2001Q4

FELLOW SHAREHOLDERS

We are reaping meaningful benefits from our efforts to build sustainable and increasing cash flows.

IN SUMMARY

Everything we do is directed at maximizing shareholder value, and we believe that the most tangible way of accomplishing this is by building our cash flows and thereby increasing our return on invested capital.

Our target is to generate a minimum sustainable cash return on common shareholders’ equity of 20% per annum. We plan to achieve this by continually improving the quality of our assets, the sustainability of our cash flows and, as a result, the returns we earn on invested capital.

We now have three strong operating businesses – real estate, financial and power generation. These three businesses currently generate over 90% of our operating cash flows. But there is still much to do, both in our operating businesses and with our investments in the resource sector.

Cash flow from operations increased to $601 million or $3.20 per share in 2001. This was our fifth consecutive year of significant cash flow growth.

During the coming years, we intend to intensify our efforts to widen our profit margins and enhance operational synergies, and thereby increase the total cash flows generated by each of our businesses.

With strong, strategically positioned business operations and a management team dedicated to the creation of value, we are confident that our shareholders will be well rewarded.

CASH FLOW FROM OPERATIONS

Our highest operating priority has been and continues to be to increase and strengthen the long-term sustainability of our operating cash flows.

We are focused on increasing cash flow per share because we believe it is the most important measure of wealth creation. It is also the component of the investment return equation which good managers can influence the most. We are pleased to report that 2001 was a year of significant achievement in this area. Cash flow from operations increased to a record $3.20 per share, compared to $2.55 in 2000.

We have confidence that the cash flows we are currently achieving are sustainable. This confidence is derived from the quality of our asset base and the nature of our businesses, such as premier office properties and hydroelectric generating plants, where we have long-term contracts in place producing stable and increasing cash flows.

Furthermore, we expect these cash flows also to increase as a result of growth initiatives we are implementing in each business. Based on our current operating momentum, we expect to achieve in excess of 15% growth in cash flow from operations in 2002.

Currently, we have $3.8 billion of under-contributing assets. These include $1.6 billion under development in our three operating businesses, which form an integral part of our growth strategy but do not yet generate cash flow. One example is the CIBC World Markets Tower construction project in midtown Manhattan, slated for completion in the fall of 2003.

The remaining $2.2 billion comprises our investments in the resource sector, which are under-contributing today.

While not without its challenges, we believe we have the business strategies and the people to achieve our cash flow objectives in the years ahead.

RETURN ON CAPITAL

We are constantly assessing each of our operations in relation to the cash returns generated on capital invested.

Our goal is to improve our return on capital employed not only by increasing the cash flow generated by each business, but also by effectively utilizing and carefully allocating capital among our businesses.

Our three operating businesses performed very well in 2001, contributing $1.8 billion of operating income, up 12% from the prior year. Given the nature of these businesses, we were less affected by the recent economic downturn than other industry sectors.

Driven by our objective of increasing returns on capital invested, we extracted significant equity capital from our commercial real estate port-folio during 2001 by placing non-recourse fixed-rate mortgages on our mature office properties. By locking in long-term debt costs of 7%, we lowered the risk and overall cost of capital employed in this business.

In our financial operations, we launched a number of asset management products and introduced new fee-based services. These steps will improve the stability of the cash flows and enhance the returns from this business.

In our power generating business, we lowered our cost of capital by issuing additional income trust units. In addition to our 50% share of the earnings of the trust, we derive income from managing the business and marketing the power.

The diversity of our asset base, together with our access to low cost, non-participating capital, provides us with important competitive advantages for reducing our overall cost of capital. This becomes evident when our cost of capital is compared to most companies conducting business in only one of the industries in which we operate.

In 2001, we made further progress in lowering our cost of capital when S&P and DBRS upgraded our credit ratings to A– and A(low), respectively.

This broadened the financial markets which we can access to prudently leverage our common shareholders’ equity.

VALUE CREATION

We are determined to translate our increasing cash flows into higher economic values for our businesses and your shareholdings in Brascan. The sustainability of our cash flows is key to achieving this objective.

In 2001, investors began to recognize the strength of our cash flows and the extent to which they are backed by long term contracts. We believe that this recognition accounts, in large part, for the 31% appreciation in our share price during the year.

Our premier commercial properties with long-term leases and our low-cost hydroelectric power plants with large water storage facilities require relatively little sustaining capital. As a result, these assets generally command valuation multiples of about 12 times forward cash flow. Well run, growing financial operations generally command even higher multiples.

On this basis, our shares should trade at a stock market valuation multiple of at least 12 times for our overall business. Applying this multiple to our 2002 targeted cash flows supports a share value in the mid-$40’s, approximately the same as the more comprehensive analysis of underlying values included in the financial review section of this report.

The longer-term opportunity for our share-holders is the achievement of a significantly higher valuation multiple combined with continued cash flow growth. In the next five years, if we can achieve both a 12 times multiple and an annual 15% growth in cash flow, we should produce very attractive investment returns.

Furthermore, we believe that our two resource investments are undervalued, since we have included them in our calculations at recent stock market prices without control premiums. Only dividend income from these investments is included in our cash flow analysis. With natural resource prices currently at cyclical lows, we feel that the downside for these investments is limited and that there are excellent prospects for future value improvement with any recovery in resource prices.

REPURCHASING CAPITAL

As value steadily builds within our businesses,

we found that our shares represent an attractive place to invest capital.

During the last two fiscal years, we repurchased over 10 million of our own shares for cancellation. In addition, during the first quarter of 2002 we acquired a further 1.7 million shares. In total, during this period we invested $1.2 billion in repurchasing our shares and equity securities issued by our operating businesses.

In addition, management purchased over 6.5 million common shares in 2001. In total, management now owns over 15% of the company. We are committed to, and feel very comfortable, aligning our personal investment capital with our shareholders.

Utilizing the company’s resources to repurchase capital does not mean we lack exciting investment opportunities to strengthen and grow our businesses. In fact, the opposite is true. We continually strive to find a balance between capturing immediate value through share repurchases and creating long-term value in our operations through the addition of quality assets.

The stringent allocation of capital among competing investment opportunities will remain one of our most important priorities, since we believe that successful businesses are built on getting this balance right. Our goal is to be a leader in this regard.

GROWTH INITIATIVES

In recent years, we deployed significant capital to increase our ownership of our operating businesses, with the objective of eventually owning the majority of our businesses privately.

In the past two years, we privatized our power operations and some of our real estate businesses. We also substantially increased our interest in our financial operations. Altogether during this period, we invested close to $1 billion of capital in this manner which we believe will enhance shareholder value as we grow these businesses over the longer term.

We intend to continue increasing our ownership of our operations as further opportunities arise. We aim to do this only when we are confident it will add to our long-term underlying values. As a result it may take us a while to achieve our goal, but we are determined to do so.

In the meantime, you can see the impact of these initiatives in the presentation of the company’s financial statements, which now consolidate our three operating businesses to reflect our intimate involvement in allocating capital and in achieving the challenging performance targets set for each of these operations.

We invested heavily in 2001 to expand our power generation and financial businesses.

While we also acquired some real estate, we disposed of substantially more by selling partial interests in selected commercial properties. In repurchasing equity securities previously issued by our businesses, we also increased our share of their cash flows.

In 2002, we will continue to seek additional prime office property assets below replacement cost in cities where we now operate and in other supply-constrained markets, such as San Francisco or Washington. We are also sponsoring a mezzanine fund to provide financing on high quality office assets.

We plan to commit further capital to expand our financial operations. While most of the growth in our financial operations to date has been organic, we will also assess opportunities which will expedite our entry into new operating businesses.

In our power operations, we are seeking opportunities to acquire additional hydroelectric power plants from natural resource companies which are constrained for capital. We will also bid selectively on assets held by provincially-owned power companies, either alone or by leading an investment group.

With respect to Noranda and Nexfor, we will be opportunistic. If their share prices remain low, we may acquire more shares. In the future we intend to be more adept at increasing our returns from these businesses throughout the commodity cycles. We strongly endorse the initiatives being undertaken by these companies to improve their operating margins, and we are prepared to provide them with additional bridge capital in 2002 should it be needed to acquire high quality assets at attractive prices.

CAPITAL GENERATION

We ended 2001 in our best financial position ever. We have substantial cash, liquid short-term securities and undrawn bank lines. Furthermore, the strengthening of our credit ratings has improved our access to the international capital markets.

Our strong financial position is the culmination of many initiatives over a number of years to strengthen our asset base and financial profile. In the second half of 2001, we issued $450 million of seven-year term notes, $375 million of preferred securities and renewed $1.2 billion of bank lines with nine credit institutions.

Our real estate operations generated over $1.5 billion of cash from operations, property refinancings and the sale of partial interests in mature office properties in Boston and Calgary. We intend to continue to monetize mature assets during 2002 with similar transactions planned for Toronto, Calgary and possibly New York.

We made further progress on enhancing returns and broadening the funding base of our financial operations. In 2001, this included the launch of the $400 million Tricap Restructuring Fund and two specialized asset management vehicles, Diversified Canadian Financial I and II.

In our power generating business, we re-financed mature facilities and used the proceeds to pay for new acquisitions. We also used our high performing Hydro Income Fund to source lower cost capital in order to augment our returns.

No major capital was generated from our resource investments in 2001 other than regular dividends of $96 million.

OPERATIONAL OBJECTIVES

During 2001 we added significant value to our operating businesses through internal growth and the selective pursuit of new opportunities.

We proactively leased 3.6 million square feet of office space at higher rates in 2001. We widened profit margins in our power generating operations and successfully expanded our financial businesses.

We are determined to improve our cost competitiveness in each of our businesses. This will include add-on acquisitions which augment our cash generation or diversify us into new geographical areas.

Acquisition opportunities will all be evaluated based on our value-adding approach to business. At the same time, if opportunities arise to dispose of assets at outstanding value, we will consider taking advantage of them.

As we continue to build our three operating businesses and re-engineer our natural resource investments, we will do so with a singular focus – to increase the return on the capital our shareholders have entrusted to our care.

Finding ways to become better at every-thing we do is fundamental to achieving our value creation objectives. While there is always work to do in this regard, we are well on our way to creating a performance culture where entrepreneurial leaders can thrive and be recognized for the value they add.

We believe successful companies must take measured risks and be quick to address and learn from setbacks, and our actions will be based on this approach. We may make mistakes, even with the best of intentions. However, we will do all we can to ensure that none of these threaten the viability of your company.

2002 AND BEYOND

We entered 2002 with positive momentum in each of our operating businesses and in a very strong financial position. Having invested only a fraction of the capital generated in 2001, we are in a highly liquid position and able to respond to opportunities as they develop.

Each of our operating businesses has the capacity to grow internally. However, we will also actively pursue acquisition opportunities to enhance their growth. As we seek new opportunities, we will be attracted to businesses which have visible streams of cash flow. We do not mind waiting for cash flow growth to materialize, but we do want to be sure that the cash flow will be secure and require little sustaining capital investment – similar to our existing operating businesses.

The management succession plan initiated approximately three years ago is now complete. I feel privileged to be taking over from Jack Cockwell as President and Chief Executive Officer of Brascan at this time. Under Jack’s leadership over the past ten years, Brascan has achieved great success and is now in its strongest position ever, with a solid platform for further growth. Jack will continue to play an important role as Co-Chairman of Brascan and as a key member of our management partnership.

We thank our many customers, business partners, lenders, employees and directors for the support they have provided over the past year. We also express our thanks to Robert Prichard, who retired from Brascan’s board of directors during 2001 following his appointment as a senior executive and board member of Torstar Corporation. Rob’s contribution to Brascan and his advice to management during his term of service were very much appreciated.

And finally, we want to emphasize our commitment to invest your capital prudently and wisely. Our goal is to continue to invest in high quality assets generating sustainable cash flows with the goal of increasing the returns on the capital you have entrusted to us to manage.

We cannot guarantee the future, but we do believe we have laid the foundations for achieving improved returns for you.