TO THE SHAREHOLDERS, 2001 was a landmark year as TXU completed its transition to competitive electricity markets on three continents. With the January 2002 opening of the Texas electricity market and completion of the final phase of electricity competition in the state of Victoria, Australia, TXU has now implemented the distinctive strategy and business model it applied first in Europe. TXU has completed its transformation from a traditional regional utility to one of the world’s largest energy services companies. Today, TXU has 11 million customers, extensive competitive generation, a strong platform for merchant energy trading and portfolio management, and best-in-class energy delivery. The employees of TXU continue to work with great energy, dedication, and adherence to the strategic course set four years ago. I am proud of what has been achieved and confident that TXU is on its way to fulfilling its vision of becoming the most admired global energy services company. TXU has been consistent in implementing its strategy through a business model that sets it apart from others. The company is now a diversified global energy leader with two distinct but complementary businesses. In 2002, more than three-quarters of earnings are expected to come from the higher-growth, higher-return global merchant energy business, while the energy delivery business also offers the prospect of good returns, reasonable growth, and strong cash flows. Together, the two businesses are targeted to deliver earnings growth of nine to 11 percent per year, complemented by a solid dividend yield. This balance of yield and growth distinguishes TXU from most of its competitors. In 2001, TXU shareholders realized a total return of 12.2 percent. TXU outperformed the Standard and Poor’s Electric group by 20 percentage points and the S&P 500 Stock Index by 24 percentage points. Although the total return on TXU stock has exceeded that of the S&P 500 over the last three-year period, it remains attractively valued and offers investors a good opportunity to buy into a growing, diversified energy company at an affordable price.