Dear Fellow Shareholders:

With the failure of our European business and the credit crisis that hit the electric utility industry, 2002 was undoubtedly the most difficult year TXU and its shareholders and employees have experienced. I regret the effect that the loss of shareholder value has had on you and TXU employees.

I believe, however, that our decisive response to the disturbing developments gives us the opportunity to move forward with a clean slate. We are focused on our solid foundation of energy businesses in

Texas and Australia, markets we know well. Texas has completed a successful first year of deregulation, and competition is going well in Australia. The core businesses remain strong, and TXU is on course to deliver solid results in 2003.

The path ahead is clear

Our path ahead is clear, and the strategy is well defined. We have established guidance for earnings with a targeted growth rate of four to six percent going forward. To achieve