##### 



Exhibit 99.3 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/ Donald Tremblay  Senior Vice-President and Chief Financial Officer
 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, 2003 and 2002
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, 2003 and 2002 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




---



##### 



CONSOLIDATED BALANCE SHEET December 31 millions
    
    note
    
    2003
    
    2002AssetsCash and cash equivalents
    
    
    
    
    
    $
    31
    
    
    $
    10Accounts receivable and other
    
    
    3
    
    
    
    422
    
    
    
    186Securities
    
    
    4
    
    
    
    544
    
    
    
    590Long-term investments
    
    
    5
    
    
    
    444
    
    
    
    559Power generating assets
    
    
    6
    
    
    
    2,139
    
    
    
    2,155$
    3,580
    
    
    $
    3,500LiabilitiesAccounts payable and other
    
    
    
    
    
    $
    114
    
    
    $
    158Property specific borrowings
    
    
    8
    
    
    
    1,116
    
    
    
    905Corporate term debentures
    
    
    9
    
    
    
    487
    
    
    
    593Future income tax liability
    
    
    10
    
    
    
    152
    
    
    
    120Non-controlling interests
    
    
    11
    
    
    
    329
    
    
    
    350Shareholders equity
    
    
    12
    
    
    
    1,382
    
    
    
    1,374$
    3,580
    
    
    $
    3,500
 Approved by the Board:/s/ Sidney A. Lindsay
    
    /s/ Edward C. KressSidney A. LindsayDirector
    
    Edward C. KressDirector




---



##### 



CONSOLIDATED STATEMENT OF INCOME Years ended December 31 millions, except per share amounts
    
    note
    
    2003
    
    2002Total revenues
    
    
    
    
    
    $
    448
    
    
    $
    340Net operating incomePower generation
    
    
    
    
    
    
    215
    
    
    
    222Transmission and distribution
    
    
    
    
    
    
    26
    
    
    
    25241
    
    
    
    247Investment and other
    
    
    
    
    
    
    80
    
    
    
    92321
    
    
    
    339ExpensesInterest expense
    
    
    
    
    
    
    93
    
    
    
    90Depreciation
    
    
    
    
    
    
    55
    
    
    
    40Non-controlling interests
    
    
    11
    
    
    
    22
    
    
    
    18Administrative costs
    
    
    
    
    
    
    23
    
    
    
    15Non-cash taxes and other
    
    
    
    
    
    
    31
    
    
    
    9224
    
    
    
    172Net income
    
    
    
    
    
    $
    97
    
    
    $
    167Diluted net income per common share
    
    
    13
    
    
    $
    0.77
    
    
    $
    1.32
 CONSOLIDATED STATEMENT OF RETAINED EARNINGS Years ended December 31 millions
    
    note
    
    2003
    
    2002Retained earningsBalance, beginning of year
    
    
    
    
    
    $
    523
    
    
    $
    448Net income
    
    
    
    
    
    
    97
    
    
    
    167Distributions to holders of common shares
and equivalents
    
    
    12
    
    
    
    (80
    )
    
    
    (80
    )Adjustment for change in accounting policy
    
    
    1
    
    
    
    
    
    
    
    (8
    )Share of Fund unit issue costs
    
    
    
    
    
    
    
    
    
    
    (4
    )Balance, end of year
    
    
    
    
    
    $
    540
    
    
    $
    523




---



##### 



CONSOLIDATED STATEMENT OF CASH FLOWS Years ended December 31 millions
    
    2003
    
    2002Cash flow from operating activitiesNet income
    
    $
    97
    
    
    $
    167Add non-cash itemsDepreciation
    
    
    55
    
    
    
    40Tax and other
    
    
    34
    
    
    
    3$
    186
    
    
    $
    210Net change in non-cash working capital
    
    
    (60
    )
    
    
    27126
    
    
    
    237Financing activities and shareholder distributionsBorrowings
    
    
    846
    
    
    
    405Debt repayments
    
    
    (635
    )
    
    
    (54
    )Issuance of fund units
    
    
    
    
    
    
    103Distributions: Great Lakes Hydro Income Fund unitholders
    
    
    (29
    )
    
    
    (27
    ) Common shares and equivalents
    
    
    (80
    )
    
    
    (80
    )102
    
    
    
    347Investing activitiesSecurities purchases
    
    
    (108
    )
    
    
    (10
    )Securities sales
    
    
    154
    
    
    
    125Long-term investments
    
    
    115
    
    
    
    (36
    )Loans and other receivables
    
    
    (205
    )
    
    
    171Power generating assets
    
    
    (163
    )
    
    
    (834
    )(207
    )
    
    
    (584
    )Cash and cash equivalentsIncrease
    
    
    21
    
    
    
    Balance, beginning of year
    
    
    10
    
    
    
    10Balance, end of year
    
    $
    31
    
    
    $
    10Supplementary informationInterest paid
    
    $
    95
    
    
    $
    85Taxes paid
    
    $
    16
    
    
    $
    16




---



##### 



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 in Canada, the
United States and Brazil and a
transmission and distribution system
in northern Ontario. 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 and Pingston Power. 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,
gas and steam is recorded based upon
output delivered at rates as specified
under contract terms or prevailing
market rates.
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. Power purchases are recorded upon
delivery, are recorded as a reduction
of total revenue and are included as a
component of net operating income. 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 adjusts
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 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. Actuarial gains
and losses are deferred and amortized
over the expected average remaining
service life of the employees covered
under the plan. 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 and interest rate risk associated
with the Companys production,
operating and risk management
activities. Hedge accounting is
applied when the derivative is
designated as a hedge of a specific
exposure and there is reasonable
assurance that it will continue to be
effective as a hedge based on an
expectation of offsetting cash flows.
The periodic exchanges of payments on
interest rate swaps designated as
hedges of debt are recorded on an
accrual basis as an adjustment to
interest expense. The periodic
exchanges of payments on power
generation commodity swaps designated
as hedges are recorded on a settlement
basis as an adjustment to power
generation income. Hedge accounting is
discontinued prospectively when the
derivative no longer qualifies as a
hedge or the hedging relationship is
terminated. The fair value of the
derivative that was deferred by the
application of hedge accounting is
recognized in income over the term of
the original hedging relationship.
Derivative financial instruments that
are not designated as hedges are
carried at estimated fair values and
gains and losses arising from changes
in fair values are recognize in income
in the period the changes occur. The
use of non-hedging derivative
contracts is governed by documented
risk management policies and approved
limits. Derivative financial
instruments of a financing nature are
recorded at fair value determined on a
credit adjusted 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, 2003 the Company
adopted the requirements of the CICA
Accounting Guideline 14,
Disclosure of Guarantees (AcG 14),
which requires additional disclosure
about a guarantors obligations
under certain guarantees in the
financial statements. AcG 14 defines a
guarantee as a contract that
contingently requires the guarantor to
make payments to a guaranteed party
based on (a) changes in the underlying
economic characteristic that is
related to an asset, liability or an
equity security of the guaranteed
party; (b) failure of another party to
perform under an obligating agreement;
or (c) failure of a third party to pay
its indebtedness when due. Future Accounting Policy Changes The following future accounting policy
changes may have an impact on the
Company, although the impact, if any,
has not been determined at this time.
In July 2003, the CICA issued handbook
section 1100, Generally Accepted
Accounting Principles. The section
establishes standards for financial
reporting in accordance with GAAP, and
provides guidance on sources to
consult when selecting accounting
policies and determining appropriate
disclosures when a matter is not dealt
with explicitly in the primary sources
of GAAP. The Company will implement
the new section prospectively
beginning on January 1, 2004. Due to
prospective nature of this change,
there is no impact on the Companys
consolidated financial statements as
of the implementation date. In June
2003, the CICA issued Accounting
Guideline 15, Consolidation of
Variable Interest Entities (AcG 15).
AcG 15 provides guidance for applying
the principles in Section 1590,
Subsidiaries, to those entities
(defined as Variable Interest Entities
(VIEs)), in which either the equity at
risk is not sufficient to permit that
entity to finance its activities
without additional subordinated
financial support from other parties,
or equity investors lack any of voting
control, an obligation to absorb
expected losses, or the right to share
expected residual returns. AcG15
requires consolidation of VIES by the
Primary Beneficiary, which is defined
as the party which has exposure to the
majority of a VIES expected losses
and/or expected residual returns. The
Company is in the process of assessing
the impact of the amended standard on
the consolidated financial statements.




---



##### 



In November 2003, the Accounting
Standards Board (AcSB) approved a
revision to CICA Section 3860,
Financial Instruments: Disclosure and
Presentation, to require certain
obligations that must or could be
settled with a variable number of the
issuers own equity instruments to be
presented as a liability. Effective January 1, 2004, the Company will
adopt Accounting Guideline 13,
Hedging Relationships (AcG13), the
new accounting guideline issued by the
CICA which increases the
documentation, designation and
effectiveness criteria to achieve
hedge accounting. The guideline
requires the discontinuance of hedge
accounting for hedging relationships
previously established that do not
meet the criteria at the date it
is first applied. AcG 13 does not
change the method of accounting for
derivatives in hedging relationships,
but EIC 128, Accounting for Trading,
Speculative or Non-Hedging Derivative
Financial Instruments, effective when
AcG 13 is adopted, requires fair
value accounting for derivatives that do not qualify
for hedge accounting. In March 2003,
the CICA issued Section 3110, Asset
Retirement Obligations, effective for
financial statements issued for fiscal
years beginning on or after January 1,
2004. Section 3110 addresses the
recognition and re-measurement of
obligations associated with the
retirement of a tangible long-lived
asset. This standard provides that
obligations associated with the
retirement of tangible long-lived
assets be recorded as liabilities when
those obligations are incurred, with
the amount of the liability initially
measured at fair value. These
obligations are capitalized to the
book value of the related long-lived
assets and are depreciated over the
useful life of the related asset.
Section 3110 is not expected to have a
material impact on the consolidated
financial statements of the Company. Comparative Figures Certain of the prior years figures
have been reclassified to conform with
the 2003 presentation. 2. ACQUISITIONS The Company acquired interests in one
power generating asset in 2003 and
four power generating assets in 2002.
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. In November 2003, the Company
completed the acquisition of leasehold
interests in three hydroelectric
generating stations in New England for
cash consideration of US$ 28 million.
This acquisition includes two
generating stations on the
Androscoggin River in New Hampshire
and one on the Moose River in Maine,
having a combined generating capacity
of 16.5 MW.
 The fair value assigned to
the assets acquired was as follows: US millions
    
    2003Power generating assets
    
    $
    30Working Capital
    
    
    (2
    )Net assets acquired
    
    $
    28Consideration paid $US
    
    $
    28Consideration paid $CAN
    
    $
    37
 In February 2002, the Company
completed the acquisition of the
hydroelectric generating system and
related transmission facilities in
northern Maine, USA for cash
consideration of US$152 million and a
promissory note of US$5 million
payable to the seller. 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: US millions
    
    2002Power generating assets
    
    $
    158Working capital
    
    
    (1
    )Net assets acquired
    
    $
    157Consideration paid $US
    
    $
    157Consideration paid $CAN
    
    $
    250




---



##### 



In May 2002, the Company completed the
acquisition of a hydroelectric
generating system located in New
Hampshire for cash consideration of
US$33 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. In May
2002, the Company completed the
acquisition of a hydroelectric
generating system located in northern
Ontario 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: millions
    
    2002Power generating assets
    
    $
    345Working capital
    
    
    1Net assets acquired
    
    $
    346Consideration paid
    
    $
    346
 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: millions
    
    2002Assets acquiredCurrent assets
    
    $
    6Power generating assets
    
    
    61Liabilities assumedLong term debt
    
    
    (37
    )Net assets acquired
    
    $
    30Consideration paid
    
    $
    30
 3. ACCOUNTS RECEIVABLE AND OTHER The composition of accounts receivable
and other is as follows: millions
    
    2003
    
    2002Demand deposits with affiliates
    
    $
    161
    
    
    $
    (14
    )Coal royalty receivables
    
    
    70
    
    
    
    70Trade receivables
    
    
    132
    
    
    
    85Prepaid interest and other
    
    
    59
    
    
    
    45$
    422
    
    
    $
    186
 The fair values of the Companys
accounts receivable and other
approximate their carrying values at
December 31, 2003 and 2002 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, 2003 was
$552 million (2002  $583 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. The securities
consist of 46% floating rate
securities and 54% fixed rate
securities with an average yield at
December 31, 2003 of 4.5%. Financial and investment transactions
with affiliated companies are at
conditions similar to non-arms length
transactions. Affiliated companies
include Brascan and its subsidiaries
and equity accounted investees. At
December 31, 2003, the carrying value
of securities with affiliated
companies amounted to $536 million
(2002  $536 million). In 2003, income
from securities and loans with
affiliated companies amounted to $36
million (2002  $39 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,
2003 and 2002 are shown below: millions
    
    2003
    
    2002Brascan Financial Corporation
    
    $
    195
    
    
    $
    195Noranda Inc.
    
    
    146
    
    
    
    146Other investments
    
    
    103
    
    
    
    218$
    444
    
    
    $
    559
 During 2003, the Company sold $134
million of investments and acquired
$19 million of investments
from Brascan Corporation for proceeds
equal to carried value. 6. POWER GENERATING ASSETS The composition of the Companys power
generating assets at December 31, 2003
and 2002, by geographic area and asset
type, is shown below: millions
    
    2003
    
    2002By geographic area:Ontario
    
    $
    920
    
    
    $
    937Quebec
    
    
    426
    
    
    
    429Northeast United States
    
    
    296
    
    
    
    304Other Operations
    
    
    497
    
    
    
    485$
    2,139
    
    
    $
    2,155By asset type:Generation
    
    $
    1,964
    
    
    $
    1,846Transmission
    
    
    167
    
    
    
    157Distribution
    
    
    77
    
    
    
    69Other
    
    
    23
    
    
    
    822,231
    
    
    
    2,154Accumulated depreciation
and amortization
    
    
    (388
    )
    
    
    (331
    )1,843
    
    
    
    1,823Investment in Louisiana HydroElectric
    
    
    296
    
    
    
    332$
    2,139
    
    
    $
    2,155
 Depreciation is based on the service
lives of the assets which are
generally 60 years for hydroelectric
generation, 20 years for cogeneration
and 40 years for transmission,
distribution and other.




---



##### 



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 Companys
share of equity accounted earnings was
$18 million in 2003. The financial accounts of Louisiana
HydroElectric Power for 2003 and 2002
are as follows: millions
    
    2003
    
    2002Assets
    
    $
    1,357
    
    
    $
    1,604Property specific borrowings
    
    
    1,056
    
    
    
    1,273Other liabilities
    
    
    129
    
    
    
    155Operating revenues
    
    
    193
    
    
    
    209Operating expenses
    
    
    50
    
    
    
    55Net income
    
    
    26
    
    
    
    24
 In the course of its operations, the
Company has entered into agreements
for the use of water, land and/or
dams. Payment under those agreements
depends on the amount of power
generated. The various renewable
agreements extend through the year
2008 for Great Lakes Power, 2044 for
Valerie Falls Power, 2019 and 2020 for
Pontiac Power, 2019 for Lièvre River
Power, 2046 to 2066 for Mississagi
Power, 2012 for Brassua Power, 2023
for Errol Power, 2032 for Pontook
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 and Pingston Power (2002-
Powell River Energy only) millions
    
    2003
    
    2002Assets
    
    $
    93
    
    
    $
    59Liabilities
    
    
    54
    
    
    
    56Operating revenues
    
    
    5
    
    
    
    9Operating expenses
    
    
    1
    
    
    
    8Net income
    
    
    3
    
    
    
    1Cash flows from operating activities
    
    
    4
    
    
    
    2Cash flows from investing activities
    
    
    (1
    )
    
    
    (1
    )Cash flows from financing activities
    
    
    
    
    
    
    (1
    )
 8. PROPERTY SPECIFIC BORROWINGS millions
    
    2003
    
    2002Great Lakes Power LimitedFirst Mortgage BondsSeries 1
    
    $
    384
    
    
    
    Subordinated
    
    
    115
    
    
    
    Series 4 (US $105)
    
    
    
    
    
    $
    166Series 5
    
    
    
    
    
    
    150499
    
    
    
    316Great Lakes Power TrustSecured credit facility
    
    
    21
    
    
    
    8First Mortgage BondsSeries 1
    
    
    50
    
    
    
    50Series 2
    
    
    25
    
    
    
    25Series 3
    
    
    25
    
    
    
    25121
    
    
    
    108Other Power OperationsProperty specific borrowingsPontiac Power
    
    
    61
    
    
    
    62Valerie Falls Power
    
    
    32
    
    
    
    32Powell River Energy
    
    
    38
    
    
    
    38Lake Superior Power
    
    
    13
    
    
    
    19Mississagi Power
    
    
    175
    
    
    
    151Great Lakes Hydro America (US $136)
    
    
    177
    
    
    
    179$
    496
    
    
    $
    481$
    1,116
    
    
    $
    905




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##### 



The fair value of the Companys
property specific borrowings is $1,111
(2002-$1,167) based on current market
prices for debt with similar terms and
risks. The $384 million First Mortgage Bonds
Series 1 and the $115 subordinated
First Mortgage Bonds bear interest at
the rate of 6.60% and 7.80%
respectively, are due on June 16, 2023
and are secured by a charge on all
present and future real property of
the electricity power generating
assets of Great Lakes Power. These
bonds replaced the $316 million First
Mortgage Bonds
Series 4 and 5 bearing interest at respective rates
of 6.57% and 4.58%, which matured June 16, 2003. The Great
Lakes Power Trust 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, including the Lièvre
River Power system. Great Lakes Power Trust is a wholly owned subsidiary of the
Great Lakes Hydro Income Fund. The $61 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 $32 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 6.4%, is due July 24, 2009 and is secured by a charge on the respective Powell River Energy Inc operating assets. Great Lakes Power Trust owns 50% of Powell River Energy Inc. The $13 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 $175 million Mississagi Power First Mortgage Bonds
bear interest at 6.92% and mature on November 27, 2020. The Bonds are secured by a charge on all present and future real and personal property of Mississagi Power Trust, a subsidiary of Great Lakes Power Trust. The US$136 million Great
Lakes Hydro America (GLHA) mortgage loan bears interest at US prime plus 150 basis points and matures on January 29, 2005. The loan is secured by a charge on all present and future real and personal property of GLHA and its subsidiaries. GLHA is a wholly owned subsidiary of Great Lakes Power Trust. 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: millions
    
    Annual Repayments2004
    
    $
    82005
    
    
    2342006
    
    
    42007
    
    
    22008
    
    
    2Thereafter
    
    
    866$
    1,116
 9. TERM DEBENTURES millions
    
    2003
    
    2002Corporate debenturesSeries 1 (US$175)
    
    $
    227
    
    
    $
    277Series 3 (US$200)
    
    
    260
    
    
    
    316$
    487
    
    
    $
    593
 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. The fair value of the
Companys term debentures is $487
million (2002  $593 million) based on
current market prices for debt with
similar terms and risks.




---



##### 



10. FUTURE INCOME TAX LIABILITY The Companys future income tax
liability of $152 million (2002  $120
million) is comprised principally of
temporary differences relating to
property, plant and equipment. This
amount is net of a future tax asset of
$8 million (2002  $12 million)
relating to unused non-capital losses.
The difference between taxes
calculated at the statutory rate and
those recorded and reconciled is as
follows: millions
    
    2003
    
    2002Net income
    
    $
    97
    
    
    $
    167Combined income tax rates
    
    
    36
    %
    
    
    38
    %Statutory income tax rates applied
to accounting income
    
    
    35
    
    
    
    63Non-deductible expenses
    
    
    12
    
    
    
    2Non-taxable dividends
    
    
    (29
    )
    
    
    (45
    )Recognition of the benefit of tax losses
    
    
    
    
    
    
    (16
    )Change in tax rates
    
    
    13
    
    
    
    Provision for income taxes
    
    $
    31
    
    
    $
    4
 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: millions
    
    2003
    
    2002Preferred shares issued by
consolidated subsidiaries
    
    $
    90
    
    
    $
    90Limited partnership interests of
consolidated subsidiaries
    
    
    
    
    
    
    4Trust units issued by
consolidated subsidiaries
    
    
    239
    
    
    
    256$
    329
    
    
    $
    350
 12. SHAREHOLDERS EQUITY The Company is authorized to issue an
unlimited amount of common shares, of
which the following were issued and
outstanding: millions
    
    2003
    
    2002101,383,135
(2002  101,383,135)Common shares
    
    $
    603
    
    
    $
    603Retained earnings
    
    
    540
    
    
    
    523Cumulative translation adjustment
    
    
    (9
    )
    
    
    1,134
    
    
    
    1,126Subordinated convertible debentures
    
    
    248
    
    
    
    248$
    1,382
    
    
    $
    1,374
 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: millions
    
    2003
    
    2002Common share dividends
    
    $
    65
    
    
    $
    65Convertible debt interest
    
    
    15
    
    
    
    15$
    80
    
    
    $
    80




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##### 



13. OTHER INFORMATION millions, except per share amounts
    

    

    2003
    
    
    

    2002Average diluted common
shares outstanding
    
    
    126.2
    
    
    
    126.2Basic earnings per share
    
    $
    0.81
    
    
    $
    1.50
 The Companys two largest customers
accounted for 21% and 9%, respectively,
of total revenues in 2003 (2002  8%
and 7%, respectively).
 During 2003, no
hydrological provisions (2002  nil)
were applied against power purchase
costs and no (2002  $3 million)
recovery of hydrological provisions was
included in revenue from power
operations. 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. 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, Lièvre
River Power has $15 million available
until 2014 and Mississagi Power has
$10 million available until 2019.
These facilities bear interest at
market rates. The Company has entered into a 24
month agreement which commenced in May
2003 with an affiliate to supply the
power requirement of one of its
facilities in the US and to share, to
a limited extent, in the profit and
loss on the arrangement. During 2003,
the Company sold power for $95 million
under this arrangement and no amounts
were due under the profit and loss
sharing component. 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. It is
the Companys policy to formally
assess, 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 energy 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. As at December 31, 2003, contracts
designated as hedges had a net
replacement cost determined based on
quoted market rates of $7 million
(2002-$33 million), consisting of
contracts with a positive
mark-to-market of $30 million (2002 
$38 million) and contracts with a
negative mark-to-market of $37
million (2002  $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 2003 was $772 million
(2002 - $466 million). These contracts
have maturities varying from one to
twenty years, and have a replacement
value in excess of that recorded in the
companys accounts of $6 million (2002
- $8 million) and replacement cost of
$16 million (2002-nil) in excess of
that recorded in the companys
accounts. 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.




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##### 



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, 2003, the assets of the plans
totalled $45 million (2002  $40
million), accrued benefit obligation
amounted to $60 million (2002  $43
million) and the net accrued benefit
liability was $1.8 million (2002  $3
million). The benefit plan expense for
2003 was $2.4 million (2002  $0.3 million). The investment rate of
return was 7% (2002 - 7%). The
discount rate used was 6% (2002-6.75%)
with a rate of compensation increase
of 3.5% (2002 - 3.8%). 17. GEOGRAPHIC SEGMENTED INFORMATION The Company operates in Canada, the
United States and Brazil. Power
revenues by country are as follows: millions
    
    2003
    
    2002Canada
    
    $
    293
    
    
    $
    288United States
    
    
    153
    
    
    
    52Brazil
    
    
    2
    
    
    
    $
    448
    
    
    $
    340
 Net income by country is as follows: millions
    
    2003
    
    2002Canada
    
    $
    160
    
    
    $
    181United States
    
    
    42
    
    
    
    35Other unallocated income (expenses)
    
    
    (105
    )
    
    
    (49
    )$
    97
    
    
    $
    167
 Power generating assets by country are as follows: millions
    
    2003
    
    2002Canada
    
    $
    1,511
    
    
    $
    1,481United States
    
    
    593
    
    
    
    636Brazil
    
    
    35
    
    
    
    38$
    2,139
    
    
    $
    2,155
 Depreciation expense from power generating assets
by country is as follows: millions
    
    2003
    
    2002Canada
    
    $
    48
    
    
    $
    34United States
    
    
    7
    
    
    
    6$
    55
    
    
    $
    40
 18. GUARANTEES In the normal course of operations,
the Company and its consolidated
subsidiaries execute agreements that
provide for indemnification and
guarantees to third parties in
transactions such as business
dispositions, business acquisitions,
sales of assets and sales of services.
The Company has also agreed to
indemnify its directors and certain of
its officers and employees. The nature
of substantially all of the
indemnification undertakings prevents
the Company from making a reasonable
estimate of the maximum potential
amount that the Company could be
required to pay third parties as the
agreements do not specify a maximum
amount and the amounts are dependent
upon the outcome of future contingent
events, the nature and likelihood of
which cannot be determined at this
time. Historically, neither the
Company nor its consolidated
subsidiaries have made significant
payments under such indemnification
agreements.