2003Q4

Our Principles of Investment

GUIDELINES

• Invest in areas where we possess a competitive advantage and never bet the company on any one acquisition.

• Acquire assets on a value basis with a goal of maximizing return on capital.

• Build sustainable cash flows to provide certainty, reduce risk and lower the cost of capital.

• Recognize that superior returns involve hard work and often require contrarian thinking.

MEASUREMENT OF OUR SUCCESS

• Measure success over the long term by total return on capital on a per share basis, including both annual cash flows and the increase in net asset values.

• Seek profitability rather than growth, because size does not necessarily add value.

• Encourage taking calculated risks, but always compare expected returns with the risks taken to achieve those returns.

• Be prepared to sacrifice short-term profit, if necessary, to achieve long- term growth.

GOVERNANCE

• Attract and retain high caliber individuals who will grow with us over the long-term.

• Ensure employees think and act like owners in all their decisions.

• Maintain an open exchange of information and strategies among investors and partners.

• Build partnerships based on honesty and integrity, and ensure our actions always enhance our reputation.

We achieved our financial targets and overall operational goals in 2003. This was accomplished through solid performance in nearly all of our operations. We maintained our strategic focus on driving sustainable and growing cash flows. In addition, we established the groundwork for future growth with progress on a number of new initiatives.

GOALS AND STRATEGY

Before we discuss our results for 2003, we thought it important to review our Principles of Investment, which are located on the previous page, our key objectives and our roadmap for achieving our goals. This way, you will have a framework to measure our performance.

Our long-term goal is to achieve 12% to 15% growth in cash flow from operations and as a result, increase

(i) our cash return on common equity to 20%; and

(ii) the underlying value of our assets on a total return basis by 12%. To achieve this objective we are focused on four key operating strategies:

• Own, manage and build high quality cash flow generating assets that require minimal sustaining capital and have the potential to appreciate in value. Today we are primarily focused on real estate and power generation assets.

• Maximize the value of existing operations through active asset management to create operating efficiencies, lower our cost of capital and enhance cash flows. Given that our assets have relatively low variable costs and can be leveraged on a low risk basis, even a small increase in the top-line performance results in a magnified contribution to the bottom line.

• Manage assets for others when we can offer competitive advantages. This allows us to augment our own returns through performance-based management fees, reduce risk and, with a broader pool of capital, undertake larger transactions.

• Base all of our decisions on disciplined return-on-capital metrics, focused on the impact on the company of each decision on a per share basis.

Within the context of these operating strategies, we had a number of successes in 2003 but, as is often the case, we also had challenges.

THE SUCCESSES

Record Cash Flow. We generated record cash flow from operations of $624 million or $3.21 per share compared with $469 million or $2.38 per share in 2002. Net income increased to $408 million compared with $83 million last year, driven by higher income from most of our operations and a turnaround in our resource investments.

Enhanced Financial Strength and Flexibility. During 2003 we took advantage of the low interest rate environment to strengthen our balance sheet. We issued over $1.5 billion of fixed rate, preferred shares and long- term debt. With strong credit ratings, and more than

$2 billion of cash, short-term financial assets and undrawn bank lines, we have the financial flexibility to pursue major growth initiatives should they become available.

Solid Operating Performance. Most of our operations performed well – but we were especially pleased with yet another outstanding year in our residential housing operations. The U.S. housing operations were spun off from our commercial property operations at the beginning of 2003 and are now held directly by us. The share price of these operations nearly tripled during the year. In addition, we made progress in our funds management operations with increased mezza- nine lending activity by our Real Estate Finance Fund and the successful launch of our Bridge Lending Fund.

Higher Underlying Value. We exceeded our target and achieved a 31% increase in the underlying value of the company to $41.45 per share. Since this represents our own estimate of Brascan’s underlying value, we have outlined our method of calculation in the Supplemental Information Package, provided on our web site, and encourage you to perform your own analysis.

Increased Return on Equity. We increased our cash- on-cash return on equity to 18% compared with 16% last year. While we have not yet attained our long-term goal of 20%, we are steadily moving in the right direction. In addition, we lowered our overall cost of capital to 9.5%, despite lengthening the maturity of many of our financings.

Completion of Significant Restructuring Initiative. We sold our 42% interest in Northgate Exploration, which marked the successful completion of the operational and financial restructuring of the Kemess Mine, commenced five years ago, achieving an annual compound return of more than 20%.

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Dividend Growth. We recognize that some share- holders rely on dividends and others are measured by short-term share performance and therefore cannot look at the business as we do, which is on a long-term basis. As a result, we manage our business to enable you to receive in cash some of the increase in value which builds in the company each year. In this regard, we increased the dividend payout by 4% during 2003, and recently announced a further increase of 4% for 2004, consistent with our policy to utilize a portion of free operating cash flow to increase dividend payments over time.

Solid Share Performance. With respect to share performance, Brascan’s share price increased from $20.50 to $30.54 in 2003. While it is impossible to generate this type of share appreciation on a consistent basis in the future, we believe that our growth strategies will deliver strong results in relation to the risk that we take, and that our share price will reflect this performance over time.

THE CHALLENGES

As usual, we faced a number of challenges in our operations. Hopefully they serve to sharpen our planning and decision-making for these kinds of situations in the future.

Low water inflows. Precipitation in northeast North America, which affects our hydroelectric power generation operations, was significantly below long- term historical averages in the first half of 2003. As a result, our power generation operations did not meet expectations. The good news is that water inflows and reservoir levels have greatly improved, resulting in long-term average production by the end of the third quarter of 2003 and it looks like the first quarter of 2004 will be one of our best on record.

Slow improvement in metal prices. Despite increases in metal prices from their historical lows, the average realized prices in 2003 were well below long-term trends. In the past three months, as a result of growth in demand principally from China, as well as the over- all world economic recovery, metal prices have increased dramatically. This should have a very positive impact on our investment in Noranda in 2004.

Limited opportunities to acquire sizable power generation portfolios. While we doubled our generating capacity in the past 24 months, we had limited success during 2003 in executing our plan to acquire a major portfolio of power generating assets. We still hope to be able to achieve this objective; however, the

U.S. high yield markets improved substantially more and sooner than we predicted, temporarily restoring liquidity to many companies that were previously financially strained and contemplating asset sales.

INCREASING RETURN ON CAPITAL

Over the past several years, we have continued to narrow the areas where we operate, while at the same time, broadening our activities within each of these areas. It is a refinement of our strategy that we believe increases our ability to prudently deploy capital at less risk and should lead to higher returns.

During 2003, we made significant progress in strengthening this business model. We leveraged the strong market positions we enjoy in many of our operations to launch four new managed investment funds with capital dedicated by institutional investors and from our own resources. These include our Real Estate Finance Fund, Bridge Lending Fund, Restructuring Fund and Real Estate Opportunity Fund. We are grateful to the institutions that have chosen to invest along side of us in these funds. We will work hard to deliver on our promises to them, and in the process increase the overall return on capital in our operations.

We are driving growth through expansion of our existing operations, leveraging our asset management approach and utilizing our operating expertise within the areas where we have established knowledge and competitive advantages. Long-term leases and contracts in our commercial real estate and power operations, which today average 10 years and 13 years respectively, not only provide stability to our operations, but also generate growth. This, combined with increasing management fees from our funds management operations, provides a solid base return, which we hope to increase by redeploying under-utilized capital, repurchasing equity and pursuing acquisitions when they can be made on a value basis.

With respect to under-utilized capital, we have over

$3 billion of assets that are not currently meeting our return targets. These include commercial, residential and power generation developments, which on completion will become cash generating assets. One such asset is our $1.9 billion investment in Noranda, which contributes an approximate 2.5% return on a cash flow basis. Future redeployment of this capital will increase our cash flow, significantly enhancing our return on capital.

We continue to repurchase shares of the company and have done so consistently for years when our shares have traded below net asset value. During 2003, we repurchased 4.6 million common shares at an average price of $22.24 per share and we will continue to allocate a portion of our annual free cash flow for this purpose.

Lastly, on pursuing acquisitions, we have significant liquidity at our disposal to pursue growth opportunities. These may include corporate acquisitions or portfolios of high quality assets. As this report goes to print, we are pursuing a major investment in U.K.-based Canary Wharf Group, plc, a property development company focused exclusively on premier office space in the Central London office market. We acquired 9% of the company’s shares early in 2003 and in February 2004, together with a number of institutional partners, launched a £1.6 billion bid to acquire the company.

STRENGTHENING CORPORATE GOVERNANCE

Last year we reported to you a number of initiatives we undertook to ensure we remain at the forefront of corporate governance. This year, we made additional changes to our policies and practices to further strengthen our accountability to our shareholders.

The Board of Directors introduced more stringent independence requirements for the audit and human resource committees and increased the number of independent directors on our Board. In addition, the Board instituted a formal procedure for evaluating Board and committee performance and is recommending to you that the Board be reduced by two, to 16 directors. Last year, we introduced minimum shareholdings and hold periods for option gains to further strengthen management accountability. This year, the Board introduced a requirement that each member of the Board own a minimum amount of equity in the company. Finally, we have discontinued advancing loans to officers and have made progress in reducing those which are currently outstanding.

The Board of Directors is committed to continuously review our policies and practices and benchmark them against evolving legislation and those of acknowledged leaders in this area.

A WORD ABOUT NORANDA

In talking to investors about our strategic focus on cash flow generating businesses, questions about our continued ownership of Noranda often arise. As many of you have pointed out, it has been a long standing investment, but one that no longer fits within the parameters of our stated business model.

During 2003, Noranda’s management team completed a major operational restructuring and executed a financial recapitalization of the company. We believe that the impact of these initiatives, in conjunction with the improved outlook for base metal prices, will allow all Noranda shareholders to benefit from continued capital appreciation over the next 24 months. As the base metals cycle continues to play out, we expect to be in a better position to consider our options and the long-term strategic fit of this investment.

OUTLOOK

We are hopeful that the business and economic environment in the year ahead will continue to strengthen and provide positive momentum for all of our operations. Having said that, we are aware of the challenges before us in continuing to achieve our performance objectives, especially as we increase the size of our asset base and scope of operations. As a result, while we cannot promise we will always meet all of our targets, you can be assured of our commitment to grow our business in a measured way, with a disciplined focus on return on capital.

IN APPRECIATION

With the proposed reduction of the Board by two members, Dr. Roberto P. Cezar de Andrade and Lord Black of Crossharbour are not standing for re-election to the Board of Directors this year. We thank them for their many years of valued advice and wise counsel.

THANK YOU

On behalf of our Board and all of our people, we thank you for your support.