2004Q4

OVERVIEW

During 2004, virtually all of our operations achieved their financial and operating targets. Cash flow from operations totaled $670 million or $2.34 per share. On a comparable basis, cash flow from operations increased to $577 million or $1.98 per share, an increase of 14% over 2003. Net income increased to $688 million, and we continued to execute our strategic plan of building our property, power and other infrastructure operations.

In the stock market, the growth in our share price exceeded the growth in cash flows. While we are pleased to see that take place, shareholders should not expect stock market growth over the long term greater than the growth in our operations.

We do, however, believe our efforts will enable us to increase the value of your investment at a solid risk-adjusted rate. In this regard, we would be pleased if we could come close to maintaining the level of overall performance achieved over the past 20 years.

We have been working in recent years to reposition the company out of cyclical resource assets and into lower volatility property, power and long-life infrastructure assets. During the year, we took a number of major steps towards realizing exceptional value from our remaining resource assets.

We were successful in monetizing half of our stake in Norbord; however we have not yet finalized a transaction for our investment in Noranda. We are nonetheless extremely pleased with the operating performance of Noranda and the underlying fundamentals of the metals business, which continue to look positive for 2005 and beyond.

With respect to re-investment, we acquired approximately $4 billion of property and power assets in 2004. In conjunction with approximately $10 billion of similar assets acquired over the last number of years, we have substantially repositioned our investment profile into lower volatility assets which generate attractive cash returns but also have the potential to appreciate substantially in value over time.

We will continue to deploy our financial resources into high quality long-life assets, but will ensure we are focused on the real cash returns on capital employed in making each investment decision.

Our strategy is based on acquiring high quality assets which, based on their cash flow streams, will generate a solid and growing return for a very long period of time. Should we be fortunate, we will also sometimes acquire these assets at a significant discount to their intrinsic value, and as a result, capture this extra value over time to enhance our targeted returns.

We do realize that the success we achieve in deploying our substantial annual cash flows and existing financial liquidity will be a meaningful determinant of the future valuation of the company. And while our re-investment strategy is not without risks, we assure you we will remain vigilant and exercise discipline in deploying your capital.

GOALS AND STRATEGY

We thought it important to once again review our Principles of Investment, located on page 2, as well as our key objectives and the roadmap for achieving our goals. This way, you have a consistent framework to measure our performance.

Our long-term goal is to generate 12% to 15% growth in cash flows from operations. To achieve this objective we are focused on four key operating strategies:

• Own, manage and build high quality long-life cash generating assets that require minimal sustaining capital and have the potential to appreciate in value. Today we are primarily focussed on property, power and other long-life infrastructure assets with similar investment characteristics.

• 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 generally require high initial capital investment, 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 much higher percentage 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, diversifies risk and broadens the universe of transactions that we can undertake.

• Base our investment decisions on disciplined return-on-capital metrics, measured by their impact to the company on a per share basis.

ASSET MANAGEMENT

As we expand our operations into co-ownerships with institutional investors, we believe we will be able to increase our flexibility and enhance the return on our capital employed.

This strategy allows us to both take on larger transactions, without exposing our balance sheet to undue risk, and to enhance our returns through performance fees received for the operating expertise we bring to our partners. As a result, without adding incremental risk, we can earn a superior return on the capital than would otherwise be available.

To date, we have increased our assets under management for institutional investors to over $7 billion. We believe institutional clients will increase their fund allocations to the types of assets we specialize in and, as a result, we expect to be successful in expanding our assets under management over the next three to five years. Contribution to the bottom-line returns from this source has started, but as growth in this area continues, the contribution should become more meaningful.

SUMMARY OF 2004

Overall our financial performance in 2004 was the best in our history. Cash flows, our true test of value creation for shareholders, increased to $670 million, and net income to $688 million. Our cash return on equity was 19%. We returned greater cash flows to shareholders through

a dividend increase in 2004, and more recently we raised our quarterly dividend by a further 7% to $0.15 per share, commencing May 31, 2005. Consistent with this policy, we will continue to utilize a portion of our free operating cash flow to increase dividend payments to you in the future.

In an improving office property market, our premier quality properties performed extremely well. We leased approximately 4 million square feet of space in 2004 and occupancy at year end was 97% in our core markets. We expanded our property presence in the Washington, D.C. office property market with the acquisition of three Class A buildings encompassing 1.5 million square feet.

In addition, we increased our interest in the Canary Wharf Estate, located in London, U.K., and while we did not succeed in a bid with our partners to acquire 100%, we successfully increased our net interest in the 17 properties owned by Canary Wharf to approximately 17%, and our group’s interest to 34%. Our own equity investment is approximately $500 million, which provides us with an effective leveraged interest in approximately 2.4 million square feet of some of the finest office properties and development sites in the U.K.

These acquisitions furthered our selective office property strategy, which remains focused on premier office space in our core markets of New York, Boston, Washington, San Francisco, London, Toronto and Calgary.

Within our power operations, we achieved substantially higher cash flows as a result of generation levels which returned to normal levels and far exceeded the production from the low water levels of 2003. We invested approximately $1 billion in additional hydroelectric power generating facilities, most of them in the Northeast U.S., including 72 power plants in New York State. The addition of these operations to our existing facilities increased our installed capacity to over 2,600 megawatts.

The low operating cost structure of these new hydroelectric generating assets and their location, close to our existing generating facilities and interconnections to neighboring power markets, solidified our competitive position. The additional assets will also add meaningfully to our cash flows from our power operations in 2005 and beyond.

In our Funds Management operations, we closed approximately $1 billion of loans in our Bridge Fund, $400 million

4 Brascan Corporation | 2004 ANNUAL REPORT

of mezzanine financings in our Real Estate Finance Fund, $100 million of property transactions in our Real Estate Opportunity Fund, and fully invested our $400 million Tricap Restructuring Fund I. We are currently expanding the size of our Bridge Fund and will shortly market our Tricap II Restructuring Fund, after exceptional returns in Tricap I.

To refinance maturing debt and finance newly acquired assets, we completed approximately $2.5 billion of financings, including a $500 million bridge financing on our recently acquired New York State power assets, close to $1 billion of non-recourse property, corporate preferred share and debt financings in our commercial property and power operations, and a $300 million securitization of mortgages on office and other properties.

An exclusivity arrangement was signed in September 2004 between Noranda, China Minmetals and Brascan on a proposal by China Minmetals to acquire 100% of the outstanding shares of Noranda. As a result of uncertainty relating to the timing of a transaction, buoyant metal prices and strengthened company and industry fundamentals, the exclusivity agreement was not extended. The Special Committee of Noranda and we are considering alternative transactions in addition to a China Minmetals transaction.

Two pure play investments were created by separating Nexfor into Norbord and Fraser Papers. Norbord is a unique, global panelboard company with a record of significant earnings and cash flow growth, as well as consistent top quartile performance in that industry. Fraser Papers is a North American specialty paper company which is being repositioned to benefit from the rebound in paper prices. The separation of these businesses increased shareholder flexibility. In this regard, we monetized $300 million of our investment in Norbord, and continue to own an effective 23% interest in the company, representing 34 million shares.

We start the year well positioned to grow our base line cash flows with improving office fundamentals, recent power acquisitions contributing to full year results, and greater invested and managed capital in our Funds Management operations.

FUTURE

We remain committed to investing your capital to earn a high cash return on equity, while always emphasizing downside protection to minimize loss of capital. Some of

the transactions we undertake may not appear on the surface to readily achieve the desired returns, nor are they generally the popular strategy of the investing public at a particular point in time. However, we believe that investing capital on a value basis, backed by sound fundamental analysis, will ensure that we achieve higher risk adjusted returns over the long term.

As our growth strategy is based on the successful reinvestment of our substantial annual cash flows, we are often asked how we allocate capital. In this regard, we recently came across a report written by Burgundy Asset Management*, which, in general, captures our views on the reinvestment of capital in a business. Having never before articulated it as well, we have reprinted their views with a few comments on how they relate to us.

• “If you own a great business and you can profitably invest in it, that is the best use of the cash it generates. Such investment can take the form of either spending on marketing, or production efficiencies, or new facilities, or it can take the form of buying back the company’s stock. Investing in operations you know best, and in a stock whose intrinsic value you under-stand, should be the first priority of any management of a great business. It may appear to be a lower return, but it is almost invariably lower risk as well.” – For Brascan, this entails continuing to invest in property, power and other long-life infrastructure assets, while also repurchasing our shares.

• “If there are almost identical businesses that can be tucked under existing operations and skill sets, then acquiring these businesses is the next best use of cash, assuming those businesses are available at a sensible price.” – For Brascan, this may include other similar types of real estate such as multi-family apartments, or other forms of power generation assets, such as wind facilities. It could also include building or acquiring electrical transmission lines.

• “If the company has advanced skills in managing acquisitions or organic growth in the same industry in foreign countries, that is a perfectly viable use for the shareholders’ money.” – In the past couple of years we have focused on expanding into premier office properties in London, which is a market very

Brascan Corporation | 2004 ANNUAL REPORT 5

similar to New York; and into power assets in Brazil, where we have an historical competitive advantage.

• “If the company wishes to build these acquisition or operations skills, management should start slow and perhaps in minority positions, never risking very large amounts of shareholder capital.” – We agree with starting small, although generally do not like to take minority positions, but rather focus on joint-venturing with high quality local partners.

• “Investing in unrelated businesses is almost invariably an error”. – We agree with this.

In addition to adhering to the above principles when we invest capital, we will continue to work with institutional co-investment partners in order to reduce risk on larger transactions and enhance our return on capital. As the free cash flow grows within the company, adherence to these principles will become increasingly important.

As our business model is based on owning high quality, long-life assets which produce real cash, each day, we can, within reason, estimate our cash generation. Overall, and barring unforeseen circumstances in the economy (which

we obviously cannot control), or a significant mistake (which we will try to avoid at all costs), we are comfortable that we can achieve our growth targets. Naturally, we hope to be able to do a little better than our stated objectives, and hopefully we can surprise you, and ourselves, on the upside.

THANK YOU

While I personally sign this letter, I do so on behalf of all of our people, who make the company work for you. From all of us, thank you for your support.

Please feel free to contact any of us, should you have advice, questions or ideas.