Chairman  and  President’s  Message LeRoy T. (“Ted”) Carlson, Jr. President and Chief Executive Officer Walter C.D. Carlson Chairman of the Board 2 Telephone and Data Systems, Inc. continued its solid performance in 2001 despite the difficult economic conditions during the last three quarters of the year. TDS grew operating revenues by 11% in 2001 and operating cash flow by 8%. Diluted earnings per share from continuing operations – excluding gains (losses) rose to $2.86. U.S. Cellular, our largest business unit and 82.2%-owned  subsidiary, continued its double-digit growth in revenue  (up 10%) and operating cash flow (up 11%) despite the slow economy. Net customer additions were 354,000 and U.S. Cellular had 3,461,000 customer units as of December 31, 2001. This impressive growth is in the context of a wireless industry in the United States that is still expanding. It also reflects well on all the hard work of our associates at U.S. Cellular. During 2001, U.S. Cellular’s management continued the process, which began in 2000, of refocusing every aspect of  U.S. Cellular’s operations on offering outstanding service quality. These efforts gained industry-wide recognition when U.S. Cellular won the 2001 Titan Wireless Award for customer service. The award was conferred by  Wireless Review, a highly regarded wireless trade magazine. We are relying on an intensification of the formula that has already brought us meaningful success at U.S. Cellular to assure the Company’s future. This formula combines state-of- the-art customer service, as exemplified by our call centers and extensive retail distribution, with a very high-quality network to deliver a top-notch wireless service experience. The result is one of the lowest postpay customer churn rates in the industry – 1.7%. U.S. Cellular customers receive the highest quality local, regional and national service plans, and many of them recommend U.S. Cellular to their friends. Our regional strategy at U.S. Cellular has been enhanced by strengthening the footprint of the markets within which we deliver service. We are especially focused on our greater Midwest markets which include almost half of U.S. Cellular’s customers. We made progress in 2001 as we acquired Personal Communications Services (“PCS”) licenses which will enable us to serve new territories representing 2.8 million population equivalents in the Midwest. We also participated as a limited partner of Black Crow Wireless, L.P. (“Black Crow”) in the Federal Communications Commission (“FCC”) spectrum auction early in 2001. Black Crow was the successful bidder for 17 licenses in 13 markets, representing a total population of 6.9 million, which complement U.S. Cellular’s existing operations. It is unclear, however, whether Black Crow will be able to buy most of these licenses because of the ongoing legal dispute between the FCC and NextWave Telecom, Inc. On March 4, 2002, the United States Supreme Court elected to take up the issue and a decision is anticipated in the spring of 2003. U.S. Cellular made additional acquisitions in 2001 that are also designed to strengthen  its footprint. average, within 24 months of their launches. The CLEC model is successful because TDS METROCOM is able to draw upon TDS TELECOM’s existing billing systems and upon its engineering, regulatory, accounting and human resource staffs which allows TDS METROCOM’s management team  to concentrate on marketing and selling to new customers and on provisioning lines from a Regional Bell Operating Company (“RBOC”). TDS TELECOM completed the successful merger of Chorus Communications Group, Ltd. (“Chorus”) in 2001. The merger brought approximately 43,000 ILEC access lines and approximately 27,000 Internet customers to TDS TELECOM. We also gained a substantial number of highly trained and experienced telecommunication employees who are strengthening our entire TDS TELECOM operation with their energy and ideas. The acquisition highlights a major thrust of our ILEC expansion strategy for TDS TELECOM. Chorus’s operations in southern Wisconsin are in areas that are contiguous to our existing ILEC operations. By joining with Chorus we are able to expand the scale of existing operations and secure synergies that lead to meaningful cost savings. Our ILEC clustering strategy at TDS TELECOM is also apparent in the agreements we entered into (one early in 2002) to purchase two ILECs in southern New Hampshire, a rapidly growing part of New England with excellent demographic characteristics. MCT, Inc. and Telecommunications Systems  of New Hampshire, Inc., each bring long-established, well- maintained exchanges in parts of the state which adjoin or are very close to existing TDS TELECOM ILEC operations.  Our other major business operation, TDS TELECOM, in which TDS owns 100% of the equity, achieved another very successful year in 2001. Revenue from its Incumbent Local Exchange Carrier (“ILEC”) business rose 9% and ILEC cash flow grew 10%. In addition, TDS TELECOM posted excellent results in its Competitive Local Exchange Carrier (“CLEC”) operations. Its two CLEC operations, TDS METROCOM  and USLink, grew their revenues  by 70% and 14%, respectively. TDS METROCOM expanded into Michigan in 2001 and now operates in three clustered midwestern states – Wisconsin, Illinois and Michigan. We believe that TDS METROCOM’s business model of offering high- quality, facilities-based service in middle-sized markets, and then deeply penetrating those markets, will yield very good shareholder returns. TDS METROCOM’s initial markets were cash flow positive by the end of 2001. We anticipate that more recently launched markets will become cash flow positive, on In addition to its growing wireless and wireline operations, TDS also owns a substantial portfolio of investments in established publicly traded companies that are involved in the telecommunications industry, which have good growth prospects. Our largest position is a 3.1% stake (131.5 million shares) in Deutsche Telekom AG, the international telecom- munications giant head-quartered in Germany. We acquired the position when Deutsche Telekom acquired VoiceStream Wireless Corporation in May 2001. We believe that Deutsche Telekom is a strong company with prospects for good cash flow growth over the next several years. Through our U.S. Cellular and TDS TELECOM subsidiaries, we also hold a 12,946,000 ADR share position in Vodafone Group PLC, the London-based world-wide wireless enterprise. Additional smaller portfolio positions include VeriSign, Inc., a provider of Internet services, and Rural Cellular Corporation, a rural cellular provider in the United States. U.S. Cellular also has minority partnership interests in other wireless enterprises. The most valuable is a 5.5% stake in the greater Los Angeles wireless business operated by Verizon Communications, Inc. The strength of our operating companies, combined with our investment holdings and modest financial leverage, have created strong financial positions for TDS and U.S. Cellular. Investment grade credit ratings of A- and A3 were assigned to TDS and U.S. Cellular by the major credit rating agencies. Our strong financial position helps assure that we have good access to the debt capital markets at affordable rates. In November we used our financial strength to raise $500 million of TDS 7.60% Series A Notes due in 2041. The notes may be called by TDS after 2006. We used the proceeds primarily to repay almost all of TDS’s short-term debts. The offering, which was well received by retail investors, sold out the first day. The low interest rate environment at the end of 2001 represented an exceptional opportunity to obtain long- term debt capital at attractive terms. 3 Our mission is to  provide outstanding communications services to our customers and  meet the needs of our shareholders, our people and our communities.