<PAGE>   1

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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------

                                   FORM 10-K
                            ------------------------
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
    OF 1934

For the fiscal year ended December 31, 1999
                                       OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

For the transition period from __________ to __________

                         Commission file number 1-9776
                            ------------------------

                                 NISOURCE INC.
                            ------------------------
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S>                                            <C>
                   INDIANA                                      35-1719974
       (STATE OR OTHER JURISDICTION OF                       (I.R.S. EMPLOYER
       INCORPORATION OR ORGANIZATION)                       IDENTIFICATION NO.)
            801 EAST 86TH AVENUE                                   46410
            MERRILLVILLE, INDIANA                               (ZIP CODE)
  (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>

        Registrant's telephone number, including area code 219-853-5200

Securities registered pursuant to Section 12(b) of the Act:

<TABLE>
<S>                                            <C>
                                                           NAME OF EACH EXCHANGE
             TITLE OF EACH CLASS                            ON WHICH REGISTERED
                COMMON SHARES                          NEW YORK, CHICAGO AND PACIFIC
       PREFERRED SHARE PURCHASE RIGHTS                 NEW YORK, CHICAGO AND PACIFIC
       OBLIGATIONS PURSUANT TO SUPPORT                            NEW YORK
AGREEMENTS WITH NISOURCE CAPITAL MARKETS, INC.
  CORPORATE PREMIUM INCOME EQUITY SECURITIES                      NEW YORK
</TABLE>

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 Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No__

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not 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]

     As of February 29, 2000, 124,685,697 Common Shares (not including
23,098,521 Common Shares held in treasury) were outstanding. The aggregate
market value of the Common Shares (based upon the February 29, 2000, closing
price of $12.938 on the New York Stock Exchange) held by nonaffiliates was
approximately $1,508,260,520.88.

                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the NiSource Inc. 1999 Annual Report to Shareholders are
incorporated by reference into Parts I, II and IV of this report.
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<PAGE>   2

                                     PART I

ITEM 1. BUSINESS

                       OVERVIEW OF CONSOLIDATED BUSINESS

     NiSource Inc. (NiSource), formerly NIPSCO Industries, Inc., is an energy
and utility-based holding company headquartered in Merrillville, Indiana, that
provides natural gas, electricity and water to the public for residential,
commercial and industrial uses. NiSource was organized as an Indiana holding
company in 1987 under the name "NIPSCO Industries, Inc.," and changed its name
to NiSource Inc. on April 14, 1999, to reflect its new direction as a
multi-state supplier of energy and water resources and related services.

     NiSource's gas business is comprised primarily of regulated gas utilities
that operate throughout northern Indiana and New England. In addition, NiSource
expanded its gas marketing, trading and storage operations with the April 1999
acquisition of TPC Corporation, now renamed EnergyUSA-TPC Corp. (TPC).
NiSource's electric business is comprised of a regulated electric utility that
operates in northern Indiana. The electric business also includes wholesale
sales and power marketing activities. NiSource's regulated gas and electric
subsidiaries are collectively referred to as the "Energy Utilities." NiSource's
regulated water subsidiaries are collectively called the "Water Utilities."
Collectively the Energy and Water Utilities are referred to as the "Utilities."

     Non-regulated energy and utility-related products and services are provided
through the "Products and Services" subsidiaries. Products and Services
subsidiaries perform energy-related services and offer products in connection
with these services, which include pipeline construction, repair and maintenance
of underground gas pipelines and locating and marking utility lines.

     In addition to the Utilities and the Products and Services subsidiaries,
NiSource has a wholly-owned subsidiary, NiSource Capital Markets, Inc. (Capital
Markets), which engages in financing activities for NiSource and certain of its
subsidiaries, excluding Northern Indiana Public Service Company (Northern
Indiana).

     In June 1999, NiSource commenced a tender offer to acquire Columbia Energy
Group (CEG). In December 1999, CEG acknowledged preliminary indications of
interest from numerous other third parties and invited formal bids from those
companies that had indicated a preliminary value higher than the NiSource tender
offer price of $74 per share. As a result, in December, NiSource wrote off the
costs associated with its tender offer. On February 11, 2000, the NiSource
tender offer expired.

     On February 28, 2000, after completion of the bidding process initiated by
CEG, NiSource and CEG announced approval of a merger agreement under which
NiSource will form a new holding company, which will acquire all of the
outstanding shares of CEG valued at approximately $6 billion. The new holding
company will also assume approximately $2.5 billion of CEG debt. Under the
agreement, CEG shareholders have the option to receive new holding company stock
for up to 30% of the outstanding CEG shares. Under the common stock option, each
CEG share will be exchanged for $74 in new holding company stock, based on the
average NiSource share price prior to the closing, but not more than 4.4848
shares of new holding company stock for each CEG share. Under the cash option,
each CEG share will be exchanged for $70 in cash plus a $2.60 face value unit
(consisting of a zero coupon debt security with a forward equity contract). A
commitment letter was accepted under which certain financial institutions
agreed, under specified conditions, to provide up to $6.0 billion to finance the
acquisition of CEG. The merger is conditioned upon, among other things, the
approvals of the shareholders of both companies and various regulatory
commissions. If NiSource shareholder approval is not obtained, the merger
agreement provides that the transaction will automatically be restructured to
eliminate the 30% common stock option for CEG shareholders.

     See "Segments of Business" in the Notes to Consolidated Financial
Statements and "Selected Supplemental Information" in the 1999 Annual Report to
Shareholders regarding financial information about industry segments and classes
of customers served (see Exhibit 13).

                                        2
<PAGE>   3

                              ELECTRIC OPERATIONS

     Northern Indiana, NiSource's largest and dominant subsidiary, is a public
utility operating company incorporated in Indiana on August 2, 1912, that
supplies natural gas and electric energy to the public. It operates in 30
counties in the northern part of Indiana, serving an area of about 12,000 square
miles with a population of approximately 2.2 million. At December 31, 1999,
Northern Indiana served approximately 425,833 customers with electricity.

     Northern Indiana owns and operates four coal-fired electric generating
stations with net capabilities of 3,179,000 kilowatts (kw), two hydroelectric
generating plants with net capabilities of 10,000 kw and four gas-fired
combustion turbine generating units with net capabilities of 203,000 kw for a
total system net capability of 3,392,000 kw. During the year ended December 31,
1999, Northern Indiana generated 89.9% and purchased 10.1% of its electric
requirements.

     Northern Indiana's 1999 electric control area peak load (the highest level
of electrical utility usage in the control area) of 3,307,340 kw was set on July
30, 1999. Northern Indiana's electric control area includes Northern Indiana,
Wabash Valley Power Association, Inc. (WVPA) and Indiana Municipal Power Agency
(IMPA). The 1999 peak established a new all time peak, exceeding the old peak of
3,161,200 kw previously set on July 14, 1995. Northern Indiana's 1999 internal
peak load, which excludes WVPA and IMPA, of 2,962,340 kw was also set on July
30, 1999. This also established a new all-time internal peak load, exceeding the
old peak of 2,888,450 kw previously set on August 6, 1996.

     Northern Indiana's electric system is interconnected with the systems of
Ameren Services Corporation (formerly Central Illinois Public Service Company),
American Electric Power, Commonwealth Edison Company (ComEd), Cinergy Services,
Inc. and Consumers Energy. Electric energy is purchased from, sold to or
exchanged with various other utilities and power marketers under Northern
Indiana's power sales and open access transmission tariffs.

     Northern Indiana provides WVPA with transmission and distribution service,
operating reserve requirements and capacity deficiency service and provides IMPA
with transmission service, operating reserve requirements and capacity
deficiency service, in Northern Indiana's control area. Northern Indiana also
engages in sales and services under interconnection agreements with WVPA and
IMPA.

     WVPA provides service to 12 Rural Electric Membership Corporations (REMC's)
located in Northern Indiana's control area. IMPA provides service to the
municipal electric system of the city of Rensselaer located in Northern
Indiana's control area.

     Northern Indiana and WVPA have executed a supplemental agreement for unit
peaking capacity and energy. Unit peaking capacity is the capacity used to serve
peak demand from a specific peaking generating unit. Pursuant to this agreement,
which runs through December 2001, WVPA purchases 90,000 kw of capacity per
month.

     Northern Indiana serves the Town of Argos as a full requirement customer
and provides network integration service to seven other municipal wholesale
customers.

     Northern Indiana is a member of the East Central Area Reliability
Coordination Agreement (ECAR). ECAR is one of nine regional electric reliability
councils established to coordinate planning and operations of member electric
utilities regionally and nationally.

     Fuel Supply. The generating units of Northern Indiana are located at
Bailly, Mitchell, Michigan City and Schahfer Generating Stations. Northern
Indiana's 13 steam generating units have a net capability of 3,179,000 kw. Coal
is the primary source of fuel for all units, except for three, which utilize
natural gas. In addition, Northern Indiana's four combustion turbine generating
units with a net capability of 203,000 kw are fired by gas. Fuel requirements
for Northern Indiana's generation for 1999 were supplied as follows:

<TABLE>
<S>                                                        <C>
Coal.....................................................  97.9%
Natural gas..............................................  2.1%
</TABLE>

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<PAGE>   4

     In 1999, Northern Indiana used approximately 9.0 million tons of coal at
its generating stations. Northern Indiana has established a normal level of coal
stock that is expected to provide adequate fuel supply during the year.

     Annual coal requirements for Northern Indiana's electric generating units
through 2003 are estimated to range from 9.4 million tons to 9.7 million tons,
depending from year to year upon anticipated sales levels, scheduled maintenance
and other variables. These requirements are being met or will be met in part
under long-term contracts as follows:

<TABLE>
<CAPTION>
MILLION TONS/YEAR                           SULFUR CONTENT         EXPIRATION
-----------------                           --------------         ----------
<S>                                         <C>                    <C>
1.300(a)                                         Low                  2001
1.600(b)                                         Low                  2002
1.000(c)                                         Low                  2001
0.500(d)                                         Low                  2000
0.432(e)                                         Low                  2002
1.000(f)                                         High                 2000
0.600                                            High                 2004
0.500(g)                                         High                 2001
</TABLE>

(a) 1.3 million tons in 2000; 0.25 million tons in 2001.

(b) 1.6 million tons in 2000; plus or minus 10% option years in 2001 and 2002.
    Northern Indiana can terminate 12/31/2000 or 12/31/2001.

(c) 0.8 million to 1.2 million tons in 2000 and 2001.

(d) Option year in 2000.

(e) Option to purchase an additional 0.432 million tons in 2000 and 2001; 0.864
    million tons in 2002.

(f) 1.0 million tons in 2000.

(g) 0.75 million tons in 2000 and 2001.

     The average cost of coal consumed in 1999 was $26.13 per ton, or 1.47 cents
per kilowatt-hour (kwh) generated as compared to $26.83 per ton, or 1.52 cents
per kwh generated in 1998.

     Coal Reserves. Included in the previous table of coal contracts is a coal
mining contract with Cyprus Shoshone Coal Corporation (Cyprus) under which
Cyprus is mining Northern Indiana's coal reserves in the Cyprus mine through the
year 2001. The costs of such reserves are being recovered through the ratemaking
process as such coal reserves are used to produce electricity.

     Fuel Adjustment Clause. Northern Indiana adjusts metered electric rates
through operation of a fuel adjustment clause to reflect changes in fuel costs.
See "Summary of Significant Accounting Policies-Fuel Adjustment Clause" in the
Notes to Consolidated Financial Statements.

                             GAS UTILITY OPERATIONS

     Northern Indiana, Bay State Gas Company (BSG), Northern Utilities, Inc.
(Northern Utilities), Kokomo Gas and Fuel Company (Kokomo Gas) and Northern
Indiana Fuel and Light Company (NIFL), combined, are the tenth largest local
natural gas distribution company in the nation, servicing more than one million
gas customers.

     Northern Indiana. Northern Indiana supplies natural gas of about 1,000
British thermal units (Btu) per cubic foot. In a 24-hour period ended January 5,
1999, Northern Indiana's 1999 maximum day send-out (the maximum amount of gas
delivered through Northern Indiana's distribution system to its end customers)
was 1.7 million dekatherms (dth). Northern Indiana's total gas send-out for 1999
was 282.5 million dth, compared to 266.0 million dth in 1998.

                                        4
<PAGE>   5

     Agreements have been negotiated with natural gas suppliers to replace
former pipeline supplier contracts pursuant to the requirements of Federal
Energy Regulatory Commission (FERC) Order No. 636. Northern Indiana also has
agreements which allow for the purchase of gas either from gas marketers or
producers.

     Northern Indiana has firm transportation agreements with pipelines, which
allow Northern Indiana to move its gas through the pipelines' transmission
systems. In 1999, all of the gas supplied by Northern Indiana was transported by
ANR Pipeline Company (ANR), Crossroads Pipeline Company (Crossroads), a
subsidiary of NiSource, Midwestern Gas Transmission Company (Midwestern),
Natural Gas Pipeline Company of America (Natural), Panhandle Eastern Pipe Line
Company (Panhandle), Tennessee Gas Pipeline Company (Tennessee) and Trunkline
Gas Company (Trunkline). The transportation rates of Crossroads and the
transportation and storage rates of ANR, Midwestern, Natural, Panhandle,
Tennessee and Trunkline to Northern Indiana are subject to change in accordance
with rate proceedings filed with the FERC.

     Approximately 77% of Northern Indiana's 1999 gas supply was purchased on
the spot market, generally on less than 30-day agreements. The average price per
dth (including FERC Order No. 636 transition charges) in 1999 was $2.56,
compared to $2.49 in 1998, and the average cost of purchased gas, after
adjustment for transition charges billed to transport customers, was $2.58 per
dth, as compared to $2.48 per dth in 1998.

     Northern Indiana has a curtailment plan (a plan which outlines service to
be curtailed in the event of limited gas supply) that has been approved by the
Indiana Utility Regulatory Commission (IURC). There were no firm sales
curtailments in 1999 and none are expected during 2000.

     Northern Indiana operates an underground gas storage field at Royal Center,
Indiana, which currently has a storage capacity of 6.75 million dth. Withdrawals
were made in the 1999-2000 winter of up to 103,126 dth per day. In addition,
Northern Indiana has several gas storage service agreements which make possible
the withdrawal of substantial quantities of gas from other storage facilities.
All of the storage agreements have limitations on the volume and timing of daily
withdrawals. These contracts provide in the aggregate for approximately 29.6
million dth of annual stored volume and allow for approximately 661,000 dth of
maximum daily withdrawal.

     Northern Indiana has a liquefied natural gas plant in LaPorte County which
is designed for peak shaving (the process of supplementing gas supply during
periods of high demand) and has the following capacities: maximum storage of 4
million dth; maximum liquefaction rate (gas to liquid), 20,000 dth per day;
maximum vaporization rate (output to distribution system), 300,000 dth per day.

     BSG and Northern Utilities. BSG was incorporated in 1974 as a Massachusetts
corporation. BSG is primarily a gas distribution utility that provides local
transportation services in the greater Brockton, Lawrence and Springfield,
Massachusetts areas. Additionally, BSG also offers additional energy products
and services to its customers, and invests in energy ventures. Northern
Utilities is a gas distribution utility operating in the Portland and Lewiston
areas of Maine and the Portsmouth areas in New Hampshire.

     Almost all of BSG customers purchase bundled local transportation and
natural gas, with only 22,563 of 315,670 gas distribution customers electing to
purchase unbundled local transportation. BSG total gas send-out for 1999 was
87.3 million dth.

     BSG has firm transportation agreements with pipelines, which allow BSG to
move its gas through the pipelines' transmission systems. In 1999, all of the
gas supplied by BSG was transported by Algonquin Gas Transmission Company,
Portland Natural Gas Transmission Systems (PNGTS) (NiSource owns 19.06% of
PNGTS), Granite State Gas Transmission Inc. (Granite), a subsidiary of NiSource,
CNG Transmission Corp., National Fuel Gas Supply Corp., Iroquois Gas
Transmission System, Texas Eastern Transmission Corp., Texas Gas Transmission
Corp., Williams Gas Pipeline and Tennessee Gas Pipeline Company.

     BSG has several gas storage service agreements, which make possible the
withdrawal of substantial quantities of gas from underground storage facilities.
All of the storage agreements have limitations on the volume and timing of
quantities of gas from other storage facilities. All of the storage agreements
have limitations on the volume and timing of daily withdrawals. These contracts
provide in aggregate for
                                        5
<PAGE>   6

approximately 13.5 million dth of annual stored volume and allow for
approximately 127,468 dth of maximum daily withdrawal.

     BSG produces liquid propane (LP) air gas from LP purchased from several
suppliers. The LP air gas is produced by BSG's seven LP air gas plants, all
located in Massachusetts, which have a combined storage capacity of 320,249 dth
of natural gas equivalent and a combined rated daily vaporization capability of
118,194 dth.

     BSG owns a liquefied natural gas (LNG) facility in Springfield,
Massachusetts which consists of liquefaction equipment capable of liquefying
10,000 dth of natural gas per day, a 1,020,000 dth storage tank and vaporization
equipment capable of vaporizing 55,000 dth per day. BSG has a leased LNG
facility in Brockton, Massachusetts with a storage capacity of 800,000 dth and
rated daily vaporization capability of 50,000 dth. BSG has two LNG satellite
facilities which storage capacities of 8,000 and 12,800 dth, and daily
vaporization capability of 12,000 and 19,200 dth, respectively.

     Northern Utilities has one LP air gas plant in New Hampshire with a storage
capacity of 9,908 dth of natural gas equivalent and rated daily vaporization
capability of 4,080 dth. Northern Utilities has one LP air gas plant in Maine
with a storage capacity of 16,761 dth of natural gas equivalent and a rated
daily vaporization capability of 10,000 dth.

     Northern Utilities also has one LNG facility in Maine with a storage
capability of 13,750 Mt. and rated daily vaporization capability of 14,000 Mt.

     Kokomo Gas. Kokomo Gas is a public utility operating company incorporated
in Indiana in 1917, that supplies natural gas to the public. It operates in the
city of Kokomo, Indiana and the surrounding six counties having a population of
approximately 100,000, and served approximately 34,500 customers at December 31,
1999. The Kokomo Gas service territory is contiguous to Northern Indiana's gas
service territory.

     Kokomo Gas has a liquefied natural gas plant in Howard County with the
following capacities: maximum storage of 400,000 thousand cubic feet (mcf);
maximum liquefaction rate of 2,850 mcf per day; maximum vaporization rate of
30,000 mcf per day. Kokomo Gas also has a gas holder with a storage capacity of
12,000 mcf.

     Kokomo Gas' total gas send-out for 1999 was 8.0 million dth, compared to
7.4 million dth for 1998. Total transportation volumes for industrial customers
in 1999 were 3.5 million dth, compared to 3.3 million dth in 1998. Kokomo Gas
purchased gas under a term agreement from TPC to satisfy all of its system
requirements in 1999.

     NIFL. NIFL is a public utility operating company incorporated in Indiana in
1906, that supplies natural gas to the public. Headquartered in Auburn, Indiana,
it operates in five counties in the northeast corner of the state having a
population of approximately 66,700, and served approximately 35,491 customers at
December 31, 1999. The NIFL service territory is contiguous to Northern
Indiana's gas service territory.

     NIFL's total gas send-out for 1999 was 13.7 million dth, compared to 11.0
million dth for 1998. Total transportation volumes for industrial customers in
1999 were 8.9 million dth, compared to 6.7 million dth in 1998. NIFL purchased
gas on the spot market from a number of suppliers and also under term agreements
from TPC to satisfy system requirements in 1999.

     Crossroads. Crossroads is a natural gas pipeline company which was approved
by FERC to operate as an interstate pipeline in May 1995. Crossroads owns and
operates a 201-mile, 20-inch pipeline that extends from Schererville, Indiana,
in the northwestern corner of the state, where it takes delivery from the
interstate pipeline facilities of Natural Gas Pipeline Company of America, to
Cygnet, Ohio, located in northwestern Ohio, where it interconnects with
facilities owned by Columbia Gas Transmission Corporation.

     Granite. Granite owns and operates a 105-mile, 6 to 12 inch diameter,
interstate pipeline that extends from Haverhill, Massachusetts, in a
northeasterly direction to a point near Westbrook, Maine. Granite receives gas
through its interconnects with Tennessee Gas Pipeline Company and PNGTS. Granite
serves customers through its interconnections with BSG and Northern Utilities.
                                        6
<PAGE>   7

     PNGTS. PNGTS is a 292-mile pipeline in northern New England in which
NiSource subsidiaries have a combined interest of 19.06%.

     Gas Cost Adjustment Clause. Metered gas rates may be adjusted to reflect
the cost of purchased gas, contracted gas storage and storage transportation
charges. See "Summary of Significant Accounting Policies--Gas Cost Adjustment
Clause" in the Notes to Consolidated Financial Statements in the 1999 Annual
Report to Shareholders (see Exhibit 13).

                                WATER OPERATIONS

     The Water Utilities supply water for residential, commercial and industrial
uses and for fire protection service in Indianapolis, Indiana and surrounding
areas. The territory served by the Water Utilities covers an area of
approximately 650 square miles in seven counties of central Indiana and the
Water Utilities served approximately 275,688 customers at December 31, 1999.

     The combined maximum daily capacity of the Water Utilities' treatment
plants, together with the maximum daily capacity of the three primary well
fields, is 247 million gallons per day (MGD). During 1999, the average daily
consumption was 146 MGD and the maximum daily consumption was 221 MGD.

     The principal sources of the Indianapolis Water Company (IWC) and IWC
Morgan Water Company water supplies are the White River, which flows through
Indianapolis from north to south and is supplemented by Morse Reservoir on a
tributary, Cicero Creek; Fall Creek, which flows through Indianapolis from the
northeast and is supplemented by Geist Reservoir; the city of Indianapolis'
Eagle Creek Reservoir, located on Eagle Creek in northwest Marion County, from
which water is purchased under a long-term contract; Geist Well Field, a ground
water supply located downstream of Geist Reservoir; and South Well Field located
in southern Marion and northern Johnson Counties. The principal source of water
for Harbour Water Corporation, Liberty Water Corporation, Lawrence Water
Company, Inc. and The Darlington Water Works Company are derived from wells
within their service territory.

     The three large surface reservoirs are essential to providing an adequate
supply during dry periods. Two are used to supplement low stream flows in the
White River and Fall Creek, respectively, and water is drawn directly from the
third. The reservoirs are designed to maintain an adequate water supply in the
event of a repetition of the worst two-year drought ever recorded in the
Indianapolis area. The theoretical dependable supply from the three reservoirs
including natural stream flows represents approximately 63% of the total
dependable supply available to IWC with the balance supplied by natural stream
flow and wells.

     The Water Utilities have aquifer protection plans for Geist and South Well
Fields. Once fully developed, the Geist Well Field will produce 12 to 15 MGD
while the South Well Field will produce 48 MGD. The protection plans will guide
the Water Utilities' development of these newest major sources of supply and
result in land use plans to protect the aquifer systems from potential
contamination sources.

                                 GAS MARKETING

     On April 1, 1999, NiSource acquired the stock of TPC, a natural gas storage
and marketing company based in Houston, Texas. As a result of the TPC
acquisition, NiSource had an indirect investment representing a 77.3% interest
in Market Hub Partners, L. P. (MHP), a Delaware limited partnership. During the
fourth quarter of 1999, NiSource subsidiaries purchased the remaining interests
in MHP.

     TPC. TPC is a major natural gas marketer and gas asset portfolio manager.
During 1999, TPC assumed the operations of NESI Energy Marketing LLC (NEM) which
provided natural gas sales and management services to industrial and commercial
customers, engaged in natural gas marketing activities and provided gas supply
to Northern Indiana, Kokomo Gas and NIFL under spot and /or term contracts.
During 1999, TPC and NEM had combined sales of approximately 317 million dth.

     MHP. MHP is one of the largest owners and operators of high deliverability
salt cavern natural gas storage capacity in North America. MHP's Moss Bluff and
Egan facilities, located near Houston, Texas, and
                                        7
<PAGE>   8

in Acadia Parish, Louisiana, respectively, are strategically positioned at
industry-recognized market hubs near the convergence of major natural gas
pipelines and serve as aggregation points for natural gas collected along the
Texas and Louisiana Gulf Coast. The Moss Bluff and Egan facilities have
bi-directional interconnects to five pipelines, which form hub and spoke systems
and enable MHP to provide its customers with storage and other services that
allow better management of their variable gas load requirements. At December 31,
1999, MHP's two facilities maintained approximately 22.7 billion cubic feet
(bcf) of natural gas working storage capacity, 91.6% of which was leased under
storage contracts with major utilities, pipeline companies, local distribution
companies, natural gas producers and natural gas marketers. These storage
contracts provide a minimum level of revenue regardless of usage by the
customer. MHP supplements these revenues by providing a variety of load
management services. On February 17, 2000, drilling began at a third storage
facility located in Tioga County, Pennsylvania. The new facility is scheduled to
be completed in mid-June 2000. MHP performs storage services under long-term
demand contracts as well as various other hub services for Northern Indiana and
TPC.

                  PRODUCTS AND SERVICES AND OTHER SUBSIDIARIES

PRIMARY. Primary offers expertise to large energy customers in managing the
engineering, construction, operation and maintenance of various cogeneration
projects. Primary is the parent of the following subsidiaries: Harbor Coal
Company (Harbor Coal), North Lake Energy Corporation (North Lake), Lakeside
Energy Corporation (Lakeside), Portside Energy Corporation (Portside),
Cokenergy, Inc. (Coke), Whiting Clean Energy, Inc. (Whiting) and Ironside Energy
LLC (Ironside).

     Harbor Coal. Harbor Coal is a 50% partner with Ispat Inland, Inc. (Ispat)
in a $65 million pulverized coal injection facility which began operation in
August 1993. The facility receives raw coal, pulverizes it and delivers it to
Ispat for use in the operation of its blast furnaces. NiSource has guaranteed
the payment and performance of the partnership's obligations under a sale and
leaseback of a 50% undivided interest in the facility.

     North Lake. North Lake has entered into a lease for the use of a
75-megawatt energy facility located at Ispat. The facility uses steam generated
by Ispat to produce electricity which is delivered to Ispat. The facility began
commercial operation in May 1996. NiSource has guaranteed North Lake's
obligations relative to the lease and certain obligations to Ispat relative to
the project.

     Lakeside. Lakeside has entered into a lease for the use of a 161-megawatt
energy facility located at USS Gary Works. The facility processes high-pressure
steam into electricity and low-pressure steam for delivery to USX Corporation-US
Steel Group. A fifteen-year tolling agreement with US Steel commenced on April
16, 1997 when the facility was placed in commercial operation. Capital Markets
guarantees certain limited Lakeside obligations to the lessor.

     Portside. Portside has entered into a lease for the use of a 63-megawatt
energy facility at the Midwest Division of National Steel Corporation
(National), to process natural gas into electricity, steam and heated water to
be provided to National for a fifteen-year period. NiSource has guaranteed
certain Portside obligations to the lessor. The facility began commercial
operation on September 26, 1997.

     Coke. Coke built and now leases and operates an energy facility at Ispat's
Indiana Harbor Works to scrub flue gases and recover waste heat from the coke
facility constructed by Indiana Harbor Coke Company, LP (Harbor Coke) and to
produce process steam and electricity from the recovered heat which is then
delivered to Ispat. Coke has a fifteen-year service agreement and a related
fifteen-year fuel supply agreement with Ispat and Harbor Coke. Capital Markets
guarantees certain obligations relative to the lease. The facility began
commercial operation on October 1, 1998.

     Whiting. Whiting, acting as agent for an owner/lessor, has entered into
contracts for the construction of a 525-megawatt, natural gas fired, combined
cycle power plant. The facility will be located adjacent to BP Amoco Oil
Company's (Amoco) Whiting Refinery in Whiting, Indiana. Whiting has entered into
an agreement with the owner/lessor to lease the plant upon its completion. Upon
completion, presently scheduled for June 2001,Whiting will utilize the facility
to supply process steam to the refinery and electricity to the
                                        8
<PAGE>   9

wholesale market. Capital Markets has guaranteed certain Whiting obligations to
the owner/lessor and to Amoco.

     Ironside. Ironside, acting as agent for a third party owner/lessor, has
entered into contracts for the construction of a 50- megawatt cogeneration
plant. The facility is to be located in LTV Steel Company, Inc.'s (LTV) Indiana
Harbor Works plant in northwest Indiana. Ironside intends to enter into an
agreement to lease the facility from the owner/lessor upon completion of
construction. Ironside will sublease the facility to LTV and LTV will utilize
the facility to produce high-pressure steam and electricity upon completion of
construction, presently anticipated to occur in August 2001. Certain Ironside
obligations to the owner/lessor and to LTV are guaranteed by Capital Markets.

     Primary has advanced approximately $36.6 million and $31.8 million, at
December 31, 1999 and December 31, 1998, respectively, to the lessors of the
energy-related projects discussed above. Primary is evaluating other potential
projects with Northern Indiana customers as well as with potential customers
outside of Northern Indiana's service territory. Projects under consideration
include those which use industrial by-product fuels and natural gas to produce
electricity.

ENERGYUSA, INC. (EUSA). EUSA coordinates the energy-related diversification
efforts of NiSource.

     EnergyUSA Commercial Energy Services, Inc. (Commercial). Commercial
provides energy solutions, which enhance its customers' competitiveness through
cost reductions, modernizing infrastructure and improving cost accountabilities,
including marketing energy efficient lighting solutions. During 1999, the
operations of all the Savage companies, which were acquired in the February 1999
purchase of BSG, including Savage ALERT, a company that serves the energy and
HVAC engineering needs of large-scale commercial customers in 22 states, were
reorganized under Commercial.

     SM&P Utility Resources Inc.(SM&P) and Underground Technology, Inc. (UTI).
SM&P and UTI (of which NiSource owns 50%) provide underground facility locating
to utilities throughout the United States. During 1999, SM&P and UTI performed
6.6 million line locates making NiSource one of the largest locating providers
in the country.

     Miller Pipeline Corporation (Miller). Miller installs and maintains
underground pipelines for natural gas and water utilities and also sells
products and services related to infrastructure preservation and replacement.
During 1999, Miller had sales of $72.6 million and 512 customers nationwide.

     EnergyUSA Consumer Products Group (Consumer). Consumer provides home
products and propane sales, and participates in retail gas pilot programs in
Indiana, Ohio, Michigan, Massachusetts, New Hampshire and Maine.

NISOURCE DEVELOPMENT COMPANY, INC. (DEVELOPMENT). Through its subsidiaries,
Development makes various investments, primarily in real estate, intended to
complement NiSource's energy businesses. At December 31, 1999, Development has
$33.3 million of investments, at equity, relating to affordable housing projects
located primarily throughout Indiana. In 1992, it began the development of a
residential development located in Chesterton, Indiana which was substantially
complete at December 31, 1999.

CAPITAL MARKETS. Capital Markets provides financing for NiSource's subsidiaries
other than Northern Indiana and, in certain respects, IWC Resources Corporation
(IWCR) (the holding company for the Water Utilities) and BSG. As of December 31,
1999, Capital Markets had $137.0 million in commercial paper outstanding, having
a weighted average interest rate of 6.28%. Capital Markets has entered into a
five-year $100 million revolving credit agreement and a 364-day $100 million
revolving credit agreement with several banks. These agreements, which now
terminate on September 23, 2003 and September 23, 2000, respectively, provide
financing flexibility to Capital Markets and may be used to support the issuance
of commercial paper. At December 31, 1999, there were no borrowings outstanding
under either of these agreements. Capital Markets also has $163.0 million of
money market lines of credit. As of December 31, 1999, $142.5 million of
borrowings were outstanding under these lines of credit.

     The financial obligations of Capital Markets are subject to a Support
Agreement between NiSource and Capital Markets, under which NiSource has
committed to make payments of interest and principal on Capital
                                        9
<PAGE>   10

Markets' obligations in the event of a failure to pay by Capital Markets.
Restrictions in the Support Agreement prohibit recourse on the part of Capital
Markets' creditors against the stock and assets of Northern Indiana which are
owned by NiSource. Under the terms of the Support Agreement, in addition to the
cash flow of cash dividends paid to NiSource by any of its consolidated
subsidiaries, the assets of NiSource, other than the stock and assets of
Northern Indiana, are available as recourse for the benefit of Capital Markets'
creditors. The carrying value of the assets of NiSource, other than the assets
of Northern Indiana, as reflected in the consolidated financial statements of
NiSource, was approximately $3.2 billion at December 31, 1999.

                                   REGULATION

HOLDING COMPANY ACT. NiSource is currently exempt from registration with the
Securities and Exchange Commission (SEC) as a "registered holding company" under
the Public Utility Holding Company Act of 1935, as amended (Holding Company
Act). However, upon consummation of the acquisition of CEG, either the proposed
new holding company over NiSource or NiSource, whichever is the acquiring party,
will become a "registered holding company". As the result of registration, the
new combined NiSource/Columbia Energy System will be subject to regulation under
the Holding Company Act by the SEC, including, in the absence of exemption,
requirements for SEC approval for securities issuances and extensions of credit,
acquisitions and dispositions of utility property, acquisition of non-utility
business, and affiliate transactions between companies in the new system.
Registered systems are limited in the scope of their gas and utility operations
and in their ownership of non-utility businesses which are not functionally
related to their utility operations unless otherwise exempted under the Holding
Company Act. The Holding Company Act also regulates holding company system
service companies and the rendering of services by holding company affiliates to
other companies in their system.

STATE UTILITY REGULATORY COMMISSIONS. NiSource (the holding company) is not
subject to regulation by state utility and regulatory commissions since it is
not a public utility. NiSource and its non-utility subsidiaries are subject to
certain reporting and information access requirements under applicable state
law. Furthermore, certain contracts between NiSource or its non-utility
subsidiaries and the Utilities must be filed with, and in some cases approved
by, the appropriate state utility and regulatory commissions.

     The Utilities are subject to regulation by the applicable state utility
regulatory commission as to rates, service, accounts, and issuance of securities
and in other respects in the state where the Utilities provide service. The
Utilities are also subject to limited regulation by local public authorities.
The Texas Railroad Commission regulates Moss Bluff Development Corporation.

FEDERAL ENERGY REGULATORY COMMISSION. NiSource is not regulated by the FERC, but
any subsidiary that engages in FERC jurisdictional sales or activities,
including the Energy Utilities, is subject to such regulation.

     Northern Indiana's restructuring under NiSource was approved by a February
29, 1988 order of the FERC. The order is conditioned upon the FERC's continuing
authority to examine the books and records of NiSource and its subsidiaries,
upon further order of the FERC, and to make such supplemental orders, for good
cause, as it may find necessary or appropriate regarding the restructuring.

     In 1999, about 7% of Northern Indiana's electric revenues were derived from
electric service it furnished at wholesale in interstate commerce to other
utility companies, power marketers, municipalities and WVPA (see "Item 1.
Business-Electric Operations" regarding WVPA). Northern Indiana's wholesale
rates and operations are subject to the jurisdiction of the FERC. FERC
jurisdiction does not extend to the issuance of securities by Northern Indiana,
which are regulated by the IURC. The FERC has declared Northern Indiana, BSG,
Northern Utilities, Kokomo Gas and NIFL exempt from the provisions of the
Natural Gas Act.

     MHP's Egan Facility is a gas storage facility subject to regulation by the
FERC as to rates, service, accounts and in other respects. The FERC also
certificates certain facilities of MHP.

                                       10
<PAGE>   11

                                  RATE MATTERS

     For a description of Northern Indiana's Alternative Regulatory Plan (ARP)
See "Competition and Regulatory Changes" below.

     On January 27, 2000, the Citizens Action Coalition (CAC), a private
consumer organization, filed a petition before the IURC. The petition does not
seek a specified amount of rate reduction, but rather alleges that the existing
Northern Indiana electric rates are "unreasonable and unsafe," and seeks to have
the IURC force Northern Indiana to produce detailed financial calculations that
would justify its electric rates. Northern Indiana is opposing the petition on
both legal and factual grounds, and believes that its current rates are just and
reasonable as required by statute.

     On November 14, 1997, IWC petitioned the IURC for approval of new water
rates and charges. On March 17, 1998, IWC and the Office of Utility Consumer
Counselor (OUCC), representing the ratepayers, filed a "Stipulation and
Settlement Agreement" resolving the issues in the case. This agreement, approved
by the IURC on April 8, 1998, provided for an increase in IWC's water rates and
charges in two phases. The first phase was an immediate increase of
approximately $5,253,000. The second phase approved an additional increase of
approximately $4,540,000 on April 8, 1999. The agreement further provided that
prior to January 1, 2002, IWC cannot request an additional change in its basic
rates and charges nor seek authority to continue allowance for funds used during
construction (AFUDC) or defer depreciation on its capital projects after they
have been completed and are in service. Effective with the second phase of the
increase, IWC will use individual depreciation rates for each plant account as
approved by the IURC on January 15, 1997, to produce a composite depreciation
rate of 2.21%.

                       COMPETITION AND REGULATORY CHANGES

     The regulatory frameworks applicable to the Energy Utilities, at both the
state and federal levels, are undergoing fundamental changes. These changes have
impacted and will continue to have an impact NiSource's operations, structure
and profitability. At the same time, competition within the electric and gas
industries will create opportunities to compete for new customers and revenues.
Management has taken steps to become more competitive and profitable in this
changing environment, including partnering on energy projects with major
industrial customers, converting some of its generating units to allow use of
lower cost, low sulfur coal, providing its gas customers with increased customer
choice for new products and services, acquiring companies which increase our
scale and establishing subsidiaries that provide gas and develop new
energy-related products for residential, commercial and industrial customers.

THE ELECTRIC INDUSTRY. At the Federal level, the FERC issued Order No. 888-A in
1996 which required all public utilities owning, controlling or operating
transmission lines to file non-discriminatory open-access tariffs and offer
wholesale electricity suppliers and marketers the same transmission service they
provide themselves. In 1997, FERC approved Northern Indiana's open-access
transmission tariff. On December 20, 1999, FERC issued a final rule addressing
the formation and operation of Regional Transmission Organizations (RTOs). The
rule is intended to eliminate pricing inequities in the provision of wholesale
transmission service. NiSource does not believe that compliance with the new
rules will be material to its future earnings. Although wholesale customers
currently represent a small portion of Northern Indiana's electricity sales, it
intends to continue its efforts to retain and add wholesale customers by
offering competitive rates and also intends to expand the customer base for
which it provides transmission services.

     At the state level, NiSource announced in 1997 and 1998 that, if consensus
could be reached regarding electric utility restructuring legislation, NiSource
would support a restructuring bill before the Indiana General Assembly. During
1999, discussions were held with the other investor-owned utilities in Indiana
regarding the technical and economic aspects of possible legislation leading to
greater customer choice. A consensus was not reached. Therefore, NiSource did
not support legislation regarding electric restructuring during the 2000 session
of the Indiana General Assembly. During 2000, discussions will continue with all
segments of the Indiana electric industry in an attempt to reach a consensus on
electric restructuring legislation for introduction during the 2001 session of
the Indiana General Assembly.
                                       11
<PAGE>   12

THE GAS INDUSTRY. At the Federal level, gas industry deregulation began in the
mid-1980's when FERC required interstate pipelines to provide nondiscriminatory
transportation service pursuant to unbundled rates. This regulatory change
permitted large industrial and commercial customers to purchase their gas
supplies either from the Energy Utilities or directly from competing producers
and marketers which would then use the Energy Utilities' facilities to transport
the gas. More recently, the focus of deregulation in the gas industry has
shifted to the states.

     At the state level, the IURC approved in 1997 Northern Indiana's ARP which
implemented new rates and services that included, among other things, unbundling
of services for additional customer classes (primarily residential and
commercial users), negotiated services and prices, a gas cost incentive
mechanism and a price protection program. The gas cost incentive mechanism
allows Northern Indiana to share any cost savings or cost increases with its
customers based upon a comparison of Northern Indiana's actual gas supply
portfolio cost to a market-based benchmark price. Phase I of Northern Indiana's
Customer Choice Pilot Program ended March 31, 1999. This pilot program offered
82,000 residential customers within St. Joseph County and 10,000 commercial
customers throughout the NiSource service area the right to choose alternative
gas suppliers. Phase II of Northern Indiana's Customer Choice Pilot Program
commenced April 1, 1999 and will continue for a one-year period. During this
phase, Northern Indiana is offering customer choice to all 660,000 residential
and 50,000 commercial customers throughout its gas service territory. A limit of
150,000 residential and 20,000 commercial customers are eligible to enroll in
Phase II of the program. The IURC order allows a specific NiSource natural gas
marketing subsidiary to participate as a supplier of choice to Northern Indiana
customers. In addition, as Northern Indiana has allowed residential and
commercial customers to designate alternative gas suppliers, it has also offered
new services to all classes of customers including price protection, negotiated
sales and services, gas lending and parking, and new storage services.

     In Massachusetts, BSG implemented new unbundled rates and services for all
commercial-industrial customers in 1993, and launched one of the nation's
earliest residential and small commercial-industrial customer choice pilot
programs in 1996. The BSG pilot, in which almost 28% of eligible customers
participated, is scheduled to conclude on April 1, 2000 when all Massachusetts
gas utilities are expected to begin making unbundled gas service available to
all customer classes pursuant to new statewide model terms and conditions that
are currently awaiting approval by the Massachusetts Department of
Telecommunications and Energy.

     In New Hampshire, Northern Utilities introduced unbundled tariffs and
services for all commercial-industrial customers in 1994. In 1998, the New
Hampshire Public Utilities Commission (NHPUC) formed a collaborative group to
investigate the merits of further unbundling and advise the NHPUC accordingly.
The collaborative group has recommended new model tariffs and regulation
designed to make unbundled services available to all commercial-industrial
customers statewide on November 1, 2000, with consideration of residential
unbundling at a later date. Hearings before the NHPUC regarding the
recommendations are expected to be held during the first quarter of 2000.

     In Maine, Northern Utilities introduced unbundled rates and services for
large commercial-industrial customers in December 1995 and expanded the
availability to all daily metered commercial and industrial customers on
November 1, 1999. In June 1999 the Maine Public Utilities Commission (MPUC)
opened an inquiry into the potential merits of further regulatory changes
related to unbundling. This inquiry is intended to investigate all the key
elements of full customer choice and will include a review of customer choice
programs in Massachusetts and New Hampshire.

     To date, the Energy Utilities have not been materially affected by
competition and management does not foresee substantial adverse affects in the
near future unless the current regulatory structure is substantially altered.
NiSource believes the steps that it has taken to deal with increased competition
has had and will continue to have significant positive effects in the next few
years.

                                       12
<PAGE>   13

                                   EMPLOYEES

     NiSource had 7,399 employees at December 31, 1999. Of these employees,
3,549 are represented by various local unions. The total number of employees at
Northern Indiana was 3,077; at SM&P, 1,365; at BSG, 919; at Miller, 762; at IWC,
433; and NiSource had 843 employees in remaining operations.

                             ENVIRONMENTAL MATTERS

GENERAL. The operations of NiSource are subject to extensive and evolving
federal, state and local environmental laws and regulations intended to protect
the public health and the environment. Such environmental laws and regulations
affect operations as they relate to impacts on air, water and land.

SUPERFUND. Because several NiSource subsidiaries are "potentially responsible
parties" (PRPs) under the Comprehensive Environmental Response, Compensation and
Liability Act (CERCLA) at several waste disposal sites, as well as at former
manufactured-gas plant sites which it, or its corporate predecessors, own or
owned or operated, it may be required to share in the costs of clean up of such
sites. A program was instituted to investigate former manufactured-gas plant
sites where it is the current or former owner, which investigation has
identified forty-six such sites. Initial sampling has been conducted at thirty
sites. Investigation activities have been completed at twenty-three sites and
remedial measures have been selected or implemented at sixteen sites. NiSource
intends to continue to evaluate its facilities and properties with respect to
environmental laws and regulations and take any required corrective action.

     In an effort to recover a portion of the costs related to the former
manufactured gas plants, various companies that provided insurance coverage
which NiSource believed covered costs related to former manufactured-gas plant
sites were approached. Northern Indiana filed claims in Indiana state court
against various insurance companies, seeking coverage for costs associated with
several manufactured-gas plant sites and damages for alleged misconduct by some
of the insurance companies. Settlements have been reached with all insurance
companies. Additionally, agreements have been reached with other Indiana
utilities relating to cost sharing and management of the investigation and
remediation of several former manufactured-gas plant sites at which Northern
Indiana and such utilities or their predecessors were operators or owners.

     BSG and Northern Utilities have rate recovery for environmental response
costs in Maine, Massachusetts and New Hampshire. The rate treatment allows for
the recovery of 100% of prudently incurred costs for investigation and
remediation over a 5-7 year period from date of payment. Recoveries from third
parties or insurance companies in Maine and Massachusetts are allocated 50% to
rate payers and 50% to shareholders. In New Hampshire 100% of any recoveries
from third parties or insurance companies are returned to rate payers.

     As of December 31, 1999, a reserve of approximately $23.8 million has been
recorded to cover probable corrective actions. The ultimate liability in
connection with these sites will depend upon many factors, including the volume
of material contributed to the site, the number of the other PRPs and their
financial viability, the extent of corrective actions required and rate
recovery. Based upon investigations and management's understanding of current
environmental laws and regulations, NiSource believes that any corrective
actions required, after consideration of insurance coverages, contributions from
other PRPs and rate recovery, will not have a material effect on its financial
position or results of operations.

CLEAN AIR ACT. The Clean Air Act Amendments of 1990 (CAAA) impose limits to
control acid rain on the emission of sulfur dioxide and nitrogen oxides (NOx)
which become fully effective in 2000. All of NiSource's facilities are already
in compliance with the sulfur dioxide limits. NiSource has already taken most of
the steps necessary to meet the NOx limits.

     The CAAA also contain other provisions that could lead to limitations on
emissions of hazardous air pollutants and other air pollutants (including NOx as
discussed below), which may require significant capital expenditures for control
of these emissions. Until specific rules have been issued that affect NiSource's
facilities, what these requirements will be or the costs of complying with these
potential requirements cannot be predicted.
                                       13
<PAGE>   14

NITROGEN OXIDES. During 1998, the Environmental Protection Agency (EPA) issued a
final rule, the NOx State Implementation Plan (SIP) call, requiring certain
states, including Indiana, to reduce NOx levels from several sources, including
industrial and utility boilers. The EPA stated that the intent of the rule is to
lower regional transport of ozone impacting other states' ability to attain the
federal ozone standard. According to the rule, the State of Indiana must issue
regulations implementing the control program. The State of Indiana, as well as
some other states, filed a legal challenge in December 1998 to the EPA NOx SIP
call rule. Lawsuits have also been filed against the rule by various groups,
including utilities. On May 25, 1999, the United States Court of Appeals for the
D.C. Circuit issued an order staying the NOx SIP call rule's September 30, 1999,
deadline for the state submittals until further order of the court. In a March
3, 2000 decision, the United States Court of Appeals for the D.C. Circuit ruled
largely in favor of EPA's regional NOx plan. An appeal of this decision is
expected. The State of Indiana in February 2000 proposed a moderate NOx control
plan designed to address Indiana's ozone nonattainment areas and regional ozone
transport. Any NOx emission limitations resulting from these actions could be
more restrictive than those imposed on electric utilities under the CAAA's acid
rain NOx reduction program described above. NiSource is evaluating the court
decision and any potential requirements that could result from the rules as
implemented by the State of Indiana. NiSource believes that the costs relating
to compliance with the new standards may be substantial, but such costs are
dependent upon the outcome of the current litigation and the ultimate control
program agreed to by the targeted states and the EPA. Northern Indiana is
continuing its programs to reduce NOx emissions and NiSource will continue to
closely monitor developments in this area.

     In a related matter to EPA's NOx SIP call, several Northeastern states have
filed petitions with the EPA under Section 126 of the Clean Air Act. The
petitions allege harm and request relief from sources of emissions in the
Midwest that allegedly cause or contribute to ozone nonattainment in their
states. NiSource is monitoring EPA's decisions on these petitions and existing
litigation to determine the impact of these developments on Northern Indiana's
programs to reduce NOx emissions.

     The EPA issued final rules revising the National Ambient Air Quality
Standards for ozone and particulate matter in July 1997. On May 14, 1999, the
United States Court of Appeals for the D.C. Circuit remanded the new rules for
both ozone and particulate matters to the EPA. Once rectified, the revised
standards could require additional reductions in sulfur dioxide, particulate
matter and NOx emissions from coal-fired boilers (including Northern Indiana's
generating stations) beyond measures discussed above. Final implementation
methods will be set by the EPA as well as state regulatory authorities. NiSource
believes that the costs relating to compliance with any new limits may be
substantial but are dependent upon the ultimate control program agreed to by the
targeted states and the EPA. NiSource will continue to closely monitor
developments in this area and anticipates the exact nature of the impact of the
new standards on its operations will not be known for some time.

     In a letter dated September 15, 1999, the Attorney General of the State of
New York alleged that Northern Indiana violated the Clean Air Act by
constructing a major modification of one of its electric generating stations
without obtaining pre-construction permits required by the Prevention of
Significant Deterioration (PSD) program. The major modification allegedly took
place at the R. M. Schahfer Station when, "in approximately 1995-1997, Northern
Indiana upgraded the coal handling system at Unit 14 at the plant." While
Northern Indiana is investigating these allegations, Northern Indiana does not
believe that the modifications required pre-construction review under the PSD
program and believes that all appropriate permits were acquired.

CARBON DIOXIDE. Initiatives are being discussed both in the United States and
worldwide to reduce so-called "greenhouse gases" such as carbon dioxide and
other by-products of burning fossil fuels. Reduction of such emissions could
result in significant capital outlays or operating expenses to NiSource.

CLEAN WATER ACT AND RELATED MATTERS. NiSource's wastewater and water operations
are subject to pollution control and water quality control regulations,
including those issued by the EPA and the States of Indiana, Louisiana,
Massachusetts and Texas.

     Under the Federal Clean Water Act and state regulations, NiSource must
obtain National Pollutant Discharge Elimination System permits for water
discharges from various facilities, including electric
                                       14
<PAGE>   15

generating and water treatment stations and a propane plant. These facilities
either have permits for their water discharge or they have applied for a permit
renewal of any expiring permits. These permits continue in effect pending review
of the current applications.

     Under the Federal Safe Drinking Water Act (SDWA), the Water Utilities are
subject to regulation by the EPA for the quality of water sold and treatment
techniques used to make the water potable. The EPA promulgates
nationally-applicable maximum contaminant levels (MCLs) for contaminants found
in drinking water. Management believes the Water Utilities are currently in
compliance with all MCLs promulgated to date. The EPA has continuing authority,
however, to issue additional regulations under the SDWA. In August 1996,
Congress amended the SDWA to allow the EPA more authority to weigh the costs and
benefits of regulations being considered in some, but not all, cases. In
December 1998, EPA promulgated two National Primary Drinking Water rules, the
Interim Enhanced Surface Water Treatment Rule and the Disinfectants and
Disinfection Byproducts Rule. The Water Utilities must comply with these rules
by December 2001. Management does not believe that significant changes will be
required to the Water Utilities' operations to comply with these rules; however,
some cost expenditures for equipment modifications or enhancements may be
necessary to comply with the Interim Enhanced Surface Water Treatment Rule.
Additional rules are anticipated to be promulgated under the 1996 amendments.
Compliance with such standards could be costly and require substantial changes
in the Water Utilities' operations.

     Under a 1991 law enacted by the Indiana legislature, a water utility may
petition the IURC for prior approval of its plans and estimated expenditures
required to comply with the provisions of, and regulations under, the Federal
Clean Water Act and SDWA. Upon obtaining such approval, a water utility may
include such costs in its rate base for rate-making purposes, to the extent of
its estimated costs as approved by the IURC, and recover its costs of developing
and implementing the approved plans if statutory standards are met. The capital
costs for such new systems, equipment or facilities or modifications of existing
facilities may be included in a water utility's rate base upon completion of
construction of the project or any part thereof. Such an addition to rate base,
however, would effect a change in water rates. NiSource's principal water
utility, IWC, has agreed to a moratorium on water rate increases until 2002.
Therefore, recovery of any increased costs discussed above may not be timely.

                                YEAR 2000 COSTS

RISKS. "Year 2000 issues" were concerned with the ability of electronic
processing equipment to process date sensitive information and recognize the
last two digits of a date as occurring in or after the year 2000. Any failure in
any system could have resulted in material operational and financial risks.
Possible scenarios included a system failure in a generating plant, an operating
disruption of gas, electricity or water, or an inability to interconnect with
the systems of other utilities. Failure to achieve year 2000 readiness could
have had a material adverse effect on results of operations, financial position
and cash flows.

     The program to address risks associated with the year 2000 on both
information technology (IT) and non-IT systems was completed in a timely manner.

STATE OF READINESS. The NiSource year 2000 program consisted of four phases:
inventory (identifying systems potentially affected by the year 2000),
assessment (testing identified systems), remediation (correcting or replacing
non-compliant systems) and validation (evaluating and testing remediated systems
to confirm compliance). All phases in all subsidiaries were completed in a
timely manner.

     Because NiSource depends on outside suppliers and vendors with similar year
2000 issues, the ability of those suppliers and vendors to provide an
uninterrupted supply of goods and services was assessed. Critical vendors and
suppliers were contacted in order to investigate their year 2000 efforts. In
addition, electricity and gas industry groups such as North American Electric
Reliability Council, Electric Power Research Institute, and the American Gas
Association were helpful in evaluating the potential impact of year 2000
problems upon the electric grid systems and pipeline networks.

COSTS. The total cost of the NiSource year 2000 program was approximately $25.0
million. These costs were funded from operations. Costs related to the
maintenance or modification of existing systems are expensed as
                                       15
<PAGE>   16

incurred. Costs related to the acquisition of replacement systems are
capitalized. These costs did not have a material impact on results of
operations.

CONTINGENCY PLANS. NiSource developed its contingency plans to address the
possibility that any mission-critical system would be non-compliant. This
included identifying alternate suppliers and vendors, conducting staff training
and developing communication plans. In addition, NiSource evaluated its ability
to maintain or restore service in the event of a power failure or operating
disruption or delay, along with the limited ability to mitigate the effects of a
network failure by isolating its own network from the non-compliant segments of
the greater network. These contingency plans were completed during the second
quarter of 1999 and reviewed during the fourth quarter of 1999. They were not
needed for the century rollover.

RESULTS. NiSource did not experience any system failures as a result of the year
2000 issue.

                           FORWARD LOOKING STATEMENTS

     This report contains forward looking statements within the meaning of the
securities laws. Forward looking statements include terms such as "may", "will",
"expect", "believe", "plan" and other similar terms. NiSource cautions that,
while it believes such statements to be based on reasonable assumptions and
makes such statements in good faith, you can not be assured that the actual
results will not differ materially from such assumptions or that the
expectations set forth in the forward looking statements derived from such
assumptions will be realized. You should be aware of important factors that
could have a material impact on future results. These factors include weather,
the federal and state regulatory environment, the economic climate, regional,
commercial, industrial and residential growth in the service territories served
by NiSource's Utility subsidiaries, customers' usage patterns and preferences,
the speed and degree to which competition enters the utility industry, the
timing and extent of changes in commodity prices, changing conditions in the
capital and equity markets and other uncertainties, all of which are difficult
to predict, and many of which are beyond NiSource's control.

ITEM 2. PROPERTIES.

ELECTRIC. Northern Indiana owns and operates four coal fired electric generating
stations with net capabilities of 3,179,000 kw, two hydroelectric generating
plants with net capabilities of 10,000 kw and four gas fired combustion turbine
generating units with net capabilities of 203,000 kw, for a total system net
capability of 3,392,000 kw. It has 291 substations with an aggregate transformer
capacity of 23,036,200 kilovolts (kva). Its transmission system, with voltages
from 34,500 to 345,000 volts, consists of 3,068 circuit miles of line. The
electric distribution system extends into 21 counties and consists of 7,800
circuit miles of overhead and 1,571 cable miles of underground primary
distribution lines operating at various voltages from 2,400 to 12,500 volts.
Northern Indiana has distribution transformers having an aggregate capacity of
11,367,093 kva and 445,377 electric watt-hour meters.

GAS UTILITIES. See "Item 1. Business-Gas Operations". At December 31, 1999,
Northern Indiana's system consisted of approximately 13,924 miles of gas mains.
At December 31, 1999, BSG's system consisted of approximately 5,450 miles of
distribution mains; 116 vaporization and storage facilities; propane storage
tanks; 268,022 services; and 305,182 meters installed on customers' premises.
The physical properties of the NiSource gas utilities are located throughout
Northern Indiana and New England.

     The transmission and distribution system of the gas utilities are for the
most part located on or under public streets, and other public places or on
private property not owned by the Company, with easements from or consent of the
respective owners.

PIPELINES. Crossroads and Granite combined have approximately 300 miles of
interstate gas pipelines located in Indiana, Ohio, Maine, New Hampshire and
Massachusetts.

GAS MARKETING. MHP owns salt caverns used for natural gas storage which are
located in Texas and Louisiana and are described under "Item 1.
Business-Products and Services and Other Subsidiaries".

                                       16
<PAGE>   17

WATER. The Water Utilities' properties consist of land, easements, rights
(including water rights), buildings, reservoirs, canals, wells, supply lines,
purification plants, pumping stations, transmission and distribution pipes,
mains and conduits, meters and other facilities used for the collection,
purification and storage of water and the distribution of water to its
customers. The water system extend from well fields and raw water reservoirs on
Cicero Creek and Fall Creek, north and northeast of Indianapolis, and from the
intake structure in Indianapolis' Eagle Creek Reservoir, northwest of
Indianapolis, to the service connections of the ultimate consumer. The Water
Utilities have 30,018 fire hydrants and 3,528 miles of water mains.

PRODUCTS AND SERVICES. Through its subsidiaries, Development owns Southlake
Complex, a 325,000 square foot office building located in Merrillville, Indiana
and a golf course, surrounding residential development and land held for resale
in Chesterton, Indiana. Waterway Holding, Inc. owns parcels of land held for
development.

CHARACTER OF OWNERSHIP. Substantially all of the properties of Northern Indiana
and IWC are subject to the lien of their respective First Mortgage Indentures.
The principal offices and properties of NiSource and its subsidiaries are held
in fee and are free from other encumbrances, subject to minor exceptions, none
of which are of such a nature as to impair substantially the usefulness of such
properties. Many of the offices in various communities served are occupied by
subsidiaries of NiSource under leases. All properties are subject to liens for
taxes, assessments and undetermined charges (if any) incidental to construction.
It is NiSource's practice regularly to pay such amounts, as and when due, unless
contested in good faith. In general, the electric, gas and water lines and mains
are located on land not owned in fee but are covered by necessary consents of
various governmental authorities or by appropriate rights obtained from owners
of private property. NiSource does not, however, generally have specific
easements from the owners of the property adjacent to public highways over, upon
or under which its electric, gas and water lines and mains are located. At the
time each of the principal properties was purchased a title search was made. In
general, no examination of titles as to rights-of-way for electric, gas and
water lines and mains was made, other than examination, in certain cases, to
verify the grantors' ownership and the lien status thereof.

ITEM 3. LEGAL PROCEEDINGS.

     NiSource and its subsidiaries are parties to various pending proceedings,
including suits and claims against them for personal injury, death and property
damage. The nature of such proceedings and suits and the amounts involved are
routine for the kinds of businesses conducted by NiSource and its subsidiaries,
except as described under the captions "NESI Energy Marketing Canada Ltd.
Litigation" and "Environmental Matters" in the Notes to Consolidated Financial
Statements in the 1999 Annual Report to Shareholders (see Exhibit 13). No other
material legal proceedings against NiSource or its subsidiaries are pending or,
to the knowledge of NiSource, contemplated by governmental authorities or other
parties.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     None

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

     NiSource's common shares are listed and traded on the New York, Chicago and
Pacific stock exchanges. The table below indicates the high and low sales price
of NiSource's common shares, on the composite tape, during the periods
indicated. On December 16, 1997, the Board authorized a two-for-one split of
NiSource's common stock. The stock split was paid on February 20, 1998, to
shareholders of record at the close of business on January 30, 1998. The sales
prices and common dividends reported have been restated to reflect the
two-for-one stock split.

                                       17
<PAGE>   18

<TABLE>
<CAPTION>
                                                                        1999                                1998
                                                            -----------------------------       -----------------------------
                                                               HIGH              LOW               HIGH              LOW
                                                               ----              ---               ----              ---
<S>                                                         <C>              <C>                <C>              <C>
First Quarter.............................................  30 1/2           25 7/8             28 1/2           24 21/32
Second Quarter............................................  28 1/8           25 13/16           28 3/8           25 11/16
Third Quarter.............................................  26 7/8           21 3/4             32 7/8           26 5/8
Fourth Quarter............................................  23               16 9/16            33 3/4           28
</TABLE>

     As of February 29, 2000, NiSource had 40,463 common shareholders of record.

     The policy of the Board has been to declare cash dividends on a quarterly
basis payable on or about the 20th day of February, May, August and November.
NiSource paid quarterly common dividends of $0.24 per share during 1998 and
quarterly common dividends of $0.255 per share during 1999. At its December 1999
meeting, the Board increased the quarterly common dividend to $0.27 per share,
payable on February 18, 2000.

     Holders of NiSource's common shares are entitled to receive dividends when,
as and if declared by the Board out of funds legally available therefor.
Although the Board currently intends to consider the payment of regular
quarterly cash dividends on common shares, the timing and amount of future
dividends will depend on the earnings of Northern Indiana and other
subsidiaries, their financial condition, cash requirements, any restrictions in
financing agreements and other factors deemed relevant by the Board. During the
next few years, it is expected that the great majority of earnings available for
distribution of dividends will depend upon dividends paid to NiSource by
Northern Indiana.

     The following limitations on payment of dividends and issuance of preferred
stock apply to Northern Indiana:

     When any bonds are outstanding under its First Mortgage Indenture, Northern
Indiana may not pay cash dividends on its stock (other than preferred or
preference stock) or purchase or retire common shares, except out of earned
surplus or net profits computed as required under the provisions of the
maintenance and renewal fund. At December 31, 1999, Northern Indiana had
approximately $136.1 million of retained earnings (earned surplus) available for
the payment of dividends. Future common share dividends by Northern Indiana will
depend upon adequate retained earnings, adequate future earnings and the absence
of adverse developments.

     So long as any shares of Northern Indiana's cumulative preferred stock are
outstanding, no cash dividends shall be paid on its common shares in excess of
75% of the net income available therefor for the preceding calendar year, unless
the aggregate of the capital applicable to stocks subordinate as to assets and
dividends, would equal or exceed 25% of the sum of all obligations evidenced by
bonds, notes, debentures or other securities, plus the total capital and
surplus. At December 31, 1999 , the sum of the capital applicable to stocks
subordinate to the cumulative preferred stock plus the surplus was equal to 43%
of the total capitalization including surplus.

     In connection with the foregoing discussion, see "Common Share Dividend" in
the Notes to Consolidated Financial Statements in the 1999 Annual Report to
Shareholders (see Exhibit 13).

                                       18
<PAGE>   19

ITEM 6. SELECTED FINANCIAL DATA.

<TABLE>
<CAPTION>
                                                        YEAR ENDED DECEMBER 31,
                                     --------------------------------------------------------------
                                        1999         1998         1997         1996         1995
                                        ----         ----         ----         ----         ----
<S>                                  <C>          <C>          <C>          <C>          <C>
Operating revenues (000's).........  $3,144,576   $2,932,778   $2,586,541   $1,987,948   $1,769,308
Net income (000's).................  $  160,414   $  193,886   $  190,849   $  176,734   $  175,465
Earnings per average common
  share -- basic...................  $     1.29   $     1.60   $     1.54   $     1.44   $     1.36
Earnings per average common
  share -- diluted.................  $     1.27   $     1.59   $     1.53   $     1.43   $     1.35
     Total assets (000's)..........  $6,835,229   $4,986,503   $4,937,033   $4,288,883   $3,999,520
Long-term obligations and
  redeemable preferred stock
  (000's)..........................  $2,374,214   $1,724,400   $1,726,766   $1,188,352   $1,274,379
Cash dividends declared per common
  share............................  $    1.035   $    0.975   $    0.915   $    0.855   $    0.795
</TABLE>

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

     Information regarding results of operations, liquidity and capital
resources, environmental matters, Year 2000 costs, competition and regulatory
changes and impact of accounting standards is reported in the 1999 Annual Report
to Shareholders under "Management's Discussion and Analysis of Financial
Condition and Results of Operations" (see Exhibit 13).

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     Information regarding market risk is reported in the 1999 Annual Report to
Shareholders under "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Market Risk Sensitive Instruments and Positions"
(see Exhibit 13).

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

     The following Consolidated Financial Statements and Supplementary Data are
included in the 1999 Annual Report to Shareholders and are hereby incorporated
by reference and made a part of this report (see Exhibit 13).

     (1) Consolidated Financial Statements--
         Consolidated Statement of Income for the years ended December 31, 1999,
         1998 and 1997
         Consolidated Balance Sheet at December 31, 1999 and 1998
         Consolidated Statement of Capitalization at December 31, 1999 and 1998
         Consolidated Statement of Long-term Debt at December 31, 1999 and 1998
         Consolidated Statement of Cash Flows for the years ended December 31,
         1999, 1998 and 1997
         Consolidated Statement of Common Shareholders' Equity for the years
         ended December 31, 1999, 1998 and 1997
         Notes to Consolidated Financial Statements
         Report of Independent Public Accountants

     (2) Supplementary Data --
         Selected Supplemental Information

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.

     None.

                                       19
<PAGE>   20

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

     The following is a list of the executive officers of NiSource, including
their names, ages and offices held, as of March 25, 2000.

<TABLE>
<CAPTION>
                                                YEARS
                                                 WITH
                 NAME                    AGE   NISOURCE       OFFICE(S) HELD IN PAST 5 YEARS
                 ----                    ---   --------       ------------------------------
<S>                                      <C>   <C>        <C>
Gary L. Neale**........................  60       10      Chairman, President and Chief Executive
                                                            Officer since March 1993.
Stephen P. Adik........................  56       13      Senior Executive Vice President, Chief
                                                            Financial Officer and Treasurer since
                                                            February 1999.
                                                          Executive Vice President, Chief
                                                            Financial Officer and Treasurer from
                                                            January 1994 to January 1999.
Patrick J. Mulchay.....................  58       37      Executive Vice President of NiSource
                                                          and President and Chief Operating
                                                            Officer at Northern Indiana* since
                                                            February 1999.
                                                          Executive Vice President and Chief
                                                            Operating Officer at Northern
                                                            Indiana* from July 1996 to January
                                                            1999.
                                                          Executive Vice President and Chief
                                                            Operating Officer of Electric
                                                            Operations at Northern Indiana* from
                                                            January 1994 to July 1996.
Jeffrey W. Yundt.......................  54       20      Executive Vice President of NiSource
                                                          and President and Chief Executive
                                                            Officer at BSG*(a) since February
                                                            1999.
                                                          Executive Vice President and Chief
                                                            Operating Officer of EUSA*, and
                                                            President of NI Energy Services,
                                                            Inc.(NESI)* from July 1996 to January
                                                            1999.
                                                          Executive Vice President and Chief
                                                            Operating Officer of Gas Services at
                                                            Northern Indiana* from January 1994
                                                            to June 1996.
Joseph L. Turner, Jr...................  63       14      Senior Vice President of Major Accounts
                                                            since July 1996. President of
                                                            Primary* since January 1996. Prior
                                                            thereto, Group Vice President of
                                                            Northern Indiana*.
</TABLE>

                                       20
<PAGE>   21

<TABLE>
<CAPTION>
                                                YEARS
                                                 WITH
                 NAME                    AGE   NISOURCE       OFFICE(S) HELD IN PAST 5 YEARS
                 ----                    ---   --------       ------------------------------
<S>                                      <C>   <C>        <C>
James K. Abcouwer......................  46        5      Senior Vice President of NiSource and
                                                            Executive Vice President at NESI*
                                                            since July 1998.
                                                          Senior Vice President, Commercial
                                                            Operations of Northern Indiana* from
                                                            February 1998 to June 1998.
                                                          Vice President and General Manager of
                                                            Customer Services and Distribution of
                                                            Northern Indiana* from July 1996 to
                                                            January 1998.
                                                          Vice President of Gas Supply at
                                                            Northern Indiana* from July 1994 to
                                                            June 1996.
David A. Kelly.........................  61        8      Vice President, Taxes at NiSource and
                                                            Executive Vice President and Chief
                                                            Financial Officer at IWCR* (b) since
                                                            April 1997.
                                                          Vice President of Administrative
                                                            Services at NiSource Corporate
                                                            Services Company (NCSC)* from January
                                                            1997 to April 1997. Prior thereto,
                                                            Vice President of Real Estate and
                                                            Taxes at NCSC*.
Thomas J. Aruffo.......................  41        2      Vice President and Chief Information
                                                            Officer since February 1999.
                                                          Vice President Information Service at
                                                            BSG* (a) from October 1997 to
                                                            February 1999.
                                                          Vice President at Fidelity Investments
                                                            from February 1996 to October 1997;
                                                            Director Information Systems at
                                                            Prudential Insurance Company of
                                                            America from March 1993 to February
                                                            1997.
Mark T. Maassel........................  45       22      Vice President, Regulatory and
                                                            Governmental Policy since June 1998.
                                                          Vice President of Marketing and Sales
                                                            at NCSC* from July 1996 to June 1998.
James T. Morris**......................  56        3      Chairman of the Board, President and
                                                          Chief Executive Officer of IWCR* (b)
                                                            since May 1991.
Mark D. Wyckoff........................  37        8      Vice President of Human Resources since
                                                            June 1998. Assistant Treasurer since
                                                            September 1997. Prior thereto
                                                            NiSource Development Principal since
                                                            January 1994.
</TABLE>

                                       21
<PAGE>   22

<TABLE>
<CAPTION>
                                                YEARS
                                                 WITH
                 NAME                    AGE   NISOURCE       OFFICE(S) HELD IN PAST 5 YEARS
                 ----                    ---   --------       ------------------------------
<S>                                      <C>   <C>        <C>
Arthur A. Paquin.......................  52       29      Controller of NCSC* since July 1996.
                                                          Prior thereto, Controller of Northern
                                                            Indiana*.
Francis P. Girot, Jr...................  55       19      Treasurer of Northern Indiana* and
                                                          NCSC* since July 1996. Prior thereto,
                                                            Treasurer of Northern Indiana*.
</TABLE>

---------------
 * Subsidiary of NiSource.

** Also a Director.

(a) NiSource acquired Bay State in February 1999.

(b) NiSource acquired IWCR in March 1997.

     The terms of office of the executive officers of NiSource are established
by NiSource's Board of Directors (Board) each year, and each officer serves
until the next annual meeting of the Board and/or until his/her successor is
duly elected. Throughout the past five years, each of the executive officers of
NiSource has been continuously in the business of NiSource or its subsidiaries,
except for Messrs. Aruffo and Morris.

     The following chart gives information about the directors. The dates shown
for service as a director include service as a director of Northern Indiana
prior to the March 3, 1988 share exchange with NiSource.

<TABLE>
<CAPTION>
                                                                      HAS
                                                                     BEEN A
                  NAME, AGE AND PRINCIPAL OCCUPATIONS               DIRECTOR
           FOR PAST FIVE YEARS AND PRESENT DIRECTORSHIPS HELD        SINCE
           --------------------------------------------------       --------
<S>   <C>                                                           <C>
Directors Whose Terms Expire in 2002
Ian M. Rolland, 66
      Director of Wells Fargo & Co., Tokheim Corporation and        1978
      Bright Horizons Family Solutions. Prior to his 1998
      retirement as an executive officer of Lincoln National
      Corporation, Mr. Rolland served as Chairman and Chief
      Executive Officer.
John W. Thompson, 50
      Chairman, President and Chief Executive Officer of Symantec   1993
      Corp. Symantec produces software and provides Internet
      security technology. Prior to joining Symantec in 1999, Mr.
      Thompson was General Manager of IBM Americas. Mr. Thompson
      is also a director of Fortune Brands Inc.
Roger A. Young, 54
      Chairman, Bay State Gas Company, Westborough, Massachusetts   1999
      since 1996. Bay State Gas Company is an energy services
      company serving customers in Massachusetts, New Hampshire
      and Maine. Mr. Young also served as Chief Executive Officer
      of Bay State Gas Company from 1990 to 1999. Mr. Young also
      serves as a regional director of BankBoston Corporation, and
      as a director of Watts Industries, Inc.
</TABLE>

                                       22
<PAGE>   23

<TABLE>
<CAPTION>
                                                                      HAS
                                                                     BEEN A
                  NAME, AGE AND PRINCIPAL OCCUPATIONS               DIRECTOR
           FOR PAST FIVE YEARS AND PRESENT DIRECTORSHIPS HELD        SINCE
           --------------------------------------------------       --------
<S>   <C>                                                           <C>
Directors Whose Terms Expire in 2001
Steven C. Beering, 67
      President of Purdue University, West Lafayette, Indiana. Dr.  1986
      Beering is also a director of Arvin Industries, Inc.,
      American United Life Insurance Company and Eli Lilly and
      Company.
Dennis E. Foster, 59
      Vice Chairman of ALLTEL Corporation, Little Rock, Arkansas,   1999
      a full service telecommunications and information service
      provider. Mr. Foster is a director of ALLTEL Corporation,
      Cellular Telecommunications Industry Association and Salient
      3 Communications.
James T. Morris, 56
      Chairman and Chief Executive Officer, IWC Resources           1997
      Corporation, Indianapolis, Indiana. Mr. Morris is also a
      director of Paul Harris Stores, Inc. and National City Bank
      (Indianapolis)
Carolyn Y. Woo, 45
      Gillen Dean and Siegfried Professor, College of Business      1997
      Administration, University of Notre Dame, South Bend,
      Indiana. Dr. Woo is also a director of Bindley Western
      Industries, Inc. and AON Corporation.
Directors Whose Terms Expire in 2000
Arthur J. Decio, 69
      Chairman of the Board and Director of Skyline Corporation,    1991
      Elkhart, Indiana, a manufacturer of manufactured housing and
      recreational vehicles.
Gary L. Neale, 60
      Chairman, President and Chief Executive Officer of NiSource   1991
      since March 1, 1993; prior thereto, Executive Vice President
      of NiSource, and President and Chief Operating Officer of
      Northern Indiana. Mr. Neale is also a director of Modine
      Manufacturing Company, Chicago Bridge and Iron Company and
      Mercantile National Bank of Indiana
Robert J. Welsh, 64
      Chairman and Chief Executive Officer of Welsh, Inc.,
      Merrillville, Indiana, a marketer of petroleum products
      through convenience stores and travel centers. Mr. Welsh is
      also the Chairman of the Board of Aspen, Inc.
</TABLE>

                                       23
<PAGE>   24

ITEM 11. EXECUTIVE COMPENSATION.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                  LONG-TERM
                                            ANNUAL COMPENSATION (1)              COMPENSATION
                                       ----------------------------------   ----------------------
                                                                              AWARDS      PAYOUTS
                                                                              ------      -------
                                                                            SECURITIES
                                                                   OTHER      UNDER-     LONG-TERM
                                                                  ANNUAL      LYING      INCENTIVE
                                                                  COMPEN-    OPTIONS/      PLAN       ALL OTHER
                                              SALARY     BONUS    SATION       SARS       PAYOUTS    COMPENSATION
     NAME AND PRINCIPAL POSITION       YEAR     ($)     ($)(2)    ($)(3)       (#)        ($)(4)        ($)(5)
     ---------------------------       ----   ------    ------    -------   ----------   ---------   ------------
<S>                                    <C>    <C>       <C>       <C>       <C>          <C>         <C>
Gary L. Neale,.......................  1999   689,583         0     6,436     50,000      484,313       33,465
  Chairman, President and Chief        1998   561,250   345,000     7,073     50,000      415,251       31,704
    Executive Officer                  1997   520,000   390,000     6,711     50,000           --       42,993

Stephen P. Adik,.....................  1999   343,749         0     2,980     30,000           --        5,645
  Senior Executive Vice President,
    Chief                              1998   268,750   148,500     2,202     20,000      207,626        5,324
    Financial Officer and Treasurer    1997   250,000   171,250     2,575     20,000           --        5,673

Patrick J. Mulchay, (6)..............  1999   294,166   104,670     2,800     25,000           --        7,163
  Executive Vice President and
    President,                         1998   225,000   148,350     1,412     20,000           --        6,666
    Chief Operating Officer --
      Northern                         1997   210,000   150,675       851     20,000           --        7,506
    Indiana Public Service Company

Jeffrey W. Yundt, (6)................  1999   294,166    62,130   149,415     25,000           --        3,776
  Executive Vice President and
    President                          1998   225,000   124,200     6,348     20,000           --        3,485
    and Chief Executive Officer --Bay  1997   210,000   143,850     8,905     20,000           --        3,693
    State Gas Company

Joseph L. Turner, (7)................  1999   208,750    69,968     3,791     10,000           --        7,396
  Senior Vice President, Primary
    Energy,                            1998   195,000   205,838     2,203     10,000           --        6,948
    Inc.                               1997   180,000   113,675     1,175      8,000           --        7,599
</TABLE>

---------------
(1) Compensation deferred at the election of the Named Officer is reported in
    the category and year in which such compensation was earned.

(2) All bonuses are paid pursuant to the Bonuses Plan, except for portions of
    the bonuses paid to Messrs. Mulchay, Yundt and Turner, which are described
    in Notes 6 and 7. The Bonus Plan is designed to supplement a conservative
    base salary with incentive bonus payments if targeted financial performance
    is attained. The 1999 target aggregate payout for the Bonus Plan for the
    Named Officers was $1,212,500, which was more than the actual aggregate
    payout for the Named Officers. See "Nominating and Compensation Committee
    Report on Executive Compensation."

(3) In accordance with applicable Securities and Exchange Commission rules, the
    amounts shown for each of the Named Officers do not include perquisites and
    other personal benefits, as the aggregate amount of such benefits is less
    than the lesser of $50,000 and 10% of the total salary and bonus of such
    Named Officer. In 1999, this amount includes a one-time relocation allowance
    of $85,305 and a related tax allowance of $60,412 for Mr. Yundt.

(4) The payouts shown are based on the value, at date of vesting, of restricted
    shares awarded under the Long-Term Incentive Plan which vested during the
    years shown. Vesting was based on meeting certain performance requirements.
    Total restricted shares held (assuming 100% vesting) and aggregate market
    value at December 31, 1999 (based on the average of the high and low sale
    prices of the Common Shares on that date as reported in The Wall Street
    Journal) for the Named Officers were as follows: Mr. Neale, 120,000 shares
    valued at $2,148,744; Messrs. Adik, Mulchay and Yundt, 50,000 shares, for
    each individual valued at $895,310; and Mr. Turner, 33,200 shares (includes
    9,201 shares purchased pursuant to the PE Plan described in footnote 6)
    valued at $594,504. Dividends on the restricted shares are paid to the Named
    Officers.

                                       24
<PAGE>   25

(5) The Chairman, President and Chief Executive Officer, the Senior Executive
    Vice President, the Executive Vice President, the Senior Vice Presidents,
    and certain Vice Presidents of NiSource and Northern Indiana have available
    to them a supplemental life insurance plan which provides split-dollar
    coverage of up to 3.5 times base compensation as of commencement of the plan
    in 1991 and could provide life insurance coverage after retirement if there
    is adequate cash value in the respective policy. "All other Compensation"
    represents Company contributions to the 401(k) Plan and the dollar value of
    the benefit to the Named Officers under the supplemental life insurance
    plan, as follows: Mr. Neale -- $1,066 401(k) Plan, $28,856 premium value and
    $3,543 term insurance cost; Mr. Adik1 -- $1,110 401(k) Plan, $3,474 premium
    value and $1,061 term insurance cost; Mr. Mulchay -- $362 401(k) Plan,
    $5,671 premium value and $1,130 term insurance cost; Mr. Yundt -- $2,976
    premium value and $800 term insurance cost and Mr. Turner -- $5,512 premium
    value and $1,884 term insurance cost. The value of the life insurance
    premiums paid by NiSource in excess of term insurance cost on behalf of the
    Named Officers under the supplemental life insurance plan has been restated
    for all periods in accordance with the present value interest-free loan
    method.

(6) Messrs. Mulchay and Yundt are also Presidents of Northern Indiana and BSG,
    respectively, and 50% of their annual incentive compensation is determined
    based on the financial performance of the business unit for which they are
    responsible.

(7) Mr. Turner is also President of Primary and participates in the Primary
    Energy Incentive Plan ("PE Plan"). The PE Plan provides for a bonus based on
    meeting certain financial performance criteria of Primary Energy. Under the
    PE Plan, $39,982 of Mr. Turner's bonus for 1999 was used to purchase Common
    Shares of NiSource on or about February 29, 2000, the date of payment of the
    bonus. The PE Plan provides that the Common Shares are restricted for a
    period of five years, and are subject to continued employment, except that
    they vest earlier in the event of the employee's retirement, death or
    disability.

     Option Grants in 1999. The following table sets forth grants of options to
purchase Common Shares made during 1999 to the Named Officers. No stock
appreciation rights were awarded during 1999.

                     OPTION/SAR GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
                                                INDIVIDUAL GRANTS
                                  ---------------------------------------------
                                                     PERCENT OF
                                    NUMBER OF          TOTAL
                                    SECURITIES      OPTIONS/SARS    EXERCISE OR
                                    UNDERLYING       GRANTED TO        BASE                        GRANT DATE
                                   OPTIONS/SARS     EMPLOYEES IN       PRICE       EXPIRATION       PRESENT
              NAME                GRANTED (#)(1)   FISCAL YEAR(2)    ($/SH)(3)        DATE        VALUE ($)(4)
              ----                --------------   --------------   -----------    ----------     ------------
<S>                               <C>              <C>              <C>           <C>             <C>
Gary L. Neale...................      50,000            6.71           24.59         8/24/09        183,000
Stephen P. Adik.................      30,000            4.03           24.59         8/24/09        109,800
Patrick J. Mulchay..............      25,000            3.36           24.59         8/24/09         91,500
Jeffrey W. Yundt................      25,000            3.36           24.59         8/24/09         91,500
Joseph L. Turner................      10,000            1.34           24.59         8/24/09         36,000
</TABLE>

---------------
(1) All options granted in 1999 are fully exercisable commencing one year from
    the date of grant. Vesting may be accelerated as a result of certain events
    relating to a change in control of NiSource. The exercise price and tax
    withholding obligation related to exercise may be paid by delivery of
    already owned Common Shares or by reducing the number of Common Shares
    received on exercise, subject to certain conditions.

(2) Based on an aggregate of 744,750 options granted to all employees in 1999.

(3) All options were granted at the average of high and low sale prices of the
    Common Shares as reported in The Wall Street Journal on the date of grant.

(4) Grant date present value is determined using the Black-Scholes option
    pricing model. The assumptions used in the Black-Scholes option pricing
    model were as follows: volatility -- 15.72% (calculated using

                                       25
<PAGE>   26

    daily Common Share prices for the twelve-month period preceding the date of
    grant); risk-free rate of return -- 5.87% (the rate for a ten-year U.S.
    treasury); dividend yield--$1.02; option term -- ten years; vesting -- 100%
    one year after date of grant; and an expected option term of 5.4 years. No
    assumptions relating to non-transferability or risk of forfeiture were made.
    Actual gains, if any, on option exercises and Common Shares are dependent on
    the future performance of the Common Shares and overall market conditions.
    There can be no assurance that the amounts reflected in this table will be
    achieved.

     Option Exercises in 1999. The following table sets forth certain
information concerning the exercise of options or stock appreciation rights
("SARs") during 1999 by each of the Named Officers and the number and value of
unexercised options and SARs at December 31, 1999.

   AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
                                     VALUES

<TABLE>
<CAPTION>
                                                                NUMBER OF SECURITIES            VALUE OF UNEXERCISED
                                                               UNDERLYING UNEXERCISED               IN-THE-MONEY
                               SHARES                             OPTIONS/SARS AT                 OPTIONS/SARS AT
                             ACQUIRED ON                        FISCAL YEAR-END (#)            FISCAL YEAR-END ($)(1)
                              EXERCISE         VALUE        ----------------------------    ----------------------------
          NAME                   (#)        REALIZED ($)    EXERCISABLE    UNEXERCISABLE    EXERCISABLE    UNEXERCISABLE
          ----               -----------    ------------    -----------    -------------    -----------    -------------
<S>                          <C>            <C>             <C>            <C>              <C>            <C>
Gary L. Neale............          --              --         310,000         50,000          407,190            0
Stephen P. Adik..........      12,000         220,499         160,000         30,000          454,376            0
Patrick J. Mulchay.......       4,400          76,862         150,000         25,000          360,626            0
Jeffrey W. Yundt.........      12,000         220,499         160,000         25,000          454,376            0
Joseph L. Turner.........          --                          75,000         10,000          122,782            0
</TABLE>

---------------
(1) Represents the difference between the option exercise price and $17.9063,
    the average of high and low sale prices of the Common Shares on December 31,
    1999, as reported in The Wall Street Journal.

     Long-Term Incentive Plan Awards in 1999. The following table sets forth
restricted shares awarded pursuant to the Long-Term Incentive Plan during 1999
to each of the Named Officers.

          LONG-TERM STOCK INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
                                                                            ESTIMATED FUTURE PAYOUTS UNDER
                                                                             NON-STOCK PRICE-BASED PLANS
                                                      PERFORMANCE     ------------------------------------------
                                       NUMBER OF        OR OTHER
                                     SHARES, UNITS    PERIOD UNTIL
                                       OR OTHER        MATURATION
              NAME                    RIGHTS (#)       OR PAYOUT*     THRESHOLD (#)    TARGET (#)    MAXIMUM (#)
              ----                   -------------    ------------    -------------    ----------    -----------
<S>                                  <C>              <C>             <C>              <C>           <C>
Gary L. Neale....................       10,000                2               0          10,000        10,000
Stephen P. Adik..................            -                -               -               -             -
Patrick J. Mulchay...............            -                -               -               -             -
Jeffrey W. Yundt.................            -                -               -               -             -
Joseph L. Turner.................            -                -               -               -             -
</TABLE>

---------------
* Amounts stated in years.

     The restrictions on shares awarded during 1999 lapse two years from the
date of grant. The vesting of the restricted shares is variable from 0% to 100%
of the number awarded, based upon meeting certain specific financial performance
objectives. There is a two-year holding period for the shares after the
restrictions lapse.

                                       26
<PAGE>   27

     Pension Plan and Supplemental Executive Retirement Plan. The following
table shows estimated annual benefits, giving effect to NiSource's Pension Plan
and Supplemental Executive Retirement Plan (the "Supplemental Plan," as
described below), payable upon retirement to persons in the specified
remuneration and years-of-service classifications.

                               PENSION PLAN TABLE

<TABLE>
<CAPTION>
                                                                  YEARS OF SERVICE
                                           ---------------------------------------------------------------
REMUNERATION                                 15            20            25            30            35
------------                               -------       -------       -------       -------       -------
<S>                                        <C>           <C>           <C>           <C>           <C>
 $ 350,000..                               144,750       193,000       201,750       210,500       210,500
   400,000..                               167,250       223,000       233,000       243,000       243,000
   450,000..                               189,750       253,000       264,250       275,500       275,500
   500,000..                               212,250       283,000       295,500       308,000       308,000
   550,000..                               234,750       313,000       326,750       340,500       340,500
   600,000..                               257,250       343,000       358,000       373,000       373,000
   650,000..                               279,750       373,000       389,250       405,500       405,500
   700,000..                               302,250       403,000       420,500       438,000       438,000
   750,000..                               324,750       433,000       451,750       470,500       470,500
   800,000..                               347,250       463,000       483,000       503,000       503,000
   850,000..                               369,750       493,000       514,250       535,500       535,500
   900,000..                               392,250       523,000       545,500       568,000       568,000
   950,000..                               414,750       553,000       576,750       600,500       600,500
 1,000,000..                               437,250       583,000       608,000       633,000       633,000
 1,050,000..                               459,750       613,000       639,250       665,500       665,500
 1,100,000..                               482,250       643,000       670,500       698,000       698,000
</TABLE>

     The credited years of service for each of the Named Officers, pursuant to
the Supplemental Plan, are as follows: Gary L. Neale -- 25 years; Stephen P.
Adik -- 21 years; Patrick J. Mulchay -- 37 years; Jeffrey W. Yundt -- 20 years;
and Joseph L. Turner -- 28 years.

     Upon their retirement, regular employees and officers of NiSource and its
subsidiaries which adopt the plan (including directors who are also full-time
officers) will be entitled to a monthly pension in accordance with the
provisions of NiSource's pension plan, originally effective as of January 1,
1945. The directors who are not and have not been officers of NiSource are not
included in the pension plan. The pensions are payable out of a trust fund
established under the pension plan with The Northern Trust Company, trustee. The
trust fund consists of contributions made by NiSource and the earnings of the
fund. Over a period of years the contributions are intended to result in
over-all actuarial solvency of the trust fund. The pension plan of NiSource has
been determined by the Internal Revenue Service to be qualified under Section
401 of the Internal Revenue Code of 1986, as amended (the "Code").

     Pension benefits are determined separately for each participant. The
formula for a monthly payment for retirement at age 65 is 1.7% of average
monthly compensation multiplied by years of service (to a maximum of 30 years)
plus 0.6% of average monthly compensation multiplied by years of service over
30. Average monthly compensation is the average for the 60 consecutive
highest-paid months in the employee's last 120 months of service. Covered
compensation is defined as wages reported as W-2 earnings (up to a limit set
forth in the Code and adjusted periodically) plus any salary reduction
contributions made under the 401(k) Plan, minus any portion of a bonus in excess
of 50% of base pay and any amounts paid for unused vacation time and vacation
days carried forward from prior years. The benefits listed in the Pension Plan
table are not subject to any deduction for Social Security or other offset
amounts.

     NiSource also has a Supplemental Plan for officers. Participants in the
Plan are selected by the Board. Benefits from the Plan are to be paid from the
general assets of NiSource. The Supplemental Plan provides the larger of (i) 60%
of five-year average pay less Primary Social Security Benefits (prorated for
less than 20 years of service) and an additional 0.5% of 5-year average pay less
Primary Social Security Benefits per year for participants with between 20 and
30 years of service, or (ii) the benefit formula under NiSource's
                                       27
<PAGE>   28

Pension Plan. In either case, the benefit is reduced by the actual pension
payable from NiSource's Pension Plan. In addition, the Supplemental Plan
provides certain disability and pre-retirement death benefits for the spouse of
a participant.

     Change in Control and Termination Agreements. The Board of NiSource has
authorized Change in Control and Termination Agreements ("the Agreements") with
Mr. Neale and the Vice Presidents of NiSource (including each of the Named
Officers) (each such person being an "executive"). NiSource believes that these
Agreements and related shareholder rights protections are in the best interests
of the shareholders, to insure that in the event of extraordinary events,
totally independent judgment is enhanced to maximize shareholder value. The
Agreements, which are terminable upon three years' notice, provide for the
payment of three times then current annual base salary and target incentive
bonus compensation and the continuation of certain employee benefits for a
period of 36 months (the "Severance Period"), and a pro rata portion of the
executive's targeted incentive bonus for the year of termination. These benefits
are payable if the executive terminates employment for "Good Reason" or is
terminated by the company for any reason other than "Good Cause" within
twenty-four months following certain changes in control. Each of these
Agreements also provides for payment of these benefits if the executive
voluntarily terminates employment during a specified period within the
twenty-four months following the change in control.

     The executive would receive benefits from NiSource that would otherwise be
earned during the Severance Period under NiSource' Supplemental Plan and
qualified retirement plans. All stock options held by the executive would become
immediately exercisable upon the date of termination of employment, and the
restrictions would lapse on all restricted shares awarded to the executive. If
any penalty tax under the Code is imposed on the payment of amounts under the
contracts, NiSource would increase the payment to the extent necessary to
compensate the executive for the imposition of such tax.

     During the Severance Period, the executive and spouse would continue to be
covered by applicable health or welfare plans of NiSource. If the executive died
during the Severance Period, all amounts payable to the executive would be paid
to a named beneficiary. No amounts would be payable under the Agreements if the
executive's employment were terminated by NiSource for Good Cause (as defined in
the Agreements).

     The Agreement with Mr. Neale also provides for the same severance payments
as above described in the event his employment is terminated at any time by
NiSource (other than for Good Cause) or due to death or disability, or if he
voluntarily terminates employment with Good Reason (as defined in the
Agreements).

     Compensation of Directors. Each director who is not receiving a salary from
NiSource is paid $20,000 per year, $3,000 annually per standing committee on
which the director sits, $1,000 annually for each committee chairmanship, $1,000
for each Board meeting attended and $750 per committee meeting attended.
Directors of NiSource do not receive any additional compensation for services as
a director of any Company subsidiary, including Northern Indiana. Under a
deferred compensation arrangement, directors may have their fees deferred in the
current year and credited to an interest-bearing account or to a phantom stock
account for payment in the future.

     NiSource's Nonemployee Director Retirement Plan provides a retirement
benefit for each nonemployee director of NiSource who has completed at least
five years of service on the Board. The benefit will be an amount equal to the
annual retainer for Board service in effect at the time of the director's
retirement from the Board, to be paid for the lesser of ten years or the number
of years of service as a nonemployee director of NiSource.

     NiSource's Nonemployee Director Stock Incentive Plan provides for grants of
restricted Common Shares to nonemployee directors of NiSource. The Plan provides
for a grant of 2,000 shares to each person, other than an employee of NiSource,
who is elected or reelected as a director of NiSource at the time of such
election or reelection. The grants of restricted shares vest in 20% annual
increments, with full vesting five years after the date of award. In 1999, 2,000
restricted Common Shares were granted to each of Messrs. Rolland, Thompson and
Foster under this plan.

     NiSource's Nonemployee Director Restricted Stock Unit Plan, which was
adopted by the Board in December 1998 and made effective as of January 1, 1999,
is a phantom stock plan that provides for grants to
                                       28
<PAGE>   29

nonemployee directors of restricted stock units that have a value related to
NiSource's Common Shares. Each nonemployee director received an initial grant of
500 units in April 1999. Subsequent grants of 500 units will be made annually to
nonemployee directors upon election or re-election to the Board. The grants of
units vest in 20% annual increments, with full vesting five years after the date
of award, and the units have no voting or stock ownership rights. In 1999, 500
units were granted to Messrs. Decio, Welsh, Rolland, Thompson, Ribordy and
Foster and Drs. Woo and Beering.

     NiSource has adopted a Directors' Charitable Gift Program for nonemployee
directors. Under the program, NiSource makes a donation to one or more eligible
tax-exempt organizations as designated by each eligible director. NiSource
contributes up to an aggregate of $125,000 for each nonemployee director who has
served as a director of NiSource for at least five years and up to an additional
$125,000 (for an overall $250,000) for each nonemployee director who has served
ten years or more. Organizations eligible to receive a gift under the program
include charitable organizations and educational institutions located in Indiana
and educational institutions that the director attended or for which he or she
serves on its governing board. Individual directors derive no financial benefit
from the program, as all deductions relating to the charitable donations accrue
solely to NiSource. All current nonemployee directors are eligible to
participate in the program.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     NiSource is not aware of any beneficial owner of more than 5% of its Common
Shares, as of January 30, 2000.

     The following table sets forth information as to the beneficial ownership
of Common Shares, as of January 30, 2000, for each of the directors, nominees
and named executive officers, and for all directors and executive officers as a
group.

<TABLE>
<CAPTION>
                                                       AMOUNT AND NATURE OF
             NAME OF BENEFICIAL OWNER               BENEFICIAL OWNERSHIP(1)(2)
             ------------------------               --------------------------
<S>                                                 <C>
Steven C. Beering.................................               8,992
Arthur J. Decio...................................               8,500
Dennis E. Foster..................................               3,000
James T. Morris...................................              45,435
Gary L. Neale.....................................             677,069
Ian M. Rolland....................................              19,384
John W. Thompson..................................               7,202
Robert J. Welsh...................................              12,000
Carolyn Y. Woo....................................               2,000
Roger A. Young....................................             156,567
Stephen P. Adik...................................             343,945
Patrick J. Mulchay................................             269,666
Jeffrey W. Yundt..................................             282,189
Joseph L. Turner..................................             151,417
All directors and executive officers as a group...           2,674,004
</TABLE>

---------------
(1) The number of shares owned includes shares held in NiSource's Automatic
    Dividend Reinvestment and Share Purchase Plan, shares held in NiSource's Tax
    Deferred Savings Plan (the "401(k) Plan") and restricted shares awarded
    under NiSource's 1988 and 1994 Long-Term Incentive Plans (the "Incentive
    Plans") and Nonemployee Director Stock Incentive Plan, where applicable. The
    percentage of Common Shares owned by all directors and officers as a group
    is approximately 2.28 percent of the Common Shares outstanding as of January
    30, 2000.

(2) The totals include shares for which the following executive officers have a
    right to acquire beneficial ownership, within 60 days after January 30,
    2000, by exercising stock options granted under the Incentive Plans: Gary L.
    Neale -- 310,000 shares; Stephen P. Adik -- 160,000 shares; Patrick J.

                                       29
<PAGE>   30

    Mulchay -- 150,000 shares; Jeffrey W. Yundt -- 160,000 shares; Joseph L.
    Turner -- 71,000 shares; and all executive officers as a group -- 1,334,826
    shares.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     On February 12, 1999, NiSource acquired BSG. Mr. Roger A. Young was
Chairman of the Board and Chief Executive Officer of BSG at the time of the
acquisition and held shares in BSG. Pursuant to the acquisition transaction, Mr.
Young received Common Shares and/or cash in exchange for his BSG shares in the
same proportion as other BSG shareholders. In connection with the BSG
acquisition transaction, Mr. Young was elected as a director of NiSource. BSG
entered into a nine month employment agreement with Mr. Young, guaranteed by
NiSource, and Mr. Young entered into a covenant not to compete with NiSource.
The employment agreement provided Mr. Young with a base compensation and a
performance-based bonus. For the nine month term of the employment contract, Mr.
Young received base compensation of $641,000 and earned a performance-based
bonus of $1,600,000. In consideration of Mr. Young's covenant not to compete, he
was paid $3,200,000. Some of the foregoing payments have been deferred at a
market rate of interest and no interest was paid to Mr. Young in 1999.

                                       30
<PAGE>   31

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

     (a)(1) The Financial Statements filed herewith as a part of this report on
            Form 10-K are listed on the Index to Financial Statements under Item
            8 on page 20.

            Consolidated Financial Statements --

            Consolidated Statement of Income for the years ended December 31,
            1999, 1998 and 1997

            Consolidated Balance Sheet at December 31, 1999 and 1998

            Consolidated Statement of Capitalization at December 31, 1999 and
            1998

            Consolidated Statement of Long-term Debt at December 31, 1999 and
            1998

            Consolidated Statement of Cash Flows for the years ended December
            31, 1999, 1998 and 1997

            Consolidated Statement of Common Shareholders' Equity for the years
            ended December 31, 1999, 1998 and 1997

            Notes to Consolidated Financial Statements

            Report of Independent Public Accountants

        (2) The following is a list of the Financial Statement Schedules filed
            herewith as part of this report on Form 10-K:

<TABLE>
<CAPTION>
              SCHEDULE
               NUMBER                         DESCRIPTION                        PAGES OF 1999 10-K
              --------                        -----------                        ------------------
              <C>        <S>                                                     <C>
                I        Condensed Financial Information of Registrant           32, 33, 34, 35, 36,
                                                                                 37 & 38
               II        Valuation and Qualifying Accounts                       39, 40 & 41
</TABLE>

        (3) Exhibits --

            The exhibits filed herewith as a part of this report on Form 10-K
            are listed on the Exhibit Index included on pages 44-47. Each
            management contract or compensatory plan or arrangement of NiSource
            listed on the Exhibit Index is separately identified by an asterisk.

     (b) Reports on Form 8-K

         None

                                       31
<PAGE>   32

                         NISOURCE INC. AND SUBSIDIARIES

                                   SCHEDULE I

                 CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                                 BALANCE SHEET

<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                                   ------------
                                                                 1999         1998
                                                                 ----         ----
                                                              (DOLLARS IN THOUSANDS)
<S>                                                           <C>          <C>
ASSETS
Property:
  Property in service.......................................  $   14,612   $    2,681
  Work in progress..........................................       6,334       12,599
  Less: accumulated depreciation............................       4,303          927
                                                              ----------   ----------
       Total property.......................................      16,643       14,353
                                                              ----------   ----------
  Investments (principally investments in wholly-owned
     subsidiaries)..........................................   1,960,676    1,410,999
                                                              ----------   ----------
Current Assets:
  Cash and cash equivalents.................................       3,296       10,165
  Amounts receivable from subsidiaries......................      76,516       76,676
  Prepayments...............................................      64,389       27,637
                                                              ----------   ----------
       Total current assets.................................     144,201      114,478
                                                              ----------   ----------
Other (principally notes receivable from associated
  companies)................................................     608,195      355,117
                                                              ----------   ----------
                                                              $2,729,715   $1,894,947
                                                              ==========   ==========
CAPITALIZATION AND LIABILITIES
Capitalization:
  Common shares.............................................  $  870,930   $  870,930
  Additional paid-in capital................................     174,405       94,181
  Retained earnings.........................................     774,425      744,309
  Other.....................................................       7,251        1,856
  Less: Treasury shares.....................................     472,553      559,027
     Currency translation adjustment........................         954        2,541
                                                              ----------   ----------
       Total capitalization.................................   1,353,504    1,149,708
Current Liabilities:
  Dividends declared on common and preferred stock..........      33,518       29,970
  Amounts payable to subsidiaries...........................      46,028       13,041
  Other.....................................................       8,755        1,723
                                                              ----------   ----------
       Total current liabilities............................      88,301       44,734
                                                              ----------   ----------
Other (principally notes receivable to associated
  companies)................................................   1,287,910      700,505
                                                              ----------   ----------
                                                              $2,729,715   $1,894,947
                                                              ==========   ==========
</TABLE>

The accompanying notes to condensed financial statements are an integral part of
                                this statement.

                                       32
<PAGE>   33

                         NISOURCE INC. AND SUBSIDIARIES

                                   SCHEDULE I

                 CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                              STATEMENT OF INCOME

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                     ------------------------------------------------
                                                          1999             1998             1997
                                                          ----             ----             ----
                                                     (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S>                                                  <C>              <C>              <C>
Equity in net earnings of subsidiaries.............   $    221,094     $    211,525     $    202,680
                                                      ------------     ------------     ------------
Other income (deductions):
Administrative and general expense.................        (42,341)         (14,196)         (12,117)
Interest income....................................         41,075           31,874           27,272
Interest expense...................................        (88,127)         (48,444)         (37,652)
Other, net.........................................         (8,108)           1,012             (143)
                                                      ------------     ------------     ------------
                                                           (97,501)         (29,754)         (22,640)
                                                      ------------     ------------     ------------
Net income before income taxes.....................        123,593          181,771          180,040
Income taxes.......................................        (36,821)         (12,115)         (10,809)
                                                      ------------     ------------     ------------
Net income.........................................        160,414          193,886          190,849
                                                      ------------     ------------     ------------
Balance available for common shareholders..........   $    160,414     $    193,886          190,849
                                                      ============     ============     ============
Average common shares outstanding-basic............    124,343,117      120,778,077      123,849,126
Basic earnings per average common share............   $       1.29     $       1.60     $       1.54
                                                      ============     ============     ============
Diluted earnings per average common share..........   $       1.27     $       1.59     $       1.53
                                                      ============     ============     ============
</TABLE>

The accompanying notes to condensed financial statements are an integral part of
                                this statement.
                                       33
<PAGE>   34

                         NISOURCE INC. AND SUBSIDIARIES

                                   SCHEDULE I

                 CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                            STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                              ------------------------------
                                                                1999       1998       1997
                                                                ----       ----       ----
                                                                  (DOLLARS IN THOUSANDS)
<S>                                                           <C>        <C>        <C>
Net cash provided by operating activities...................  $167,388   $177,487   $147,528
                                                              --------   --------   --------
Cash flows provided by (used in) investing activities:
  Acquisition of businesses, net of cash acquired...........  (550,200)        --   (288,932)
  Acquisition of minority interest..........................        --         --     (5,461)
  Construction work in progress.............................    (8,759)    (7,451)    (5,000)
  Sale of property..........................................        --        (56         (5)
  Investments at cost.......................................    (9,962)        --         --
                                                              --------   --------   --------
     Net cash provided by (used in) investing activities....  (568,921)    (7,507)  (299,398)
                                                              --------   --------   --------
Cash flows provided by (used in) financing activities
  Issuance of common shares, net of underwriting fees.......   314,543     10,356    218,566
  Increase (decrease) in notes payable to subsidiaries......   585,225    175,012    205,396
  Increase in notes receivable from subsidiaries............  (253,050)   (30,993)   (21,709)
  Cash dividends paid on common shares......................  (125,599)  (116,386)  (111,593)
  Acquisition of treasury shares............................  (126,455)  (203,976)  (133,073)
                                                              --------   --------   --------
Net cash provided by (used in) financing activities.........   394,664   (165,987)   157,587
                                                              --------   --------   --------
Net increase (decrease) in cash and cash equivalents........    (6,869)     3,993      5,717
Cash and cash equivalents at beginning of year..............    10,165      6,172        455
                                                              --------   --------   --------
Cash and cash equivalents at end of year....................  $  3,296   $ 10,165   $  6,172
                                                              ========   ========   ========
</TABLE>

The accompanying notes to condensed financial statements are an integral part of
                                this statement.
                                       34
<PAGE>   35

                         NISOURCE INC. AND SUBSIDIARIES

                                   SCHEDULE I

                 CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                    NOTES TO CONDENSED FINANCIAL STATEMENTS

1. DIVIDENDS FROM SUBSIDIARIES

     Cash dividends paid to NiSource Inc. (NiSource) by its consolidated
subsidiaries were (in thousands of dollars): $239,200, $207,400 and $188,175 in
1999, 1998 and 1997, respectively.

2. SUPPORT AGREEMENT

     The financial obligations of NiSource Capital Markets, Inc. (Capital
Markets) are subject to a Support Agreement between NiSource and Capital
Markets, under which NiSource has committed to make payments of interest and
principal on Capital Markets' obligations in the event of a failure to pay by
Capital Markets. Restrictions in the Support Agreement prohibit recourse on the
part of Capital Markets' creditors against the stock and assets of Northern
Indiana Public Service Company (Northern Indiana) which are owned by NiSource.
Under the terms of the Support Agreement, in addition to the cash flow of cash
dividends paid to NiSource by any of its consolidated subsidiaries, the assets
of NiSource, other than the stock and assets of Northern Indiana, are available
as recourse for the benefit of Capital Markets' creditors. The carrying value of
the assets of NiSource, other than the stock and assets of Northern Indiana, as
reflected in the consolidated financial statements of NiSource, was
approximately $3.2 billion at December 31, 1999.

3. CONTINGENCIES

     NiSource and its subsidiaries are parties to various pending proceedings,
including suits and claims against them for personal injury, death, and property
damage. Such proceedings and suits, and the amounts involved, are routine
litigation and proceedings for the kinds of businesses conducted by NiSource and
its subsidiaries.

4. EARNINGS PER SHARE

     NiSource determines earnings per share in accordance with the provisions of
SFAS No. 128 "Earnings per Share," which requires NiSource to present basic
earning per share and diluted earnings per share in place of primary earnings
per share.

                                       35
<PAGE>   36

     The net income, preferred dividends and shares used to compute basic and
diluted earnings per share is presented in the following table:

<TABLE>
<CAPTION>
                                                         1999           1998           1997
                                                         ----           ----           ----
                                                            (DOLLARS IN THOUSANDS EXCEPT
                                                                 PER SHARE AMOUNTS)
<S>                                                  <C>            <C>            <C>
Basic
Weighted Average Number of Shares:
  Average Common Shares Outstanding................   124,343,117    120,778,077    123,849,126
                                                     ------------   ------------   ------------
Net Income to be Used to Compute Basic
Earnings per Average Common Share:
  Net Income.......................................  $    160,414   $    193,886   $    190,849
Basic Earnings per Average Common Share............  $       1.29   $       1.60   $       1.54
                                                     ============   ============   ============
Diluted
Weighted Average Number of Shares:
  Average Common Shares Outstanding................   124,343,117    120,778,077    123,849,126
  Dilutive Effect for Nonqualified Stock Options...       996,275        556,799        374,344
                                                     ------------   ------------   ------------
  Weighted Average Shares..........................   125,339,392    121,334,876    124,223,470
Net Income to be Used to Compute Diluted
Earnings per Average Common Share:
  Net Income.......................................  $    160,414   $    193,886   $    190,849
Diluted Earnings per Average Common Share..........  $       1.27   $       1.59   $       1.53
                                                     ============   ============   ============
</TABLE>

5. STOCK SPLIT

     On December 16, 1997, the Board authorized a two-for-one split of
NiSource's common shares. The stock split was paid February 20, 1998, to
shareholders of record at the close of business January 30, 1998. All references
to number of shares reported including per share amounts and stock option data
of NiSource's common shares reflect the two-for-one stock split as if it had
occurred at the beginning of the earliest period.

6. PURCHASE OF IWC RESOURCES CORPORATION

     On March 25, 1997, NiSource acquired all the outstanding common stock of
IWCR for $290.5 million. NiSource financed this transaction with debt of
approximately $83.0 million and issuance of approximately 10.6 million
NiSource's common shares. NiSource accounted for the acquisition as a purchase.
The purchase price was allocated to the assets and liabilities acquired based on
their fair values.

7. PURCHASE OF BAY STATE GAS COMPANY

     In February 1999, NiSource acquired Bay State Gas Company (BSG) in a
stock-for-stock transaction valued at $40 per BSG share. The transaction was
valued at approximately $551 million. BSG shareholders had the option of
exchanging their shares of BSG stock for cash, up to an aggregate sum of equal
to 50% of the total purchase price (and exercised this option with respect to
approximately 43% of the total purchase price). BSG, one of the largest natural
gas utilities in New England, provides natural gas distribution services to more
than 300,000 customers in Massachusetts, New Hampshire and Maine.

8. PURCHASE OF TPC CORPORATION

     On April 1, 1999, NiSource acquired the stock of TPC Corporation (now
renamed EnergyUSA-TPC Corp. (TPC)), a Houston-based natural gas marketing and
storage company, for approximately $150 million in cash. The acquisition was
accounted for as a purchase, with the purchase price allocated to the assets and
liabilities acquired based on their estimated fair values. As a result of the
TPC acquisition, NiSource had an indirect investment in the amount of $126.0
million, representing a 77.3% interest in Market Hub Partners,

                                       36
<PAGE>   37

L.P. (MHP). During the fourth quarter of 1999, subsidiaries of NiSource
purchased the remaining interests in MHP.

9. CORPORATE PREMIUM INCOME EQUITY SECURITIES AND COMPANY-OBLIGATED MANDATORILY
   REDEEMABLE PREFERRED SECURITIES OF TRUST HOLDING SOLELY COMPANY DEBENTURES

     In February 1999 NiSource completed an underwritten public offering of
Corporate PIES. The net proceeds of approximately $334.7 million were primarily
used to fund the cash portion of the consideration payable in the acquisition of
BSG, and to repay short-term indebtedness.

     The Corporate PIES were offered as one unit comprised of two separable
instruments. The first component consists of stock purchase contracts to
purchase, four years from the date of issuance, common shares at a face value of
$50. The second component consists of mandatorily redeemable preferred
securities(Preferred Securities) which represent an undivided beneficial
ownership interest in the assets of NIPSCO Capital Trust I (Capital Trust). The
Preferred Securities have a stated liquidation amount of $50. The sole assets of
Capital Trust are subordinated debentures (Debentures) of Capital Markets that
earn interest at the same rates as the Preferred Securities to which they
relate, and certain rights under related guarantees by Capital Markets. The
Preferred Securities have been pledged to secure the holders' obligation to
purchase common shares under the stock purchase contracts.

     The face value of the stock purchase contracts is not recorded in the
Consolidated Balance Sheet. A $22.2 million present value contract fee payable
to the stock purchase contract holders has been recorded as a liability and as
reduction to paid-in capital. In addition, paid-in capital has been reduced by
$10.4 million for the issuance costs of the stock purchase contracts.

     The distributions paid on Preferred Securities are presented under the
caption "minority interests" in NiSource's Consolidated Statement of Income. The
amounts outstanding are presented under the caption, "Company-obligated
mandatorily redeemable preferred securities of subsidiary trust holding solely
company debentures," in NiSource's Consolidated Balance Sheet. At December 31,
1999, there were 6.9 million 5.9% Preferred Securities outstanding with Capital
Trust assets of $345 million.

10. EQUITY FORWARD SHARE PURCHASE CONTRACT

     During the second quarter of 1999, a forward purchase contract was entered
into covering the purchase of up to 5% of NiSource's outstanding common shares.
At the end of each quarterly period during the term of the forward purchase
contract, NiSource has the option, but not the obligation, to settle the forward
purchase contract with respect to all or a portion of the common shares held by
the counterparty. As of December 31, 1999, the counterparty informed NiSource
that approximately 5.6 million shares had been purchased at a weighted average
cost of $26.90 per share. NiSource has the option to settle with the
counterparty by means of physical, net cash or net share settlement. On a
quarterly basis, NiSource will pay the counterparty a fee based on the amount
paid for common shares purchased by the counterparty, and the counterparty will
remit dividends received on shares owned. All such amounts paid and remitted
under the contract are reflected in equity contract costs of common
shareholders' equity. The net amount was a charge of $658,128 for the year
ending December 31, 1999.

     NiSource will be obligated to settle the forward purchase contract with
respect to all the remaining common shares in May 2003, or under certain
circumstances after an extension period of up to six months, at NiSource's
option. as of December 31, 1999, the nominal amount and fair value of the equity
forward purchase contract was approximately $150 million and $100 million,
respectively.

11. ACQUISITION OF COLUMBIA ENERGY GROUP

     On February 28, 2000, after completion of the bidding process initiated by
CEG, NiSource and CEG announced approval of a merger agreement under which
NiSource will form a new holding company, which will acquire all of the
outstanding shares of CEG valued at approximately $6 billion. The new holding

                                       37
<PAGE>   38

company will also assume approximately $2.5 billion of CEG debt. Under the
agreement, CEG shareholders have the option to receive new holding company stock
for up to 30% of the outstanding CEG shares. Under the common stock option, each
CEG share will be exchanged for $74 in new holding company stock, based on the
average NiSource share price prior to the closing, but not more than 4.4848
shares of new holding company stock for each CEG share. Under the cash option,
each CEG share will be exchanged for $70 in cash plus a $2.60 face value unit
(consisting of a zero coupon debt security with a forward equity contract). A
commitment letter was accepted under which certain financial institutions
agreed, under specified conditions, to provide up to $6.0 billion to finance the
acquisition of CEG. The merger is conditioned upon, among other things, the
approvals of the shareholders of both companies and various regulatory
commissions. If NiSource shareholder approval is not obtained, the merger
agreement provides that the transaction will automatically be restructured to
eliminate the 30% common stock option for CEG shareholders.

                                       38
<PAGE>   39

                                 NISOURCE INC.

                 SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS

                     TWELVE MONTHS ENDED DECEMBER 31, 1999

<TABLE>
<CAPTION>
                                                                     ADDITIONS          DEDUCTIONS
                                                                     ---------         FOR PURPOSES
                                      BALANCE                  CHARGED TO   CHARGED     FOR WHICH     BALANCE
                                      JAN. 1,                  COSTS AND    TO OTHER     RESERVES     DEC. 31,
            DESCRIPTION                1999     ACQUISITIONS    EXPENSES    ACCOUNTS   WERE CREATED     1999
            -----------               -------   ------------   ----------   --------   ------------   --------
                                                               (DOLLARS IN THOUSANDS)
<S>                                   <C>       <C>            <C>          <C>        <C>            <C>
Reserves Deducted in Consolidated
  Balance Sheet from Assets to Which
  They Apply:
     Reserve for accounts
       receivable...................  $ 8,984      $8,951       $28,401      $   --      $15,717      $30,619
     Reserve for investments, at
       equity.......................  $ 1,033      $   --       $23,847      $   --      $   163      $24,717
Reserves Classified Under Reserve
  Section of Consolidated Balance
  Sheet:
     Injuries and damages reserve...  $ 7,437      $5,215       $ 8,643      $   --      $ 8,307      $12,988
     Environmental reserves.........  $19,110      $6,000       $ 3,870      $   --      $ 5,167      $23,813
     Other..........................  $ 7,128      $   --       $   203      $   --      $ 3,213      $ 4,118
</TABLE>

                                       39
<PAGE>   40

                                 NISOURCE INC.

                 SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS

                     TWELVE MONTHS ENDED DECEMBER 31, 1998

<TABLE>
<CAPTION>
                                                                                    DEDUCTIONS
                                                                 ADDITIONS         FOR PURPOSES
                                                           ---------------------    FOR WHICH
                                                 BALANCE   CHARGED TO   CHARGED      RESERVES     BALANCE
                                                 JAN. 1,   COSTS AND    TO OTHER       WERE       DEC. 31,
                  DESCRIPTION                     1998      EXPENSES    ACCOUNTS     CREATED        1998
                  -----------                    -------   ----------   --------   ------------   --------
                                                                  (DOLLARS IN THOUSANDS)
<S>                                              <C>       <C>          <C>        <C>            <C>
Reserves Deducted in Consolidated
  Balance Sheet from Assets to Which They
     Apply:
     Reserve for accounts receivable...........  $ 5,887    $14,635       $--        $11,538      $ 8,984
     Reserve for investments, at equity........  $ 1,762    $    --       $--        $   729      $ 1,033
Reserves Classified Under Reserve Section of
  Consolidated Balance Sheet:
     Injuries and damages reserve..............  $ 6,499    $ 5,681       $--        $ 4,743      $ 7,437
     Environmental reserves....................  $19,366    $ 5,103       $--        $ 5,359      $19,110
     Other.....................................  $ 3,928    $ 3,243       $--        $    43      $ 7,128
</TABLE>

                                       40
<PAGE>   41

                                 NISOURCE INC.

                 SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS

                     TWELVE MONTHS ENDED DECEMBER 31, 1997

<TABLE>
<CAPTION>
                                                                                    DEDUCTIONS
                                                                                   FOR PURPOSES
                                                           ADDITIONS                FOR WHICH
                                          BALANCE          CHARGED TO   CHARGED      RESERVES     BALANCE
                                          JAN. 1,          COSTS AND    TO OTHER       WERE       DEC. 31,
              DESCRIPTION                  1997     IWCR    EXPENSES    ACCOUNTS     CREATED        1997
              -----------                 -------   ----   ----------   --------   ------------   --------
                                                               (DOLLARS IN THOUSANDS)
<S>                                       <C>       <C>    <C>          <C>        <C>            <C>
Reserves Deducted in Consolidated
  Balance Sheet from Assets to
  Which They Apply:
     Reserve for accounts receivable....  $ 5,569   $25      $6,573       $--         $6,280      $ 5,887
     Reserve for investments, at
       equity...........................  $ 1,953   $--      $   --       $--         $  191      $ 1,762
     Reserve for investments, at cost...  $    --   $--
Reserves Classified Under Reserve
  Section of Consolidated Balance Sheet:
     Injuries and damages reserve.......  $ 4,376   $757     $6,603       $--         $5,237      $ 6,499
     Environmental reserves.............  $16,789   $--      $9,489       $--         $6,912      $19,366
     Other..............................  $ 4,471   $--      $   30       $--         $  573      $ 3,928
</TABLE>

                                       41
<PAGE>   42

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

TO THE BOARD OF DIRECTORS OF NISOURCE INC.:

     We have audited in accordance with auditing standards generally accepted in
the United States, the consolidated financial statements included in NiSource
Inc.'s annual report to shareholders for the year ended December 31, 1999,
incorporated by reference in this Form 10-K, and have issued our report thereon
dated February 18, 2000 (except with respect to the matter discussed in the Note
"Announcement of Merger with Columbia Energy Group," as to which the date is
February 28, 2000). Our audits were made for the purpose of forming an opinion
on those consolidated financial statements taken as a whole. The schedules
listed on Page 31, Item 14(a)(2) are the responsibility of NiSource Inc.'s
management and are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not part of the basic financial statements.
These schedules have been subjected to the auditing procedures applied in the
audits of the basic financial statements taken as a whole.

<TABLE>
<S>                                                         <C>
Chicago, Illinois
February 18, 2000                                           Arthur Andersen LLP
(Except with respect to the matter discussed
in the Note "Announcement of Merger Agreement
with Columbia Energy Group,"
as to which the date is February 28, 2000).
</TABLE>

                                       42
<PAGE>   43

                                   SIGNATURES

     PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, HEREUNTO DULY AUTHORIZED.

                                          NiSource Inc.
                                          (Registrant)

<TABLE>
<S>   <C>                                       <C>   <C>
Date  March 29, 2000                            By               /s/ GARY L. NEALE
      ----------------------------------------        ----------------------------------------

                                                      Gary L. Neale, Its Chairman and
                                                      President
</TABLE>

     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 AND ON THE DATES INDICATED.

<TABLE>
<CAPTION>
             SIGNATURE                                   TITLE                           DATE
             ---------                                   -----                           ----
<C>                                       <S>                                       <C>

         /s/ GARY L. NEALE                Chairman, President, Principal            March 28, 2000
-----------------------------------         Executive Officer and Director
           Gary L. Neale

        /s/ STEPHEN P. ADIK               Senior Executive Vice President,          March 28, 2000
-----------------------------------         Principal Financial Officer and
          Stephen P. Adik                   Principal Accounting Officer

       /s/ STEVEN C. BEERING              Director                                  March 28, 2000
-----------------------------------
         Steven C. Beering

        /s/ JAMES T. MORRIS               Director                                  March 28, 2000
-----------------------------------
          James T. Morris

        /s/ ARTHUR J. DECIO               Director                                  March 28, 2000
-----------------------------------
          Arthur J. Decio

       /s/ DENNIS E. FOSTER               Director                                  March 28, 2000
-----------------------------------
         Dennis E. Foster

        /s/ IAN M. ROLLAND                Director                                  March 28, 2000
-----------------------------------
          Ian M. Rolland

        /s/ ROGER A. YOUNG                Director                                  March 28, 2000
-----------------------------------
          Roger A. Young

       /s/ JOHN W. THOMPSON               Director                                  March 28, 2000
-----------------------------------
         John W. Thompson

        /s/ ROBERT J. WELSH               Director                                  March 28, 2000
-----------------------------------
          Robert J. Welsh

                                          Director                                  March 28, 2000
-----------------------------------
        Dr. Carolyn Y. Woo
</TABLE>

                                       43
<PAGE>   44

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                         DESCRIPTION OF ITEM
-------                        -------------------
<C>        <S>
  (2.1)    Agreement and Plan of Merger dated as of February 27, 2000,
           by and between NiSource Inc. and Columbia Energy Group
           (incorporated by reference to Exhibit 2.1 to the NiSource
           Inc. Current Report on Form 8-K filed March 3, 2000).
  (3.1)    Amended and Restated Articles of Incorporation of NIPSCO
           Industries, Inc. dated May 13, 1998 (incorporated by
           reference to Exhibit 3 of the NiSource Inc. Quarterly Report
           on Form 10-Q for the quarter ended March 31, 1998).
  (3.2)    Articles of Amendment to the Amended and Restated Articles
           of Incorporation of NiSource Inc. dated April 14, 1999.
  (3.3)    Articles of Amendment to the Amended and Restated Articles
           of Incorporation of NiSource Inc. dated March 2, 2000.
  (3.4)    Amended and Restated By-laws effective January 29, 2000.
  (4.1)    Indenture dated August 1, 1939 between Northern Indiana
           Public Service Company (Northern Indiana) and Trustees
           (incorporated by reference to Exhibit 7 to the Northern
           Indiana Registration Statement (Registration No. 2-5178)).
  (4.2)    Third Supplemental Indenture dated August 1, 1943
           (incorporated by reference to Exhibit 7-C to the Northern
           Indiana Registration Statement (Registration No. 2-5178)).
  (4.3)    Eighteenth Supplemental Indenture dated September 1, 1967
           (incorporated by reference to Exhibit 1 to the Northern
           Indiana Current Report on Form 8-K dated October 9, 1967).
  (4.4)    Nineteenth Supplemental Indenture dated October 1, 1968
           (incorporated by reference to Exhibit 1 to the Northern
           Indiana Current Report on Form 8-K dated November 8, 1968).
  (4.5)    Twenty-third Supplemental Indenture dated March 31, 1972
           (incorporated by reference to Exhibit 2 to the Northern
           Indiana Current Report on Form 8-K dated May 5, 1972).
  (4.6)    Thirty-third Supplemental Indenture dated June 1, 1980
           (incorporated by reference to Exhibit 1 to the Northern
           Indiana Quarterly Report on Form 10-Q for the quarter ended
           June 30, 1980).
  (4.7)    Forty-first Supplemental Indenture dated July 1, 1991
           (incorporated by reference to Exhibit 1 to the Northern
           Indiana Current Report on Form 8-K dated March 25, 1992).
  (4.8)    Indenture dated as of March 1, 1988, between Northern
           Indiana and Manufacturers Hanover Trust Company, as Trustee
           (incorporated by reference to Exhibit 4 to the Northern
           Indiana Registration Statement (Registration No. 33-44193)).
  (4.9)    First Supplemental Indenture dated as of December 1, 1991,
           between Northern Indiana and Manufacturers Hanover Trust
           Company, as Trustee (incorporated by reference to Exhibit
           4.1 to the Northern Indiana Registration Statement
           (Registration No. 33-63870)).
 (4.10)    Memorandum of Agreement with City of Michigan City, Indiana
           (incorporated by reference to Exhibit 7 to the Northern
           Indiana Registration Statement (Registration No. 2-48531)).
 (4.11)    Financing Agreement No. 1 dated November 1, 1988, between
           Northern Indiana and Jasper County, Indiana regarding
           $37,000,000 Series 1988A Pollution Control Refunding Revenue
           Bonds. Identical Financing agreements between Northern
           Indiana and Jasper County, Indiana provide for the issuance
           of $47,000,000 Series 1988B, $46,000,000 Series 1988C and
           $24,000,000 Series 1988D Pollution Control Refunding Revenue
           Bonds (incorporated by reference to Exhibit 8 to the
           Northern Indiana Current Report on Form 8-K dated March 16,
           1989).
 (4.12)    Financing Agreement dated July 1, 1991, with Jasper County,
           Indiana regarding $55,000,000 Series 1991 Collateralized
           Pollution Control Refunding Revenue Bonds (incorporated by
           reference to Exhibit 3 to the Northern Indiana Current
           Report on Form 8-K dated March 25, 1992).
</TABLE>

                                       44
<PAGE>   45

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                         DESCRIPTION OF ITEM
-------                        -------------------
<C>        <S>
 (4.13)    Financing Agreement dated August 1, 1994, with Jasper
           County, Indiana regarding $10,000,000 Series 1994A,
           $18,000,000 Series 1994B and $41,000,000 Series 1994C
           Pollution Control Refunding Revenue Bonds (incorporated by
           reference to Exhibit 4.16 to the Northern Indiana Annual
           Report on Form 10-K for year ended December 31, 1994).
 (4.14)    Indenture between NIPSCO Industries, Inc., NIPSCO Capital
           Markets, Inc. and Chemical Bank as Trustees dated February
           1, 1996 (incorporated by reference to Exhibit 1 to the
           NIPSCO Industries, Inc. Registration Statement (Registration
           No. 33-65285)).
 (4.15)    Rights Agreement between NiSource Inc. and Harris Trust and
           Savings Bank, dated February 17, 2000 (incorporated by
           reference to Exhibit 4.1 to the NiSource Inc. Form 8-A dated
           February 24, 2000).
 (4.16)    Indenture Agreement between NIPSCO Industries, Inc., NIPSCO
           Capital Markets, Inc. and Chase Manhattan Bank as trustee
           dated February 14, 1997 (incorporated by reference to
           Exhibit 4.1 to the NIPSCO Industries, Inc. Registration
           Statement (Registration No. 333-22347)).
 (4.17)    Fourteenth Supplemental Indenture dated as of January 15,
           1978, between the Fidelity Bank, and IWC, including as
           Appendix A the "Restatement of Principal Indenture of
           Indianapolis Water Company," which, except as otherwise
           specified, restates the granting clauses and all other
           sections contained in the First Mortgage dated July 1, 1936,
           between Fidelity-Philadelphia Trust Company and IWC as
           amended by the Fourth, Fifth, Sixth, Eighth, Twelfth and
           Fourteenth Supplemental Indentures (incorporated by
           reference to Exhibit 4-B1 to IWC's Annual Report on Form
           10-K for the year ended December 31, 1980).
 (4.18)    Eleventh Supplemental Indenture dated as of December 1, 1971
           (incorporated by reference to Exhibit 4-B6 to IWC's Annual
           Report on Form 10-K for the year ended December 31, 1980).
 (4.19)    Seventeenth Supplemental Indenture dated as of March 1,
           1989, between Fidelity Bank, National Association and IWC
           (incorporated by reference to Exhibit 4-A9 to the IWC
           Resources Corporation (IWCR) Annual Report on Form 10-K for
           the year ended December 31, 1988).
 (4.20)    Eighteenth Supplemental Indenture dated as of March 1, 1989,
           between Fidelity Bank, National Association and IWC
           (incorporated by reference to Exhibit 4-A10 to IWCR's Annual
           Report on Form 10-K for the year ended December 31, 1988).
 (4.21)    Nineteenth Supplemental Indenture dated as of June 1, 1989,
           between Fidelity Bank, National Association and IWC
           (incorporated by reference to Exhibit 4-A9 to IWCR's
           Registration Statement (Registration No. 33-43939)).
 (4.22)    Twentieth Supplemental Indenture dated as of December 1,
           1992, between Fidelity Bank, National Association and IWC
           (incorporated by reference to Exhibit 4-A9 to IWCR's Annual
           Report on Form 10-K for the year ended December 31, 1992).
 (4.23)    Twenty-first Supplemental Indenture dated as of December 1,
           1992, between Fidelity Bank, National Association and IWC
           (incorporated by reference to Exhibit 4-A10 to IWCR's Annual
           Report on Form 10-K for the year ended December 31, 1992).
 (4.24)    Twenty-second Supplemental Indenture dated as of April 1,
           1993, between IWC and Fidelity Bank, National Association
           (incorporated by reference to Exhibit 4.15 to IWCR's Annual
           Report on Form 10-K for the year ended December 31, 1993).
 (4.25)    Indenture of Trust dated as of December 1, 1992, between
           City of Indianapolis, Indiana, and IWC to National City
           Bank, Indiana, as Trustee (incorporated by reference to
           Exhibit 10-J to IWCR's Annual Report on Form 10-K for the
           year ended December 31, 1992).
 (4.26)    Loan Agreement dated as of December 1, 1992, between IWC and
           City of Indianapolis, Indiana (incorporated by reference to
           Exhibit 10-K to IWCR's Annual Report on Form 10-K for the
           year ended December 31, 1992).
</TABLE>

                                       45
<PAGE>   46

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                         DESCRIPTION OF ITEM
-------                        -------------------
<C>        <S>
 (4.27)    Guaranty Agreement dated as of December 1, 1992, between
           IWCR and National City Bank, Indiana, as Trustee
           (incorporated by reference to Exhibit 10-L to IWCR's Annual
           Report on Form 10-K for the year ended December 31, 1992).
 (4.28)    Indenture of Trust, City of Indianapolis, Indiana, and IWC
           to National City Bank, Indiana, as Trustee, dated as of
           April 1, 1993 (incorporated by reference to Exhibit 4.14 to
           IWCR's Annual Report on Form 10-K for the year ended
           December 31, 1993).
 (4.29)    Loan Agreement dated as of April 1, 1993, between IWC and
           the City of Indianapolis (incorporated by reference to
           Exhibit 10.11 to IWCR's Annual Report on Form 10-K for the
           year ended December 31, 1993).
 (4.30)    Guaranty Agreement between IWCR and National City Bank,
           Indiana, as Trustee, dated as of April 1, 1993 (incorporated
           by reference to Exhibit 10.12 to IWCR's Annual Report on
           Form 10-K for the year ended December 31, 1993).
 (4.31)    Note Agreement dated as of March 1, 1994, between IWCR and
           American United Life Insurance Company (incorporated by
           reference to Exhibit 10.12 to IWCR's Annual Report on Form
           10-K for the year ended December 31, 1992).
 (4.32)    Indenture of Trust of Town of Fishers and IWC to National
           City Bank of Indiana, As Trustee, dated as of July 15, 1998
           (including Form of $30,000,000 Town of Fishers, Indiana
           Economic Development Water Facilities Refunding Revenue
           bond, series 1998 (Indianapolis Water Company Project)
           (incorporated by reference to Exhibit 4.1 to NIPSCO
           Industries, Inc.'s Quarterly Report on Form 10-Q for the
           period ended September 30, 1998).
 (4.33)    Indenture of Trust of City of Indianapolis, Indiana and IWC
           to National City Bank of Indiana, As Trustee, dated as of
           July 15, 1998 (including Form of $10,000,000 City of
           Indianapolis, Indiana Economic Development Water Facilities
           Refunding Revenue Bonds, Series 1998 (Indianapolis Water
           Company Project) (incorporated by reference to Exhibit 4.2
           to NIPSCO Industries, Inc.'s Quarterly Report on Form 10-Q
           for the period ended September 30, 1998).
 (4.34)    Certificate of Trust of NIPSCO Capital Trust I by and among
           Chase Manhattan Bank Delaware, The Chase Manhattan Bank,
           Stephen P. Adik, Francis P. Girot, Jr., and Arthur A. Paquin
           dated December 17, 1998 (incorporated by reference to
           Exhibit 4.6 to the NIPSCO Industries, Inc. Registration
           Statement on Form S-3 dated December 18, 1998).
 (4.35)    Amended and Restated Declaration of Trust of NIPSCO Capital
           Trust I by and among NIPSCO Capital Markets, Inc., The Chase
           Manhattan Bank, Chase Manhattan Bank Delaware, Stephen P.
           Adik, Francis P. Girot, Jr., and Arthur A. Paquin dated
           February 16, 1999.
 (4.36)    First Supplemental Indenture dated February 16, 1999, by and
           among NIPSCO Capital Markets, Inc., NIPSCO Industries, Inc.,
           and the Chase Manhattan Bank, as Trustee.
 (4.37)    Purchase Contract Agreement by and among NIPSCO Industries,
           Inc. and The Chase Manhattan Bank, as Purchase Contract
           Agent, dated February 16, 1999.
 (4.38)    Pledge Agreement by and among NIPSCO Industries, Inc., The
           First National Bank of Chicago, as Collateral Agent and
           Securities Intermediary, and The Chase Manhattan Bank, as
           Purchase Contract Agent dated February 16, 1999.
 (4.39)    Remarketing Agreement dated February 16, 1999, among NIPSCO
           Industries, Inc., NIPSCO Capital Markets, Inc., NIPSCO
           Capital Trust I, and Lehman Brothers Inc., as Remarketing
           Agent.
 (10.1)    Supplemental Life Insurance Plan effective January 1, 1991
           (incorporated by reference to Exhibit 2 to the NIPSCO
           Industries, Inc. Current Report on Form 8-K dated March 25,
           1992).*
 (10.2)    Executive Deferred Compensation Plan effective December 1,
           1990 (incorporated by reference to Exhibit 3 to the NIPSCO
           Industries, Inc. Current Report on Form 8-K dated March 25,
           1992).*
 (10.3)    Form of Change in Control and Termination Agreements and
           Schedule of Parties to the Agreements.*
</TABLE>

                                       46
<PAGE>   47

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                         DESCRIPTION OF ITEM
-------                        -------------------
<C>        <S>
 (10.4)    Nonemployee Director Stock Incentive Plan of NIPSCO
           Industries, Inc. (As Amended and Restated Effective February
           1, 1998, incorporated by reference to exhibit 10.3 to the
           NIPSCO Industries, Inc. Annual Report on Form 10-K for the
           year ended December 31, 1998)*
 (10.5)    First Amendment to NiSource Inc. Nonemployee Director Stock
           Incentive Plan (Effective April 1, 1999).*
 (10.6)    NiSource Inc. Long-Term Incentive Plan (As Amended and
           Restated Effective April 14, 1999).*
 (10.7)    Amended and Restated Pension Plan Provisions effective
           January 1, 1989 (incorporated by reference to Exhibit 17 to
           the Northern Indiana Current Report on Form 8-K dated March
           25, 1992).*
 (10.8)    NiSource Inc. 1994 Long-Term Incentive Plan (As Amended and
           Restated Effective April 14, 1999).*
 (10.9)    NIPSCO Industries, Inc. Directors' Charitable Gift Program
           effective September 27, 1994 (incorporated by reference to
           Exhibit 10.8 to the NiSource Annual Report on Form 10-K for
           the year ended December 31, 1996).*
(10.10)    Employment Agreement (incorporated by reference to Exhibit
           10.13 to the NIPSCO Industries, Inc. Annual Report on Form
           10-K for the year ended December 31, 1997).*
(10.11)    Executive Supplemental Pension Agreement (incorporated by
           reference to Exhibit 10.14 the NIPSCO Industries, Inc.
           Annual Report on Form 10-K for the year ended December 31,
           1997).*
(10.12)    Agreement dated October 18, 1971, between IWC and Department
           of Public Works of the City of Indianapolis, Indiana,
           regarding the purchase of water at Eagle Creek Reservoir
           (incorporated by reference to Exhibit 5 to IWC's
           Registration Statement (Registration Statement No.
           2-55201)).
(10.13)    Letter Agreement dated October 25, 1999, between Mr. Roger
           A. Young and NiSource Inc. (incorporated by reference to
           Exhibit 10.1 to NiSource Inc.'s Quarterly Report on Form
           10-Q for the period ended September 30, 1999).*
(10.14)    Letter Agreement dated April 9, 1999, between Mr. Joseph L.
           Turner, Jr. and NiSource Inc. (incorporated by reference to
           Exhibit 10.2 to NiSource Inc.'s Quarterly Report on Form
           10-Q for the period ended September 30, 1999).*
(10.15)    Equity Forward Purchase Transaction dated November 9, 1999,
           between Scotia Capital (USA) Inc. and NiSource Inc.
           (incorporated by reference to Exhibit 10.3 to NiSource
           Inc.'s Quarterly Report on Form 10-Q for the period ended
           September 30, 1999).
(10.16)    Nonemployee Director Retirement Plan.*
(10.17)    Nonemployee Director Restricted Stock Unit Plan (Effective
           January 1, 1999).*
(10.18)    First Amendment to Nonemployee Director Restricted Stock
           Unit Plan (Effective April 1, 1999).*
(10.19)    Supplemental Executive Retirement Plan.*
(12)       Ratio of Earnings to Fixed Charges.
(13)       1999 Annual Report to Shareholders for pages 24-68.
(21)       List of Subsidiaries.
(23)       Consent of Arthur Andersen LLP.
(27)       Financial Data Schedule.
</TABLE>

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* Management contract or compensatory plan or arrangement of NiSource Inc.

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