435
   Postretirement benefit expense (Note 10)         3,738                 3,564
   Other unamortized expenses                       1,086                 1,632
--------------------------------------------------------------------------------
         Total deferred charges                    36,855                45,684
--------------------------------------------------------------------------------
             Total                              $ 646,318             $ 640,779
================================================================================

See Notes to Consolidated Financial Statements.

                                   -3-
<PAGE>

ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY                            APPENDIX I
CONSOLIDATED BALANCE SHEETS
       (In Thousands)
                                                            December 31,
Capitalization and Liabilities                       1997                 1996
--------------------------------------------------------------------------------

Capitalization (Notes 4 and 5):
      Common shareholder's equity                $ 193,354            $ 182,293
      Cumulative preferred stock                    12,000               12,000
      Long-term debt - net                         231,944              181,933
--------------------------------------------------------------------------------
            Total capitalization                   437,298              376,226
--------------------------------------------------------------------------------

Current Liabilities:
      Notes payable - banks (Note 5)               18,000                69,000
      Long-term debt - current portion (Note 4)        30                    30
      Accounts payable and other liabilities       10,626                17,093
      Customers' deposits                             272                   300
      Municipal and state taxes accrued            16,817                13,887
      Interest accrued                              3,120                 3,158
      Preferred stock dividends accrued                59                    59
--------------------------------------------------------------------------------
            Total current liabilities              48,924               103,527
--------------------------------------------------------------------------------

Deferred Credits:
      Customers' advances for construction         39,131                43,636
      Federal income taxes (Note 3)                67,851                73,950
      Unamortized investment tax credits (Note 10)  8,042                 8,245
      Accumulated postretirement benefits           4,209                 3,596
--------------------------------------------------------------------------------
            Total deferred credits                119,233               129,427
--------------------------------------------------------------------------------

Contributions in Aid of Construction               40,863                31,599
--------------------------------------------------------------------------------

Commitments and Contingent Liabilities (Note 9)
--------------------------------------------------------------------------------
                Total                           $ 646,318             $ 640,779
================================================================================

See Notes to Consolidated Financial Statements.

                                   -4-
<PAGE>

ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY                            APPENDIX I
STATEMENTS OF CONSOLIDATED CAPITALIZATION
            (In Thousands)
                                                            December 31,
                                                     1997                 1996
--------------------------------------------------------------------------------

Common Shareholder's Equity (Notes 4 and 5):
  Common stock without par value, authorized,
   10,000,000 shares, issued 1997 and 1996,
   1,974,902 shares                               $ 15,741            $  15,741
  Paid-in capital                                  124,560              117,457
  Capital stock expense                               (485)                (485)
  Retained earnings                                 53,538               49,580
--------------------------------------------------------------------------------
            Total common shareholder's equity      193,354              182,293
--------------------------------------------------------------------------------

Cumulative Preferred Stock (Note 4):
  $100 par value, authorized, 200,000 shares;
   $5.90 series, issued and outstanding,
   120,000 shares                                   12,000               12,000

Cumulative Preferred Stock:
  $25 par value, authorized, 500,000 shares; none issued
--------------------------------------------------------------------------------

Long-Term Debt:

 Elizabethtown Water Company:
   7.20% Debentures, due 2019                       10,000               10,000
   7 1/2% Debentures, due 2020                      15,000               15,000
   6.60% Debentures, due 2021                       10,500               10,500
   6.70% Debentures, due 2021                       15,000               15,000
   8 3/4% Debentures, due 2021                      27,500               27,500
   8% Debentures, due 2022                          15,000               15,000
   5.60% Debentures, due 2025                       40,000               40,000
   Variable Rate Debentures, due 2027               50,000
   7 1/4% Debentures, due 2028                      50,000               50,000

 The Mount Holly Water Company:
   Notes Payable (due serially through 2000)            57                   87
--------------------------------------------------------------------------------
      Total long-term debt                         233,057              183,087
  Unamortized discount-net                          (1,113)              (1,154)
--------------------------------------------------------------------------------
              Total long-term debt-net             231,944              181,933
--------------------------------------------------------------------------------
                 Total Capitalization            $ 437,298            $ 376,226
================================================================================

See Notes to Consolidated Financial Statements.

                                    -5-
<PAGE>

ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY                            APPENDIX I
STATEMENTS OF CONSOLIDATED SHAREHOLDER'S EQUITY
           (In Thousands)

                                                    Year Ended December 31,
                                               1997          1996         1995
--------------------------------------------------------------------------------

Common Stock:                                $ 15,741     $ 15,741     $ 15,741
--------------------------------------------------------------------------------

Paid-in Capital:
       Balance at Beginning of Year           117,457       112,157      88,869
       Capital contributed by parent company    7,103         5,300      23,288
--------------------------------------------------------------------------------
       Balance at End of Year                 124,560       117,457     112,157
--------------------------------------------------------------------------------

Capital Stock Expense:                           (485)         (485)       (485)
--------------------------------------------------------------------------------

Retained Earnings:
       Balance at Beginning of Year            49,580       49,272       47,500
       Net income                              20,905       16,755       17,325
       Dividends on common stock              (16,134)     (15,634)     (14,740)
       Dividends on preferred stock              (813)        (813)        (813)
--------------------------------------------------------------------------------
       Balance at End of Year                  53,538       49,580       49,272
--------------------------------------------------------------------------------

          Total Common Shareholder's Equity  $193,354    $ 182,293     $176,685
================================================================================

See Notes to Consolidated Financial Statements.

                                   -6-
<PAGE>


ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY                            APPENDIX I
STATEMENTS OF CONSOLIDATED CASH FLOWS
           (In Thousands)
                                                      Year Ended December 31,
                                                  1997          1996      1995
-------------------------------------------------------------------------------
Cash Flows from Operating Activities:
 Net income                                  $ 20,905     $ 16,755     $ 17,325
 Adjustments to reconcile net income to net
   cash provided by operating activities:
    Depreciation                               12,233        9,893        8,808
    Decrease (increase) in deferred charges       690         (613)         328
    Deferred income taxes and investment tax
      credits-net                               2,693        4,853        4,487
    Allowance for funds used during construction (381)      (6,934)      (5,421)
    Other operating activities-net                362           68          (62)
Change in current  assets and current liabilitie
  excluding  cash,  short-term investments and
  current portion of debt:
      Customer and other accounts receivable     (558)         218       (4,593)
      Unbilled revenues                          (307)      (1,912)        (282)
      Accounts payable and other liabilities   (6,495)         365       (1,415)
      Accrued/prepaid interest and taxes        3,173       (1,955)       2,353
      Other                                        78         (133)        (187)
--------------------------------------------------------------------------------
    Net cash provided by operating activities   32,393       20,605       21,341
--------------------------------------------------------------------------------

Cash Flows (Used) Provided by Financing Activities:
 Capital contributed by parent company          7,103        5,300       23,289
 Proceed from issuance of debentures           50,000                    40,000
 Debt and preferred stock issuance and
   amortization costs                            (667)         396         (483)
 Repayment of long-term debt                      (30)         (30)         (39)
 Contributions and advances for
  construction-net                              4,759        2,521        3,441
 Net(decrease)increase in notes payable-banks (51,000)      42,000        4,000
 Dividends paid on common stock and preferred (16,842)     (16,342)     (15,448)
--------------------------------------------------------------------------------
    Net cash (used) provided by
     financing activities                      (6,677)      33,845       54,760
--------------------------------------------------------------------------------

Cash Flows Used for Investing Activities:
 Utility plant expenditures (excluding allowance
 for funds used during construction)          (24,612)     (55,125)     (73,789)
--------------------------------------------------------------------------------
         Cash used for investing activities   (24,612)     (55,125)     (73,789)
--------------------------------------------------------------------------------
Net (Decrease)  in Cash and
  Cash Equivalents                             1,104          (675)       2,312
Cash and Cash Equivalents at
  Beginning of Year                            3,122         3,797        1,485
--------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year    $  4,226      $  3,122      $ 3,797
================================================================================
Supplemental Disclosures of Cash
  Flow Information:
    Cash paid during the year for:
       Interest (net of amount capitalized) $ 16,063      $  8,481      $ 7,833
       Income taxes                         $  5,981      $  5,723      $ 4,158
       Preferred stock dividends            $    708      $    708      $   708

See Notes to Consolidated Financial Statements.

                                   -7-
<PAGE>

ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization
Elizabethtown Water Company (Elizabethtown or Company)and its wholly owned
subsidiary, The Mount Holly Water Company (Mount Holly) is a wholly owned
subsidiary of E'town Corporation (E'town or Corporation). Elizabethtown and
Mount Holly are regulated water companies which, as a consolidated entity are
referred to herein as Elizabethtown Water Company (Elizabethtown Water
Company).  E'town, a New Jersey holding company, is the parent company of
Elizabethtown Water Company, Edison Water Company, E'town Properties, Inc.
and owner of a 65% interest in Applied Watershed Management, LLC (AWM).

2. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include Elizabethtown and its
subsidiary, Mount Holly. Significant intercompany accounts and transactions
have been eliminated. Elizabethtown and Mount Holly are regulated water
utilities and follow the Uniform System of Accounts, as adopted by the New
Jersey Board of Public Utilities (BPU).

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
These estimates and assumptions affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements, and the reported amounts of revenues and
expenses during the reporting period.

Utility Plant and Depreciation
Income is charged with the cost of labor, materials and other expenses
incurred in making repairs and minor replacements, and in maintaining the
properties. Utility plant accounts are charged with the cost of improvements
and major replacements of property. When depreciable property is retired or
otherwise disposed of, the cost thereof, plus the cost of removal net of
salvage, is charged to accumulated depreciation. Depreciation is generally
computed on a straight-line basis at functional rates for various classes of
assets. The provision for depreciation, as a percentage of average
depreciable property, was 1.85% for 1997, 1.73% for 1996 and 1.83% for 1995.

Allowance for Funds Used During Construction
Elizabethtown and Mount Holly capitalize, as an appropriate cost of utility
plant, an Allowance for Funds Used During Construction (AFUDC), which
represents the cost of financing major projects during construction. AFUDC, a
non-cash credit on the Statements of Consolidated Income, is added to the
construction cost of the project and included in rate base and then recovered
through depreciation charges in rates during the assets' useful life. AFUDC
is comprised of a debt component (credited to Interest Charges), and an
equity component (credited to Other Income) in the Statements of Consolidated
Income. AFUDC totaled $.38 million, $6.93 million and $5.42 million for 1997,
1996 and 1995, respectively. AFUDC increased in 1996 and 1995 during the
construction of the Canal Road Water Treatment Plant.

Revenues
Revenues are recorded based on the amounts of water delivered to customers
through the end of each accounting period. This includes an accrual for
unbilled revenues for water delivered from the time meters were last read to
the end of the respective accounting periods.

Federal Income Taxes
Elizabethtown Water Company files a consolidated tax return with Etown.
Deferred income taxes are provided for temporary differences in the
recognition of revenues and expenses for tax and financial statement purposes
to the extent permitted by the BPU. Elizabethtown and Mount Holly account for
prior years investment tax credits by the deferral method, which amortizes
the credits over the lives of the respective assets.

                                       8
<PAGE>

Customers' Advances for Construction and Contributions in Aid of Construction
Customers' Advances for Construction (CAC) and Contributions in Aid of
Construction (CIAC) represent capital provided by developers for main
extensions to new real estate developments. Some portion of CAC is refunded
based upon the revenues that the new developments generate. CIAC is customer
advances for construction that, under the terms of individual main extension
agreements, are no longer subject to refund.

Short-term Investments
Short-term investments are stated at cost, which approximates market value.

Cash Equivalents
Elizabethtown Water Company considers all highly liquid debt instruments
purchased with maturities of three months or less to be cash equivalents.

Reclassification
Certain prior year amounts have been reclassified to conform to the current
year's presentation.

3. Federal Income Taxes
The computation of federal income taxes and the reconciliation of the tax
provision computed at the federal statutory rate (35%) with the amount
reported in the Statements of Consolidated Income follow:

                                       9
<PAGE>

                                      1997     1996      1995
                                   ---------------------------
                                     (Thousands of Dollars)

Tax expense at statutory rate      $11,262   $ 8,952   $ 9,270
Items for which deferred taxes
 are not provided:
   Difference between book
   and tax depreciation                 58       132       133
   Other                               157       (56)      (37)
Investment tax credits                (203)     (205)     (204)
                                   ---------------------------
Provision for federalincome taxes  $11,274   $ 8,823   $ 9,162
                                   ===========================
The provision for federal income
taxes is composed of the following:
 Current                           $ 7,212   $ 3,764   $ 6,409
Tax on (deposits)refunds on main
 extensions                          1,369       207    (1,734)
 Deferred:
   Tax depreciation                  2,716     3,379     3,492
   Capitalized interest                 19     1,264       800
   Main cleaning and lining            612       587       405
   Other                              (450)     (174)       (8)
Investment taxcredits - net           (203)     (204)     (202)
                                   ---------------------------
Total provision                    $11,274   $ 8,823   $ 9,162
                                   ===========================

In accordance with SFAS No. 109, deferred tax balances have been reflected at
Elizabethtown Water Companys  current consolidated federal income tax rate,
which is 35%.

                                       10
<PAGE>

The tax effect of significant temporary differences representing deferred
income tax assets and liabilities as of December 31, 1997 and 1996 is as
follows:


                                        1997        1996
                                   ------------------------
                                    (Thousands of Dollars)

Water utility plant - net            $(43,611)   $(40,283)
Taxes recoverable through
 future rates                         (21,439)    (30,435)
Prepaid pension expense                    75         (35)
Capitalized interest                   (2,591)     (2,573)
Waste residuals                          (322)       (373)
Other assets                              415         285
Other liabilities                        (378)       (536)
                                     --------------------
Net deferred income tax
 liabilities                         $(67,851)   $(73,950)
                                     ====================

4. Capitalization
E'town periodically makes equity contributions to Elizabethtown from the
proceeds of common stock issued under E'town's Dividend Reinvestment and
Stock Purchase Plan (DRP). E'town contributed
$6.98 million and $5.30 million in 1997 and 1996, respectively, to
Elizabethtown, from the proceeds of DRP issuances.

Cumulative Preferred Stock
Elizabethtown's $5.90 Cumulative Preferred Stock is not redeemable at the
option of the Company. Elizabethtown is required to redeem the entire issue
at $100 per share on March 1, 2004.

                                       11
<PAGE>

Long-term Debt
Elizabethtown's long-term debt indentures restrict the amount of retained
earnings available to Elizabethtown to pay cash dividends, (which is the
primary source of funds available to the Corporation for payment of dividends
on its common stock), or acquire Elizabethtown's common stock, all of which
is held by E'town. At December 31, 1997, $7.63 million of Elizabethtown's
retained earnings were restricted under the most restrictive indenture
provision. Therefore, $37.93 million of E'town's consolidated retained
earnings were unrestricted.

On June 4, 1997, Elizabethtown issued a total of $50 million of 30-year
Variable Rate Debentures due December 2027, $25 million of Series A and $25
million of Series B, to evidence a like amount of Variable Rate Notes issued
through the New Jersey Economic Development Authority (NJEDA). The proceeds
were used to repay $50 million of balances outstanding under the Companys
revolving credit agreement. The NJEDA Notes are remarketed on a weekly basis,
at which time the interest rates on each issue are subject to change. The
rates in effect as of December 31, 1997, were 3.60% for Series A and 3.55%
for Series B.

 5. Lines of Credit
Elizabethtown  has $82.5 million of uncommitted lines of credit with several
banks. Information relating to bank borrowings for 1997, 1996 and 1995 is as
follows:
                                     1997     1996      1995
                                  ---------------------------
                                    (Thousands of Dollars)

Maximum amount outstanding         $69,500  $69,000  $60,000
Average monthly amount
 outstanding                       $40,886  $45,240  $39,636
Average interest rate at year end      6.0%     5.7%     5.9%
Compensating balances at year end  $   0    $  0     $   0
 Weighted average interest rate
  based on average daily balances      5.8%      5.8%    6.2%

                                       12
<PAGE>

6. Financial Instruments
The carrying amounts and the estimated fair values, as of December 31, 1997
and 1996, of financial instruments issued or held by the Elizabethtown Water
Company are as follows:
                                           1997       1996
                                      ------------------------
                                       (Thousands of Dollars)
Cumulative preferred stock:
   Carrying amount                     $  12,000   $  12,000
   Estimated fair value                   11,760      12,000
Long-term debt:
   Carrying amount                     $ 231,944   $ 181,933
   Estimated fair value                  239,585     185,375

Estimated fair values are based upon quoted market prices for these or
similar securities.

7. Regulatory Assets and Liabilities
Certain costs incurred by Elizabethtown and Mount Holly, which have been
deferred, have been recognized as regulatory assets and are being amortized
over various periods, as set forth below:

                                          1997        1996
                                     -----------------------
                                      (Thousands of Dollars)

Waste residual management              $   936    $   1,064
Unamortized debt and
 preferred stock expense                 9,656        8,988
Taxes recoverable through
 future rates (Note 3)                  21,439       30,435
Postretirement benefit
 expense (Note 10)                       3,738        3,465
Safety management expense                  331          418
Business process redesign                  284          362
Rate case expenses                          80          201
                                       --------------------
Total                                  $36,464      $44,933
                                       ====================

                                       13
<PAGE>

Waste Residual Management
The costs of disposing of the byproducts generated by Elizabethtowns and
Mount Holly's water treatment plants are being amortized and recovered in
rates over three and five-year periods, respectively, for ratemaking and
financial statement purposes. No return is being earned on the deferred
balances related to these programs.

Unamortized Debt and Preferred Stock Expenses
Costs incurred in connection with the issuance or redemption of long-term
debt have been deferred and are being amortized and recovered in rates over
the lives of the respective issues for ratemaking and financial statement
purposes. Costs incurred in connection with the issuance and redemption of
preferred stock have been deferred and are being amortized and recovered in
rates over a 10-year period for ratemaking and financial statement purposes.

Other
Safety management expenses and business process redesign expenses relate to
studies undertaken by the Company and are being amortized and recovered in
rates over five years.

Rate case expenses are being substantially recovered in rates during two-year
periods.

There were no regulatory liabilities at December 31, 1997 or 1996.

8. Regulatory Matters
Rates
Elizabethtown
On December 17, 1997, the BPU adopted an Order for rate increases for
Elizabethtown and Mount Holly, effective January 1, 1998, for the recovery of
costs associated with SFAS No. 106 "Employers' Accounting For Postretirement
Benefits Other Than Pensions." The resulting rate increases reflect recovery
over a 15-year period of amounts previously deferred on the Consolidated
Balance Sheets for postretirement benefits since 1993 and prospectively, the
difference between the amounts currently recovered in rates and the full SFAS
No. 106 expense on an accrual basis. The total increases in annual operating
revenues resulting from these petitions are $.39 million for Elizabethtown
and $.02 million for Mount Holly.

                                       14
<PAGE>

On October 25, 1996, Elizabethtown received a rate increase under a
stipulation resulting in an increase in annual revenues of $21.8 million for
the construction, financing and operating costs of the Canal Road Water
Treatment Plant.

Mount Holly
In June 1995, Mount Holly petitioned the BPU for an increase in rates, to
take place in two phases. The first phase was stipulated for a rate increase
effective February 1996 of $.55 million. The second phase would recover the
cost of a new water supply, treatment and transmission system necessary to
obtain water outside a designated portion of an aquifer currently used by
Mount Holly, and to treat and pump the water into the Mount Holly
distribution system.  Management believes this project is the most
cost-effective alternative available to Mount Holly to comply with state
legislation that restricts the amount of water that can be withdrawn from an
aquifer in certain areas of southern New Jersey. The project is referred to
as the Mansfield Project. Mount Holly has expended $3.56 million on the
Mansfield Project as of December 31, 1997, excluding AFUDC. The land for the
supply and treatment facilities has been purchased and test wells have been
drilled and can produce the required supply.  In September, the New Jersey
Department of Environmental Protection (DEP) granted Mount Holly a water
allocation permit for four wells that are to be the water supply for this
project. In October 1995, another water purveyor requested of the DEP, and
was subsequently granted, an adjudicatory hearing in opposition to the
permit. In August 1997, Mount Holly settled this matter by entering into an
agreement with the other water purveyor and the DEP. Under the agreement,
Mount Holly will purchase 1.0 million gallons per day from the other purveyor
for a period to include the later of two years or the date the Mansfield
Project is placed into service. Water purchases began in March 1998, after
completion of an interconnection.

As a result of the settlement agreement, Mount Holly expects to continue with
its plan to construct the Mansfield Project. The BPU and the parties to Mount
Holly's last rate case are participating in a proceeding connected with the
second phase of the 1995 case to clarify the need for and cost-effectiveness
of the Mansfield Project.

On September 23, 1997, Mount Holly filed a petition with the BPU to establish
a Purchased Water Adjustment Clause (PWAC) to reflect the cost of water
expected to be purchased from the purveyor under the settlement agreement
discussed above. The petition requests an increase in annual operating
revenues of approximately $1.34 million or 40.3%.

                                       15
<PAGE>

In April 1998, Mount Holly expects to file a petition with the BPU for a rate
increase, which will reflect additional construction and financing costs, as
well as increases in operating costs since rates were last established in
January 1996. This rate case will include approximately $7.27 million of the
cost for a portion of the Mansfield Project to serve a section of Mount
Holly.  This amount was part of the second phase of the 1995 rate case
discussed above. The rate case will also reflect $6.0 million in additions to
utility plant since Mount Holly's base rates were last adjusted in January
1996. A decision is expected by the end of 1998. Mount Holly expects to file
an additional rate case next year for the remaining cost of the Mansfield
Project, estimated to be $11.3 million, to coincide with the completion of
the project and the expiration of the agreement to purchase water from the
other purveyor.

9. Commitments and Contingent Liabilities
Elizabethtown is obligated, under a contract that expires in 2013, to
purchase from the New Jersey Water Supply Authority (NJWSA) a minimum of 37
billion gallons of water annually. Effective July 1, 1997, the annual cost of
water under contract is $7.86 million. The Company purchases additional water
from the NJWSA on an as-needed basis. The total cost of water purchased from
the NJWSA was $8.79 million, $8.70 million and $9.34 million for 1997, 1996
and 1995, respectively.

Capital expenditures of Elizabethtown and Mount Holly are estimated to be
$112.66 million and $21.85 million, respectively, through 2000.

Expected future minimum rental payments required under noncancelable leases
with terms in excess of one year at December 31 of each of the years 1998
through 2002 are: 1998, $.65 million; 1999, $.69 million; 2000, $.72 million;
2001, $.76 million and 2002, $.77 million. Rent expense totaled $.72 million,
$.84 million and $.82 million in 1997, 1996 and 1995, respectively.

10. Pension Plan and Other Postretirement Benefits
Pension Plan
Elizabethtown has a trusteed, noncontributory Retirement Plan (Plan), which
covers most employees. Under the Company's funding policy, the Corporation
makes contributions that meet the minimum funding requirements of the
Employee Retirement Income Security Act of 1974. The components of the net
pension costs for the Retirement Plan are as follows:

                                       16
<PAGE>

                                1997      1996      1995
                              ---------------------------
                                 (Thousands of Dollars)

Service cost - benefits
 earned during the year       $ 1,278    $1,322   $  915
Interest cost on projected
 benefit obligation             2,618     2,480    2,156
Return on Plan assets          (8,150)   (4,542)  (7,587)
Net amortization and
 deferral                       4,551     1,221    4,862
                               -------------------------
Net pension costs              $  297     $ 481    $ 346
                               =========================

Plan assets are invested in publicly traded debt and equity securities. The
reconciliations of the funded status of the Plan to the amounts recognized in
the Consolidated Balance Sheets are presented below.

                                       1997       1996
                                  -----------------------
                                  (Thousands of Dollars)

Market value of Plan assets        $ 46,537    $ 40,016
                                   --------------------
Actuarial present value of
 Plan benefits:
Vested benefits                      31,186      28,492
Non-vested benefits                     101          97
                                    -------------------
Accumulated benefit obligation       31,287      28,589
Projected increases in
 compensation levels                  7,458       7,183
                                    -------------------
Projected benefit obligation         38,745      35,772
                                    -------------------
Excess of Plan assets over
 projected benefit obligation         7,793       4,244
Unrecognized net gain                (7,920)     (3,978)
Unrecognized prior service cost       1,535       1,724
Unrecognized transition asset        (1,624)     (1,891)
                                    -------------------
Prepaid (accrued) pension expense   $  (216)   $     99
                                    ===================

                                       17
<PAGE>


The assumed rates used in determining the actuarial present value of the
projected benefit obligations were as follows:

                                   1997     1996      1995
                                ---------------------------
Discount rate                      7.25%    7.50%    7.00%
Compensation increase              5.50%    5.50%    5.50%
Rate of return on Plan assets      9.00%    9.00%    9.00%


The Company also has a supplemental retirement plan for certain management
employees that is not funded. Benefit payments under this plan are made
directly by the Company. At December 31, 1997, the projected benefit
obligation of this supplemental plan was $1.43 million and the net periodic
benefit cost was $.27 million and $.25 million for 1997 and 1996,
respectively. The plan assumed a discount rate of 7.25% for 1997 and 7.50%
for 1996, and a compensation increase of 4% for both 1997 and 1996 for
purposes of determining the actuarial present value of the projected benefit
obligations.

Other Postretirement Benefits
Elizabethtown and Mount Holly provide certain health care and life insurance
benefits for substantially all of their retired employees. As a result of a
contract negotiated in February 1996 with the Company's bargaining unit, all
union and non-union employees retiring after January 1, 1997 pay 25% of
future increases in the premiums the Company pays for postretirement medical
benefits.

Under SFAS No. 106, the costs of postretirement benefits are accrued for each
year the employee renders service, based on the expected cost of providing
such benefits to the employee and the employee's beneficiaries and covered
dependents, rather than expensing these benefits on a pay-as-you-go basis.

Based upon an independent actuarial study, the transition obligation,
calculated under SFAS No. 106, was $7.21 million as of January 1, 1993, the
date of adoption of SFAS No. 106. The transition obligation is being
amortized over 20 years.

                                       18
<PAGE>

The following table details the postretirement benefit obligation at
December 31:

                                       1997       1996
                                   -----------------------
                                    (Thousands of Dollars)

Retirees                            $ 1,990      $ 2,015
Fully eligible plan participants      4,566        4,034
                                    --------------------
Accumulated postretirement
 benefit obligation                   6,556        6,049
Plan assets at fair value            (1,331)        (764)
Unrecognized net gain                 3,966        3,952
Unrecognized transition obligation   (5,423)      (5,772)
                                    --------------------
Accrued postretirement
 benefit obligation                 $ 3,768      $ 3,465
                                    ====================

The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation as of December 31, 1997, and for the year
1997 was 9%. This rate decreases linearly each successive year until it
reaches 3.8% in 2007, after which the rate remains constant. The assumed
rates used in determining the actuarial present value of the projected
benefit obligations were as follows:

                               1997     1996      1995
                              -------------------------
Discount rate                  7.25%    7.50%    7.00%
Rate of return on plan assets  9.00%    9.00%     n/a


A single percentage point increase in the assumed health care cost trend rate
for each year would increase the accumulated postretirement benefit
obligation as of December 31, 1997, and the net postretirement service and
interest cost by approximately $.90 million and $.26 million, respectively.

                                       19
<PAGE>

Based upon the independent actuarial study referred to above, the annual
postretirement cost calculated under SFAS No. 106 is as follows:

                                      1997     1996     1995
                                    -------------------------
                                     (Thousands of Dollars)

Service cost - benefits earned
 during the year                     $ 383    $ 416    $ 474
Interest cost on accumulated
 postretirement benefit obligation     444      425      579
Return on Plan assets                  (57)     (72)
Amortization of transition obligation  361      417      360
Amortization of gain                  (223)
                                     -----------------------
Total                                $ 908    $1,186  $1,413
Deferred amount for regulated
 companies pending recovery           (273)     (565)   (824)
                                     -----------------------
Net postretirement benefit expense   $ 635    $  621  $  589
                                     =======================

The rate increases effective January 1, 1998 allows for the full recovery of
costs associated with the implementation of SFAS No. 106, including an
amortization over 15 years of amounts previously deferred which were in
excess of amounts previously being recovered in rates. As of December 31,
1997, the amounts that have been deferred are $3.59 million and $.14 million
for Elizabethtown and Mount Holly, respectively.

                                       20
<PAGE>

11. Quarterly Financial Data (Unaudited)
A summary of financial data for each quarter of 1997 and 1996 follows:

                                                  Earnings
                                                 Applicable
         Operating   Operating         Net       To Common
Quarter   Revenues     Income         Income        Stock
----------------------------------------------------------
   (Thousands of Dollars Except Per Share Amounts)

1997
   1st   $ 30,013     $ 8,092        $ 3,885       $ 3,682
   2nd     32,333       8,981          4,862         4,659
   3rd     37,815      11,926          7,982         7,779
   4th     31,627       8,067          4,176         3,972
----------------------------------------------------------
Total    $131,788     $37,066        $20,905       $20,092
==========================================================
1996
   1st   $ 25,760     $ 5,651        $ 3,594       $ 3,391
   2nd     27,263       6,484          4,365         4,163
   3rd     28,173       7,146          4,911         4,708
   4th     29,162       7,562          3,885         3,680
----------------------------------------------------------
Total   $ 110,358     $26,843        $16,755       $15,942
==========================================================

Water utility revenues are subject to seasonal fluctuation due to normal
increased water consumption during the third quarter of each year.


                                       21
<PAGE>