<PAGE>
                       CONSOLIDATED FINANCIAL STATEMENTS

MANAGEMENT RESPONSIBILITY

TO THE SHAREHOLDERS

The attached financial statements and other financial information have been
prepared by the company's management which is responsible for their integrity
and objectivity. To fulfill this responsibility, the company maintains systems
of internal control and policies and procedures to ensure that its reporting
practices and accounting and administrative procedures are of high quality.
These policies and procedures are designed to provide relevant, reliable and
timely financial information. These statements have been prepared in conformity
with Canadian generally accepted accounting principles and, where appropriate,
reflect estimates based on judgments of management. Financial information
presented elsewhere in this Annual Report is consistent with that shown in the
accompanying consolidated financial statements.

Deloitte & Touche LLP, the independent auditors appointed by the shareholders,
have examined the financial statements of the company in accordance with
Canadian generally accepted auditing standards to enable them to express to the
shareholders their opinion on the financial statements. Their report as auditors
is set out below.

These statements have also been reviewed by the Board of Directors and by its
Audit Committee, which meets with the auditors and management to review the
activities of each and reports to the Board of Directors. The auditors have full
access to the Audit Committee and meet with the committee both with and without
the presence of management. The Board of Directors, through its Audit Committee,
oversees management's financial reporting responsibilities and is responsible
for reviewing and approving the financial statements.

/s/  Craig J. Laurie
------------------------------------------
Vice-President and Chief Financial Officer
February 7, 2003


AUDITORS' REPORT

TO THE SHAREHOLDERS OF GREAT LAKES POWER INC.

We have audited the consolidated balance sheets of Great Lakes Power Inc. as at
December 31, 2002 and 2001 and the consolidated statements of income, retained
earnings and cash flows for the years then ended. These financial statements are
the responsibility of the company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance as to whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the company as at December 31, 2002
and 2001 and the results of its operations and its cash flows for the years then
ended in accordance with Canadian generally accepted accounting principles.



/s/ Deloitte & Touche LLP
----------------------------------
Toronto, Canada
February 7, 2003



                                                            2002 ANNUAL REPORT 9
<PAGE>


CONSOLIDATED BALANCE SHEET

<Table>
<Caption>
December 31
millions
                                                 note    2002      2001
                                                 ----  ------    ------
<S>                                              <C>   <C>       <C>
ASSETS

   Cash and cash equivalents                           $   10    $   10
   Accounts receivable and other                  3       186       336
   Securities                                     4       590       706
   Long-term investments                          5       559       521
   Power generating assets                        6     2,155     1,357
                                                 --    ------    ------
                                                       $3,500    $2,930
                                                       ======    ======

LIABILITIES

   Accounts payable and other                          $  158    $   92
   Property specific borrowings                   8       905       556
   Corporate term debentures                      9       593       596

FUTURE INCOME TAX LIABILITY                      10       120       116

NON-CONTROLLING INTERESTS                        11       350       271

SHAREHOLDERS' EQUITY                             12     1,374     1,299
                                                 --    ------    ------
                                                       $3,500    $2,930
                                                       ======    ======

</Table>
Approved by the Board:



/s/ Sidney A. Lindsay                            /s/ Edward C. Kress
---------------------                            -------------------

10 GREAT LAKES POWER INC.


<PAGE>


CONSOLIDATED STATEMENT OF INCOME

<Table>
<Caption>

Years ended December 31
millions, except per share amounts                   note        2002      2001
                                                     ----        ----      ----
<S>                                                  <C>        <C>       <C>
REVENUE

Power revenue                                                   $ 340     $ 270
Power purchases                                                    14        55
Net power revenue                                                 326       215
Investment and other income                                        92       105
                                                                -----     -----
                                                                  418       320
                                                                -----     -----
EXPENSES

Interest                                                           90        82
Operating and maintenance                                          60        37
Fuel purchases                                                     18        21
Depreciation                                                       40        27
Non-controlling interests                                          18        12
Income and other taxes                                 10          25        10
                                                                -----     -----
                                                                  251       189
                                                                -----     -----
NET INCOME                                                      $ 167     $ 131
                                                                -----     -----
DILUTED NET INCOME PER COMMON SHARE                    13       $1.32     $1.04
                                                                -----     -----
</Table>


CONSOLIDATED STATEMENT OF RETAINED EARNINGS

<Table>
<Caption>

Years ended December 31
millions                                             note        2002      2001
                                                     ----        ----      ----
<S>                                                  <C>        <C>       <C>

RETAINED EARNINGS

Balance, beginning of year                                      $ 448     $ 398
Net income                                                        167       131
Distributions to holders of common shares
and equivalents                                        12         (80)      (81)
Adjustment for change in accounting policy              1          (8)       --
Fund unit issue costs                                              (4)       --
                                                                -----     -----
Balance, end of year                                            $ 523     $ 448
                                                                =====     =====
</Table>
                                                           2002 ANNUAL REPORT 11


<PAGE>


CONSOLIDATED STATEMENT OF CASH FLOWS
<Table>
<Caption>
Years ended December 31
millions                                               2002             2001
                                                      ------           ------
<S>                                                   <C>              <C>
CASH FLOW FROM OPERATIONS

  Net income                                          $  167           $  131
  Add non-cash items
    Depreciation                                          40               27
    Hydrological provisions                               (3)             (17)
    Other                                                  6               (5)
                                                      ------           ------
CASH FLOW FROM OPERATIONS                             $  210           $  136
  Net change in non-cash working capital                  27               47
                                                      ------           ------
  Cash provided by operating activities                  237              183
                                                      ------           ------
FINANCING AND SHAREHOLDER DISTRIBUTIONS

  Borrowings                                             405              249
  Debt repayments                                        (54)            (110)
  Issuance of fund units                                 103               78
  Distributions:
    -- Great Lakes Hydro Income Fund unitholders         (27)             (14)
    -- Common shares and equivalents                     (80)             (81)
                                                      ------           ------
                                                         347              122
                                                      ------           ------
INVESTING

  Securities purchases                                   (10)            (107)
  Securities sales                                       125               51
  Long-term investments                                  (36)              14
  Loans and other receivables                            171              (94)
  Power generating assets                               (834)            (178)
                                                      ------           ------
                                                        (584)            (314)
                                                      ------           ------
CASH AND CASH EQUIVALENTS

  Increase (decrease)                                     --               (9)
  Balance, beginning of year                              10               19
                                                      ------           ------
Balance, end of year                                  $   10           $   10
                                                      ======           ======
SUPPLEMENTARY INFORMATION

  Interest paid                                       $   85           $   84
  Taxes paid                                          $   16           $   15
                                                      ======           ======
</Table>

12 GREAT LAKES POWER INC.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   SUMMARY OF ACCOUNTING POLICIES

BUSINESS OPERATIONS

The company is incorporated under the laws of Ontario and develops, owns and
operates hydroelectric and other power generating facilities principally in
Canada and the United States. The company also conducts investment activities,
which include the receipt of interest and dividends on the company's financial
assets as well as gains realized on investment transactions.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include:

(i)  the accounts of all subsidiaries and other controlled entities of Great
     Lakes Power Inc. (the "company") including Great Lakes Power Limited, Great
     Lakes Hydro Income Fund (the "Income Fund"), Lake Superior Power, Valerie
     Falls Power, Hydro Pontiac Inc. ("Pontiac Power") and Highvale Power
     Corporation; and

(ii) the accounts of incorporated and unincorporated joint ventures and
     partnerships to the extent of the company's proportionate interest in their
     respective assets, liabilities, revenue and expenses, including the
     company's investment in Powell River Energy.

The company owns a 75% non-controlling residual interest in Louisiana
HydroElectric Power, which is equity accounted.

INVESTMENTS

Partly owned businesses, where the company is able to exercise significant
influence, are carried on the equity method. Interests in jointly controlled
entities are proportionately consolidated. Other long-term investments are
carried at the lower of cost and net realizable value.

The excess of acquisition costs over the underlying net book values of the
company's investment is evaluated for impairment in conjunction with the
evaluation of the carrying value of the investment. Management assesses the
recoverability of its investment as a whole based on a review of the expected
future operating income and cash flows of these investments on a discounted
basis.

REVENUE AND EXPENSE RECOGNITION

Revenue from the sale of electricity and steam is recorded based upon output
delivered at rates as specified under contract terms or prevailing market rates.
Electricity sales revenue is recognized when power is provided.

Investment income is recorded on the accrual basis, less a provision for
uncollectible interest, fees, commissions or other amounts.

The company maintains hydrological insurance which partially compensates for the
effect of variations in streamflow when measured against long-term averages.
Until May 1, 2002, the company was rate regulated and maintained provisions to
adjust for the effect of similar hydrology variations.

SECURITIES

Securities are carried at the lower of cost and their estimated net realizable
value with any valuation adjustments charged to income. This policy considers
the company's intent to hold an investment through periods where quoted market
values may not fully reflect the underlying value of that investment.
Accordingly, there are periods where the "fair value" or the "quoted market
value" may be less than cost. In these circumstances, the company reviews the
relevant securities to determine if it will recover its carrying value within a
reasonable period of time and adjust it, if necessary. The company also
considers the degree to which estimation is incorporated into valuations and any
potential impairment relative to the magnitude of the related portfolio.

LOANS RECEIVABLE

Loans and notes receivable are carried at the lower of cost and estimated
realizable value calculated based on expected future cash flows, discounted at
market rates for assets with similar terms.

FINANCING COSTS

Expenses related to the issuance of debt are amortized over the term of the
debt. Expenses related to the issuance of the company's shares are charged to
retained earnings. Interest on funds used in construction and on development
projects is capitalized.

INCOME TAXES

The company uses the asset and liability method in accounting for income taxes.
Under this method, future income tax assets and liabilities are determined based
on differences between the financial reporting and tax bases of assets and
liabilities, and measured using the enacted, or substantively enacted, tax rates
and laws that will be in effect when the differences are expected to reverse,
taking into account the organization of the company's financial affairs and its
impact on taxable income and tax losses.

FOREIGN EXCHANGE

Assets and liabilities denominated in foreign currencies are translated into
Canadian dollars at the rate of exchange in effect at the balance sheet date.
Revenues and expenses are translated at the weighted average rate for the year.

PENSION BENEFITS AND EMPLOYEE FUTURE BENEFITS

The cost of retirement benefits for the defined benefit plan and post-employment
benefits is recognized as



                                                           2002 ANNUAL REPORT 13



<PAGE>
the benefits are earned by employees. The company uses the accrued benefit
method pro-rated on the length of service and management's best estimate
assumptions to value its pension and other retirement benefits. Assets are
valued at fair value for purposes of calculating the expected return on plan
assets. For the defined contribution plan, the company expenses payments based
on employee earnings.

DERIVATIVE FINANCIAL INSTRUMENTS

The company, principally through wholly owned Brascan Energy Marketing Inc.,
uses derivative financial instruments to manage commodity price risk associated
with the company's production, operating and risk management activities. Gains
and losses resulting from these instruments are included in income on the same
basis as the asset, liability or contract being hedged. Non-hedging activity is
subject to policy limits and any gains or losses recorded in investment and
other income on a fair value basis.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses. Actual results could differ from
those estimates.

CHANGES IN ACCOUNTING POLICIES

Effective January 1, 2002, the company adopted, without restatement of the prior
period comparative financial statements, the new accounting standards issued by
the Canadian Institute of Chartered Accountants ("CICA") on Business
Combinations and Goodwill and Other Intangible Assets.

This standard requires that all business combinations be accounted for using the
purchase method and establishes specific criteria for the recognition of
intangible assets separately from goodwill. Under the standards, goodwill will
no longer be amortized but will be subject to impairment tests on at least an
annual basis. During 2002, the company and its subsidiaries were required to
perform impairment tests on goodwill recorded as of January 1, 2002. As a
result, $8 million was recorded against opening retained earnings in relation to
the goodwill recorded on the acquisition of Powell River Energy.

Effective January 1, 2002, the company adopted the new CICA accounting
recommendations on the impairment of long-lived assets. When the carrying value
of a long-lived asset is less than its net recoverable amount as determined on
an undiscounted basis, an impairment loss is recognized to the extent that its
fair value, measured as the discounted cash flows over the life of the asset
when quoted market prices are not readily available, is below the asset's
carrying value.

FUTURE ACCOUNTING POLICY CHANGES

In November 2001, the CICA issued Accounting Guideline 13, Hedging Relationships
("AcG-13"), which will apply to fiscal years beginning on or after July 1, 2003.

The guideline sets out the criteria that must be met in order to apply hedge
accounting for derivatives and is based on many of the principles outlined in
the U.S. standard relating to derivative instruments and hedging activities.
Specifically, the guideline provides detailed guidance on (a) the
identification, designation, documentation and effectiveness of hedging
relationships, for purposes of applying hedge accounting; and (b) the
discontinuance of hedge accounting.

The CICA issued a draft Accounting Guideline,
Consolidation of Special-Purpose Entities on August 1, 2002. The proposed
guideline provides guidance on determining who is a primary beneficiary of the
special purpose entities and will therefore be required to consolidate the
special purpose entities.

The CICA issued a draft Accounting Guideline, Disclosure of Guarantees which
will require a guarantor to disclose significant information about guarantees it
has provided to third parties, without regard to its evaluation of whether it
will have to make any payments under the guarantees. This guideline is expected
to have effect for interim and annual periods ending on or after March 31, 2003.

The CICA issued a new standard, Asset Retirement Obligations, which requires the
recognition of a liability for obligations for asset retirements in the period
the liability is incurred. This standard will result in increasing the carrying
value of a company's liabilities and assets. The asset retirement obligation
will be amortized as an expense over the life of the asset. This guidance
applies to, for example, site restoration of a mine, oil or gas well or
landfill, nuclear plant decommissioning and removal of plant and equipment from
leased property on termination of the lease. The standard is effective for
fiscal years beginning on or after January 1, 2004.

The effects of these guidelines and standards are under review and have not been
determined at this time.

COMPARATIVE FIGURES

Certain of the prior year's figures have been reclassified to conform with the
2002 presentation.

14  GREAT LAKES POWER INC.



<PAGE>

2.   ACQUISITIONS

The company acquired interests in four power generating assets in 2002 and one
in 2001. All acquisitions have been accounted for using the purchase method of
accounting and the results of their operations have been included in these
consolidated financial statements from the date of acquisition.

MAINE POWER

In February 2002, the Income Fund completed the acquisition of the hydroelectric
generating system and related transmission facilities in northern Maine, USA
from Great Northern Paper Inc. ("GNP") for cash consideration of $242 million
and a promissory note of $7 million payable to GNP. The system consists of six
hydroelectric generating stations located on the Penobscot River with a combined
generating capacity of approximately 126 MW and eleven water storage dams.

The fair value assigned to the assets acquired was as follows:
<TABLE>
<CAPTION>
millions                                    2002
--------                                    ----
<S>                                        <C>
Power generating assets                    $ 251
Working capital                               (2)
                                           -----
Net assets acquired                        $ 249
                                           -----
Consideration paid                         $ 249
                                           =====
</TABLE>


NEW HAMPSHIRE POWER

In May 2002, the Income Fund completed the acquisition of a hydroelectric
generating system located in New Hampshire from American Tissue Inc. for cash
consideration of $50 million. The system consists of six hydroelectric stations
located on the Androscoggin River in New Hampshire,with a combined generating
capacity of approximately 31 MW.

The fair value assigned to the power generating assets acquired was equal to the
cash consideration paid.

MISSISSAGI POWER

In May 2002, the Income Fund completed the acquisition of a hydroelectric
generating system located in northern Ontario from Ontario Power Generation Inc.
and OPG-Mississagi River Inc. for cash consideration of $346 million. The system
consists of four hydroelectric stations located on the Mississagi River with a
combined generating capacity of approximately 488 MW and four water storage
dams.

The fair value assigned to the assets acquired was as follows:
<TABLE>
<CAPTION>
millions                                    2002
--------                                    ----
<S>                                        <C>
Power generating assets                    $ 345
Working capital                                1
                                           -----
Net assets acquired                        $ 346
                                           -----
Consideration paid                         $ 346
                                           =====
</TABLE>


LAKE SUPERIOR POWER

In November 2002, the company acquired the 50% interest which it did not own in
the Lake Superior Power cogeneration station in northern Ontario for cash
consideration of $30 million.

The net assets acquired as a result of the acquisition and the consideration
given are as follows:
<TABLE>
<CAPTION>
millions                                    2002
--------                                    ----
<S>                                        <C>
Assets acquired
  Current assets                           $   6
  Power generating assets                     61
Liabilities assumed
  Long term debt                             (37)
                                           -----
Net assets acquired                        $  30
                                           -----
Consideration paid                         $  30
                                           =====
</TABLE>


POWELL RIVER ENERGY

In February 2001, the Income Fund acquired a 50% indirect interest in the Powell
River Energy hydroelectric power generation and transmission facilities in
southwestern British Columbia for cash consideration of $58 million. The net
assets acquired as a result of the acquisition and the consideration given are
as follows:
<TABLE>
<CAPTION>
millions                                    2001
--------                                    ----
<S>                                        <C>
Assets acquired
  Power generating assets                  $  58
  Goodwill                                    17
Liabilities assumed
  Future income tax liability                (17)
                                           -----
Net assets acquired                        $  58
                                           -----
Consideration paid                         $  58
                                           =====
</TABLE>


3.   ACCOUNTS RECEIVABLE AND OTHER

The composition of accounts receivable and other is as follows:
<TABLE>
<CAPTION>
millions                         2002        2001
--------                         ----        ----
<S>                             <C>         <C>
Demand deposits                 $ (14)      $ 190
Coal royalty receivables           70          70
Trade receivables                  85          29
Prepaid interest and other         45          47
                                -----       -----
                                $ 186       $ 336
                                =====       =====
</TABLE>


The fair value of the company's accounts receivable and other approximates their
carrying values at December 31, 2002 and 2001 based on expected future cash
flows from these assets, discounted at market rates for assets with similar
terms and investment risks.

4.   SECURITIES

The fair value of the company's securities at December 31, 2002 was $583 million
(2001 - $705 million). In determining fair values, quoted market prices are used
where available and, where not available, management estimates the amounts which
could be recovered over time or through a transaction with knowledgeable and
willing third parties under no compulsion to act.

                                                           2002 ANNUAL REPORT 15


<PAGE>
The securities consist of 68% floating rate securities and 32% fixed rate
securities with an average yield at December 31, 2002 of 6.40%.

All financial and investment transactions with affiliated companies are at
normal market terms. Affiliated companies include Brascan and its subsidiaries
and equity accounted investees. At December 31, 2002, the carrying value of
securities and deposits with affiliated companies amounted to $536 million and
$(14) million, respectively (2001 - $660 million and $190 million). In 2002,
income from securities and loans with affiliated companies amounted to $39
million (2001 - $48 million).

5.   LONG-TERM INVESTMENTS

Long-term investments include the company's direct and indirect interests in
Brascan Financial Corporation, Noranda Inc., Brascan Corporation and First
Toronto Investments Limited.

The book values of the company's long-term investments and the underlying
securities at December 31, 2002 and 2001 are shown below:

<Table>
<Caption>

millions                                       2002                2001
--------                                      ------              ------
<S>                                          <C>                <C>
Brascan Financial Corporation                 $  195              $  195
Noranda Inc.                                     146                 146
Brascan Corporation                              112                 112
Other investments                                106                  68
                                              ------              ------
                                              $  559              $  521
                                              ======              ======
</Table>

6.   POWER GENERATING ASSETS

The composition of the company's power generating assets at December 31, 2002
and 2001, by geographic area and asset type, is shown below:

<Table>
<Caption>

millions                                       2002                2001
--------                                      ------              ------
<S>                                          <C>                <C>
By geographic area:
Ontario                                       $  937              $  471
Quebec                                           429                 440
Northeast United States                          304                  --
Other                                            485                 446
                                              ------              ------
                                              $2,155              $1,357
                                              ======              ======
By asset type:
Generation                                    $1,846             $ 1,017
Transmission                                     157                 156
Distribution                                      69                  65
Other                                             82                  53
                                              ------              ------
                                               2,154               1,291
Accumulated depreciation
  and amortization                              (331)               (264)
                                              ------              ------
                                               1,823               1,027
Investment in Louisiana HydroElectric            332                 330
                                              ------              ------
                                              $2,155              $1,357
                                              ======              ======
</Table>

Power generating assets includes the cost of the company's 18 power generating
stations in Ontario, 5 hydroelectric generating stations in Quebec, 12
hydroelectric stations in the Northeast United States and 50%share of two Powell
River Energy hydroelectric generating stations, and the company's Highvale Power
coal assets.

The company's 75% residual interest in Louisiana HydroElectric Power's
hydroelectric generating station and sediment control works is shown on an
equity accounted basis. The financial accounts of Louisiana HydroElectric Power
for 2002 and 2001 are as follows:

<Table>
<Caption>

millions                                       2002                2001
--------                                      ------              ------
<S>                                          <C>                <C>
Assets                                        $1,604              $1,568
Property specific borrowings                   1,273               1,261
Other liabilities                                155                 156
Operating revenues                               209                 187
Operating expenses                                55                  53
Net income                                        24                   7
                                              ======              ======
</Table>

Depreciation is based on the service lives of the assets which are 60 years for
hydroelectric generation, 20 years for cogeneration and 40 years for
transmission, distribution and other.

The company's hydroelectric power facilities operate under various renewable
agreements for water rights which extend through the year 2008 for Great Lakes
Power, 2044 for Valerie Falls Power, 2019 and 2020 for Pontiac Power, 2019 for
Lievre River Power and 2031 for Louisiana HydroElectric Power. Substantially all
of the water rights for Powell River Energy are perpetual.

7.   JOINT VENTURES

The following amounts represent the company's proportionate interest in
incorporated and unincorporated joint ventures reflected in the company's
accounts. (These amounts include Powell River Energy in 2001 and 2002 and Lake
Superior Power in 2001 only.)

<Table>
<Caption>

millions                                       2002                2001
--------                                      ------              ------
<S>                                          <C>                <C>
Assets                                        $   59              $  125
Liabilities                                       56                  84
Operating revenues                                 9                  46
Operating expenses                                 8                  31
Net income                                         1                  10
Cash flows from operating activities               2                  16
Cash flows from investing activities              (1)                (60)
Cash flows from financing activities              (1)                 37
                                              ======              ======
</Table>


16  GREAT LAKES POWER INC.
<PAGE>

8.   PROPERTY SPECIFIC BORROWINGS
<Table>
<Caption>

millions                                               2002               2001
--------                                              ------             ------
<S>                                                  <C>                <C>
Great Lakes Power Limited
  First Mortgage Bonds
    Series 4 (US $105)                                $ 166              $ 167
    Series 5                                            150                150
                                                     ------             ------
                                                        316                317
                                                     ======             ======
Great Lakes Power Trust
  Credit Agreements                                       7                 15
  First Mortgage Bonds
    Series 1                                             50                 50
    Series 2                                             25                 25
    Series 3                                             25                 25
                                                     ------             ------
                                                        107                115
                                                     ======             ======
Other Power Operations
  Property specific borrowings
    Pontiac Power                                        62                 63
    Valerie Falls Power                                  33                 --
    Powell River Energy                                  38                 47
    Lake Superior Power                                  19                 14
    Mississagi Power                                    151                 --
    Great Lakes Hydro America (US $113)                 179                 --
                                                     ------             ------
                                                      $ 905              $ 556
                                                     ======             ======
</Table>

The US$105 million First Mortgage Bonds Series 4 bear interest at the rate of
6.57%, are due on June 16, 2003 and are secured by a charge on the company's
wholly owned power generating assets in northern Ontario.

The $150 million First Mortgage Bonds Series 5 bear interest at the rate of
4.58%, are due on June 16, 2003 and are secured by a charge on the company's
wholly owned power generating assets in northern Ontario. Through the use of an
interest rate swap, the company pays interest at a rate which varies with the
Banker's Acceptance ("B.A.") rate. These bonds replaced the $95 million First
Mortgage Bonds Series 3 bearing interest at a rate of 6.69%, which matured
December 31, 2001.

The Income Fund First Mortgage Bonds Series 1, 2 and 3 bear interest at 7.33%,
7.55% and 7.78%, respectively; and are due April 24, 2005, April 24, 2010 and
April 24, 2015, respectively. These Mortgage Bonds are secured by charges on all
present and future real and personal property of Great Lakes Power Trust, which
is wholly owned by the Income Fund.

The $62 million Pontiac Power mortgage loans bear interest at a blended rate of
10.52%, amortized monthly to a maturity of December 1, 2020 and are secured by
charges on the respective Pontiac Power generating assets.

The $33 million Valerie Falls First Mortgage Bond bears interest at 6.84%, with
interest only payments semi-annually for the first 20 years and blended
principal and interest payments for the remaining 20 years to a maturity of
December 20, 2042.

The company's proportionate share of the $75 million Powell River Energy first
mortgage bond bears interest at 6.92%, is due June 2009 and is secured by a
charge on the respective Powell River Energy operating assets.

The $19 million Lake Superior Power mortgage loan bears interest at 9.41%,
amortizes annually to December 29, 2006 and is secured by a charge on the
company's Lake Superior Power cogeneration assets. The $151 million Mississagi
Power mortgage loan bears interest at the 30-day Bankers Acceptance rate plus 60
basis points until March 3, 2003 and 80 basis points thereafter. The facility
matures on September 4, 2003.

The US$113 million Great Lakes Hydro America mortgage loan bears interest at US
prime plus 150 basis points and matures on January 30, 2005. The company has
established a US$100 million loan facility with Brascan, its principal
shareholder, which can be drawn down at any time, bearing interest at the prime
rate and secured by the company's residual interest in Louisiana HydroElectric
Power. At either party's option, the facility may be drawn down and converted
into a fixed-rate financing at 9.75% repayable in 2015.

Principal repayments on the company's outstanding property specific borrowings
due over the next five years and thereafter are as follows:
<Table>
<Caption>

millions                                                     Annual Repayments
--------                                                     -----------------
<S>                                                          <C>
2003                                                                     $ 483
2004                                                                         8
2005                                                                       235
2006                                                                         4
2007                                                                         2
Thereafter                                                                 173
                                                                         -----
                                                                         $ 905
                                                                         =====
</Table>

9.   TERM DEBENTURES

<Table>
<Caption>

millions                                                2002              2001
--------                                               ------           -------
<S>                                                    <C>              <C>

Corporate debentures
  Series 1 (US$175)                                    $ 277             $ 278
  Series 3 (US$200)                                      316               318
                                                       -----             -----
                                                       $ 593             $ 596
                                                       =====             =====
</Table>

The Series 1 debentures bear interest at the rate of 9.0% and are due in August
2004.

The Series 3 debentures bear interest at 8.3% and are due March 2005. Through
the use of an interest rate swap, the company pays interest at a rate which
varies with the LIBOR rate.

The fair value of the company's property specific borrowings and term debentures
is $1,520 million (2001 -- $1,167 million) based on current market prices for
debt with similar terms and risks.

                                                           2002 ANNUAL REPORT 17



<PAGE>
10.  FUTURE INCOME TAX LIABILITY

The difference between the statutory rate and the effective rate of tax is
attributable to the company's dividend income and equity earnings being taxed
prior to receipt by the company. The company's future income tax liability of
$120 million (2001 - $116 million) is comprised principally of temporary
differences relating to property, plant and equipment. This amount is net of a
future tax asset of $12 million (2001 - $21 million) relating to unused
non-capital losses.
<Table>
<Caption>
millions                                                  2002      2001
--------                                                ------    ------
<S>                                                     <C>       <C>
Net income                                              $  167     $  131
Combined income tax rates                                  38%        41%
Statutory income tax rates applied
  to accounting income                                      63         54
Non-deductible expenses                                      2          1
Non-taxable dividends                                      (45)       (54)
Recognition of the benefit of tax losses                   (16)        (7)
                                                        ------     ------
Provision for income taxes                              $    4     $   (6)
                                                        ======     ======
</Table>

11.  NON-CONTROLLING INTERESTS

Non-controlling interests include preferred shares, limited partnership
interests and trust units owned by minority shareholders in the company's
consolidated subsidiaries, as follows:
<Table>
<Caption>
millions                                                  2002       2001
--------                                                ------     ------
<S>                                                     <C>       <C>
Preferred shares issued by
  consolidated subsidiaries                             $   90     $   90
Limited partnership interests of
  consolidated subsidiaries                                  4          4
Trust units issued by
  consolidated subsidiaries                                256        177
                                                        ------     ------
                                                        $  350     $  271
                                                        ======     ======
</Table>
12.  SHAREHOLDERS' EQUITY

The company is authorized to issue an unlimited amount of common shares, of
which the following were issued and outstanding:
<Table>
<Caption>
millions                                                  2002       2001
--------                                                ------     ------
<S>                                                     <C>       <C>
101,383,135 (2001 - 101,383,135)
  Common shares                                         $  603     $  603
Retained earnings                                          523        448
                                                        ------     ------
                                                         1,126      1,051
Subordinated convertible debentures                        248        248
                                                        ------     ------
                                                        $1,374     $1,299
                                                        ======     ======
</Table>

The subordinated convertible debentures mature September 30, 2013, bear interest
at the prime rate subject to a minimum of 6% and a maximum of 8%, and are
convertible at $10.00 per common share into 24.8 million common shares.
Principal and interest are payable at the company's option with common shares.

The company is authorized to issue an unlimited amount of preferred shares, none
of which are currently outstanding.

The following table summarizes the company's distributions to common
shareholders and equivalents:
<Table>
<Caption>
millions                                                  2002       2001
--------                                                ------     ------
<S>                                                     <C>       <C>
Common share dividends                                  $   65     $   65
Convertible debt interest                                   15         16
                                                        ------     ------
                                                        $   80     $   81
                                                        ======     ======
</Table>
13.  OTHER INFORMATION
<Table>
<Caption>
millions, except per share amounts                        2002       2001
--------                                                ------     ------
<S>                                                     <C>       <C>
Average diluted common
  shares outstanding                                     126.2      126.2
Basic earnings per share                                $ 1.50     $ 1.13
                                                        ======     ======
</Table>

The company's two largest customers accounted for 8% and 7%, respectively, of
total revenues in 2002 (2001 - 12% and 10%, respectively).

During 2002, no hydrological provisions (2001 - $7 million) were applied against
power purchase costs and a $3 million (2001 - $10 million) recovery of
hydrological provisions was included in revenue from power operations. At
December 31, 2002, hydrological provisions totalled nil (2001 - $3 million).

14.  COMMITMENTS AND CONTINGENCIES

The company has entered into a power agency and guarantee agreement with the
Great Lakes Power Trust (the "Trust"), in which the company has a 50% indirect
interest, for a term of 20 years. This agreement requires the company to fund
any deficiency amount between a guaranteed price for energy and the actual
energy revenues earned by the Trust. The company is entitled to receive any
revenues in excess of the guaranteed amount. The cumulative net surplus amount
in 2002 was nil (2001 - $0.2 million).

In addition, the company agreed to provide to the Income Fund hydrology credit
facilities in the amount of $25 million for a period of 15 years, of which not
more than $8 million is permitted to be advanced during any given year. Of this
amount, Lievre River Power has $15 million available until 2014 and Mississagi
Power has $10 million available until 2019. These facilities bear interest at
market rates.

15.  DERIVATIVE FINANCIAL INSTRUMENTS

Derivative financial instruments are utilized by the company in the management
of interest rate and commodity exposures primarily related to the generation of
electricity. It is the company's policy to restrict the use of derivative
financial instruments for trading or speculative purposes to within
predetermined limits.

The company formally documents relationships between hedging instruments and
hedged items, as well as its risk management objective and strategy for
undertaking various hedge transactions. This process includes linking forward
electricity sale derivatives to specific periods in which the company
anticipates generating electricity for sale. The company also


18  GREAT LAKES POWER INC.


<PAGE>
formally assesses, both at the hedge's inception and on an ongoing basis,
whether the derivatives that are used in hedging transactions are highly
effective in offsetting changes in the fair values or cash flows of the hedged
items.

The company defers unrealized gains and losses on electricity commodity
contracts designated as hedges and records them as an adjustment to power
revenues when the underlying hedged transaction is recorded. Commodity contracts
not designated as hedges are recorded in accounts receivable or accounts payable
at fair value with changes in fair value recorded in power revenue.

<Table>
<Caption>
                                       Notional              Notional
                          Range of       Amount    Average     Amount    Average
                          Maturity       Bought       Rate       Sold       Rate
                          --------     --------    -------   --------    -------
<S>                      <C>          <C>         <C>       <C>         <C>
Electricity                1 month        2,284     $56.58      6,270     $54.89
                                to          GWh        per        GWh        per
                           3 years                     MWh                   MWh
</Table>

As at December 31, 2002, contracts designated as hedges had a net fair value
determined based on quoted market rates of negative $33 million, consisting of
contracts with a positive mark-to-market of$38 million and contracts with a
negative mark-to-market of $71 million. The company manages credit risks by
entering into contracts with highly rated counterparties.

The company enters into interest rate swaps on its long term debt. The swap
agreements require the periodic exchange of payments without the exchange of the
notional principal amount on which the payments are based.

The company designates its interest hedge agreements as hedges of the underlying
debt. Interest expense is adjusted to include the payments made or received
under the interest rate swaps. The total notional amount of principal underlying
interest rate swap contracts in 2002 was $466 million (2001 - $468 million).
These contracts have maturities varying from one to three years, and have a
favourable replacement value of $8 million (2001 - $26 million).

In the event a designated hedged item is sold, extinguished or matures prior to
the termination of the related derivative instruments, any realized or
unrealized gain or loss on such derivative instruments is recognized in income.
In the event a derivative instrument in a designated hedge relationship is sold,
extinguished or matures prior to the termination of the related hedged item, any
realized or unrealized gain or loss is recognized in income on the same basis as
the underlying hedged item.

16.  EMPLOYEE BENEFIT PLAN

The company offers a number of pension plans to its employees. The company's
obligations under its defined benefit pension plans are determined periodically
through the preparation of actuarial valuations. As of December 31, 2002, the
assets of the plans totalled $40 million (2001 - $37 million) and accrued
benefit obligation amounted to $43 million (2001 - $35 million) for a net
accrued benefit liability of $3 million (2001 - $2 million). The benefit plan
expense for 2002 was $0.3 million (2001 - $0.2 million). The investment rate of
return was 7% (2001 - 7%). The discount rate used was 6.75% with a rate of
compensation increase of 3.8%.

17.  GEOGRAPHIC SEGMENTED INFORMATION

The company operates in Canada and the United States. Revenues by country are as
follows:

<Table>
<Caption>

millions                                                    2002           2001
--------                                                   ------        -------
<S>                                                      <C>            <C>
Canada                                                     $  288        $   258
United States                                                  52             12
                                                           ------        -------
                                                           $  340        $   270
                                                           ======        =======
</Table>

Income by country is as follows:

<Table>
<Caption>

millions                                                    2002           2001
--------                                                   ------        -------
<S>                                                      <C>            <C>
Canada                                                     $  181         $  120
United States                                                  35             12
Other unallocated income (expenses)                           (49)            (1)
                                                           ------        -------
                                                           $  167         $  131
                                                           ======         ======
</Table>

Power generating assets by country are as follows:

<Table>
<Caption>

millions                                                    2002           2001
--------                                                   ------         ------
<S>                                                      <C>            <C>
Canada                                                     $1,519         $1,027
United States                                                 636            330
                                                           ------        -------
                                                           $2,155         $1,357
                                                           ======         ======
</Table>

Depreciation expense from power generating assets by country is as follows:

<Table>
<Caption>

millions                                                    2002           2001
--------                                                   ------         ------
<S>                                                      <C>            <C>
Canada                                                     $   34         $   27
United States                                                   6             --
                                                           ------        -------
                                                           $   40         $   27
                                                           ======         ======
</Table>


                                                           2002 ANNUAL REPORT 19
<PAGE>

FOURTH QUARTER 2002 FINANCIAL RESULTS

The company's unaudited financial statements for the fourth quarter of 2002 and
2001 are set out in the following tables:

CONSOLIDATED STATEMENT OF INCOME
<Table>
<Caption>

(unaudited)
Three months ended December 31

millions, except per share amounts                      2002               2001
----------------------------------                    -------            -------
<S>                                                   <C>                <C>

REVENUE
  Power revenue                                       $   78            $   57
  Power purchases                                         --                11
                                                      ------            ------
  Net power revenue                                       78                46
  Investment and other income                             22                25
                                                      ------            ------
                                                         100                71
                                                      ------            ------
EXPENSES

  Interest                                                26                20
  Operating and maintenance                               17                10
  Fuel purchases                                           6                 3
  Depreciation                                            10                 7
  Non-controlling interests                               --                 3
  Income and other taxes                                  12                 3
                                                      ------            ------
                                                          71                46
                                                      ------            ------
NET INCOME                                            $   29            $   25
                                                      ======            ======
DILUTED NET INCOME
  PER COMMON SHARE                                    $ 0.23            $ 0.20
                                                      ======            ======
</Table>

CONSOLIDATED STATEMENT OF RETAINED EARNINGS

<Table>
<Caption>

(unaudited)
Three months ended December 31
millions                                                2002               2001
--------                                              -------            -------
<S>                                                   <C>                <C>

RETAINED EARNINGS
  Balance, beginning of period                        $ 526              $ 443
  Net income                                             29                 25
  Distributions to unitholders
    of common shares & equivalents                      (20)               (20)
  Adjustment for change
    in accounting policy                                 (8)                --
  Fund unit issue costs                                  (4)                --
                                                      ------            ------
                                                      $ 523             $  448
                                                      ======            ======
</Table>

CONSOLIDATED STATEMENT OF CASH FLOWS

<Table>
<Caption>

(unaudited)
Three months ended December 31
millions                                               2002               2001
--------                                             -------            -------
<S>                                                   <C>                <C>

CASH FLOW FROM OPERATIONS
  Net income                                          $  29             $   25
  Add non-cash items
    Depreciation                                         10                  7
    Hydrological provisions                              (3)                (7)
    Other                                                 8                  7
                                                      ------            ------
CASH FLOW FROM OPERATIONS                             $  44             $   32
Net change in non-cash working capital                   41                 42
                                                      ------            ------
Cash provided by operating activities                    85                 74
                                                      ------            ------

FINANCING AND SHAREHOLDER DISTRIBUTIONS

  Borrowings                                             32                177
  Debt repayments                                         2               (104)
  Issuance of funds units                                --                 78
  Distributions:
    -- Great Lakes Hydro Income
         Fund unitholders                                (7)                (5)
    -- Common shares and equivalents                    (20)               (20)
                                                      ------            ------
                                                          7                126
                                                      ------            ------
INVESTING

Securities purchases                                    (10)               (57)
Securities sales                                         67                 40
Long-term investments                                   (36)                14
Loans and other receivables                             (91)              (152)
Power generating assets                                 (51)               (54)
                                                      ------            ------
                                                       (121)              (209)
                                                      ------            ------
CASH AND CASH EQUIVALENTS

Increase (decrease)                                     (29)                (9)
Balance, beginning of period                             39                 19
                                                      ------            ------
Balance, end of period                                $   10            $   10
                                                      ======            ======
SUPPLEMENTARY INFORMATION
Interest paid                                         $   21            $   22
Taxes paid                                            $    3            $    4
                                                      ======            ======
</Table>

20  GREAT LAKES POWER INC.