LIQUIDITY AND CAPITAL RESOURCES Funds Generated from Operations  Investing Activities Financing Activities Credit Activities 33 2001 ANNUAL REPORT  1999 2000 2001 1,041 1,283 1,514 Funds Generated from Continuing Operations (millions of dollars) Funds generated from continuing operations were $1.514 billion for the year ended December 31, 2001 compared with $1.283 billion and $1.041 billion for 2000 and 1999, respectively. The Transmission business was the primary source of funds generated from operations for each of the three years. The company has decreased long-term debt and preferred securities in 2000 and 2001 and increased funds generated from operations over the same period. TransCanada’s ability to generate adequate amounts of cash in the short term and the long term when needed, and to maintain financial capacity and flexibility to provide for future growth, was stronger at December 31, 2001 than in the past few years. Capital expenditures, excluding acquisitions, totalled $492 million in 2001, a decrease of $320 million compared to 2000. Expenditures in both 2001 and 2000 relate primarily to maintenance and capacity capital in TransCanada’s Transmission business and construction of new power plants in Alberta. The majority of the 1999 capital spending of approximately $1.8 billion related to the expansion of the wholly-owned pipelines and expenditures in discontinued operations. During 2001, TransCanada acquired the Curtis Palmer Hydroelectric Company, L.P. from International Paper Company for $438 million. TransCanada’s 2001 and 2000 investing activities also include proceeds of $1.17 billion and $2.23 billion, respectively, from the sale of non-core assets under the company’s divestiture plans. TransCanada’s 1999 investing activities also include proceeds of $658 million from the disposition of non-core assets. In 2001, TransCanada used a portion of its cash resources to fund repayment of long-term debt of $793 million and to redeem preferred securities of $318 million. In 2000, TransCanada used proceeds on disposition of assets, together with cash flow from operations, to repurchase or redeem approximately $2.5 billion in long-term debt and preferred shares. Dividends and preferred securities charges amounting to $517 million were paid in 2001 compared to $536 million and $664 million in 2000 and 1999, respectively. In January 2002, TransCanada’s Board of Directors approved an increase in the quarterly common share dividend payment from $0.225 per share to $0.25 per share for the quarter ended March 31, 2002; in January 2001, TransCanada’s Board of Directors approved an increase from $0.20 per share to $0.225 per share for the quarter ended March 31, 2001. Net cash used in financing activities includes TransCanada’s proportionate share of the net reduction in non- recourse debt of joint ventures amounting to $109 million in 2001, reflecting non-recourse debt repaid during the year offset partially by new debt issued. Net cash provided by non-recourse joint venture debt activities was  $122 million in 2000 compared to $13 million in 1999. Unused lines of credit of $1.8 billion were available to support TransCanada’s commercial paper program and for gener- al corporate purposes at December 31, 2001. At December 31, 2001, the company had used approximately $100 million of its lines of credit for letters of credit utilized to support its ongoing commercial arrangements. At December 31, 2001, US$750 million of medium-term notes could be issued under TransCanada’s medium-term note program in the U.S. MANAGEMENT ’ S DISCUSSION AND ANALYSIS