Exhibit 99.2

Management’s Discussion and Analysis of Financial Results

INTRODUCTION

This section of our annual report contains management’s discussion and analysis of our financial results (“MD&A”), which is intended to provide you with an overview of our business strategy and capabilities, our performance criteria and measures, a review of our performance and business operations as well as our financial position, and our future prospects.

The information in this section should be read in conjunction with our audited consolidated financial statements, which are included on pages 71 through 104 of this report. Additional information, including the company’s Annual Information Form, is available on the company’s web site at www.brookfield.com and on SEDAR’s web site at www.sedar.com. For additional information on each of the five most recently completed financial years, please refer to the table included on page 105 of this report.

Basis of Presentation

All financial data included in the MD&A have been prepared in accordance with Canadian generally accepted accounting principles (“GAAP”) and non-GAAP measures unless otherwise noted. There are two principal exceptions. First, the assets and liabilities are organized by business unit; and second, we measure our returns in terms of operating cash flow as opposed to net income. We present the information in this format because this is consistent with how we manage the business and believe this format is more informative for readers.

We provide reconciliations between the basis of presentation in this section and our consolidated financial statements throughout the MD&A. In particular, we specifically reconcile operating cash flow and net income on page 14. Note 24 to our Consolidated Financial Statements describes the impact of significant differences between Canadian GAAP and U.S. GAAP on our consolidated balance sheets and the statements of income, retained earnings and cash flow.

Unless the context indicates otherwise, references in this section of the annual report to the “Corporation” refer to Brookfield Asset Management Inc., and references to “Brookfield” or “the company” refer to the Corporation and its direct and indirect subsidiaries. All figures are presented in U.S. dollars, unless otherwise noted.

CONTENTS

Introduction	7
Business Strategy and Capabilities	8
Performance Factors and Key Measures	9
Overview of 2006 Performance	12
Operations Review	15
Capital Resources and Liquidity	40
Analysis of Consolidated Financial Statements	49
Business Environment and Risks	57
Outlook	64
Supplemental Information	66
Internal Control Over Financial Reporting	70

Brookfield Asset Management       |       2006 Annual Report           7

BUSINESS STRATEGY AND CAPABILITIES

Brookfield is a global asset management company, with a primary focus on property, power and infrastructure assets. Our objective is to earn attractive long-term returns for shareholders through the cash flows and value created from the direct and indirect ownership of high quality assets on our own behalf as well as by managing these assets for institutional and retail investors. As an asset manager, we raise, invest and manage capital on behalf of ourselves and our co-investors, and develop and maintain leading operating platforms that enable us to effectively manage these assets and enhance their values over time.

Business Strategy

We concentrate our investment efforts on the ownership of high quality long-life assets that generate sustainable cash flows, require minimal sustaining capital expenditures and tend to appreciate in value over time. Often these assets will benefit from some form of barrier to entry due to regulatory, physical or cost structure factors. Consistent with this focus, we own and operate large portfolios of core office properties, hydro-electric power generating stations, private timberlands and regulated transmission systems that, in our opinion, share these common characteristics. These assets represent important components of the infrastructure that supports the global economy.

Our goal is to establish Brookfield as a global asset manager of choice for investors, primarily those who wish to benefit from the ownership of infrastructure assets such as those described above. We have spent many years building high quality operating platforms that enable us to acquire, finance and optimize the value of infrastructure assets for our own benefit, and for our partners whose capital we manage.

Managing assets for others provides a number of benefits to Brookfield. We earn income from our co-investors for conducting these activities on their behalf. This provides an important source of cash flow that is in addition to the returns that we earn from our ownership of the assets. The capital provided to us by our co-investors enables us to pursue a broader range of opportunities and to undertake large transactions while at the same time containing risk. We believe that all of these factors will enhance shareholder returns over the longer term.

We have chosen to focus on property and infrastructure assets for several reasons. First and foremost, we have extensive background and well established platforms from which to operate these assets. In addition, the demand from institutional investors to own assets of this nature is increasing as they seek to earn increasing yields to meet their investment objectives. We believe that demand for these assets will continue to be strong because, in our view, they represent attractive alternatives to traditional fixed income investments, providing in many cases a “real return” that increases over time, relatively low volatility and strong capital protection. Finally, there is a substantial supply of investment opportunities in the form of existing assets as well as the need for continued development in an ever expanding global economy. At the same time there are relatively few organizations focussed on managing assets of this nature as a core strategy.

Our strategy for growth is centered around expanding our assets under management, which should lead to increased fee revenues and opportunities to earn performance returns. We plan to achieve this within our existing operating platforms, through geographic expansion beyond our current focus in North America, Europe and South America, and by developing and acquiring platforms to operate new asset classes that demonstrate characteristics that are similar to our existing assets. We also plan to achieve growth by expanding our distribution capabilities to access a broader range of investment partners, thereby increasing our access to capital. This increased capital, when coupled with new investment opportunities, should increase our assets under management and the associated income as well as direct investment returns, thereby increasing shareholder value.

Our Capabilities

We believe that we have the necessary capabilities to execute our business strategy and achieve our performance targets. We focus on disciplined and active hands-on management of assets and capital. We strive for excellence and quality in each of our core operating platforms in the belief that this approach will produce superior returns over the long term.

8            Brookfield Asset Management       |       2006 Annual Report

We have established a reputation as a value investor over many years and follow a disciplined investment approach. Our management team has considerable capabilities in investment analysis, mergers and acquisitions, divestitures and corporate finance that enable us to acquire assets for value, finance them effectively, and to ultimately realize value created during our ownership.

Our operating platforms and depth of experience in managing these assets differentiate us from some competitors that have more of a financial focus. Over time we have established a number of high quality operating platforms that are fully integrated into our organization. This has required considerable investment in building the management teams and the necessary resources; however, we believe these platforms enable us to optimize the cash returns and values of the assets that we manage.

We have established strong relationships with a number of leading institutions and are well positioned to expand our sources of co-investment capital and clients. In order to expand our assets under management, we are investing in our distribution capabilities to encourage existing and potential clients to commit capital to our investment strategies. We are devoting expanded resources to these activities, and our efforts continue to be assisted by strong investment performance.

Our commitment to invest considerable capital alongside our investors creates a strong alignment of interest between us and our investment partners and also differentiates us from many of our competitors. Accordingly, our strategy calls for us to maintain considerable surplus financial resources relative to other managers. This capital also supports our ability to commit to investment opportunities in anticipation of future syndications.

PERFORMANCE FACTORS AND KEY MEASURES

We believe that the best way to create long-term shareholder value is to generate increasing operating cash flows, measured on a per share basis, over a very long period of time. This is impacted by our ability to generate attractive returns on the capital invested on behalf of ourselves and our clients, and our ability to expand the magnitude of the capital that we manage on behalf of our clients. These two criteria are linked, in that the quality of our investment returns will encourage clients to commit capital to us, and our access to this capital will enable us to pursue a broader range of investment opportunities.

Investment returns are influenced by a number of factors that are specific to each asset and industry segment. There are however, four key activities that we focus on across the organization.

• Acquire assets “for value”, meaning that the projected cash flows and value appreciation of the asset represent an attractive risk-adjusted return to ourselves and our co-investors.

• Optimize the cash returns and value of the asset on an ongoing basis. In most cases, this is the responsibility of one of our operating platforms, and is evidenced by the return on asset metrics and operating margins.

• Finance assets effectively, using a prudent amount of leverage. We believe this is very important in maximizing the net returns to investors from property and infrastructure assets, given the lower return on assets compared to a number of other businesses. Fortunately, these assets are well suited to support a relatively high level of investment grade secured debt given the predictability of the cash flows and tendency of these assets to retain substantial value throughout economic cycles. This is reflected in our return on net capital deployed, our overall return on capital and our cost of capital.

• Have the ability to realize the maximum value of assets through a direct or indirect sale or monetization of the assets. Many of our assets tend to appreciate in value over time and accordingly they may be held for very long periods of time. As a result, this “back-end” appreciation may not be recognized until there is a specific transaction.

Our ability to expand our assets and capital under management is influenced heavily by our investment and operating performance, which are important considerations for clients who wish to entrust us with their capital. In addition to this, it is important that we continue to expand our distribution capabilities so that we can establish a broad range of clients who understand our product offering.

Brookfield Asset Management      |      2006 Annual Report            9

Financial Targets

The long-term rate of growth of operating cash flow on a per share basis is our key performance measure. This reflects our ability to generate increasing returns from our invested capital and to increase the contribution from our asset management activities. We also measure the cash return on equity, which demonstrates how effective we are at deploying the capital with which we have been entrusted by shareholders. Our current targets are 12% and 20%, respectively. We revisit these targets periodically in light of the current operating environment to ensure that they are realistic and can be achieved without exposing the organization to inappropriate risk.

In considering our results, it is important to keep in mind that our operating results include both current cash flows and realization gains. The current return typically includes net operating income from physical assets, and investment income from securities. The realization gains represent amounts recorded for accounting purposes that represent the appreciation in value that we expect to achieve in many of our long-life assets and which is included in assessing the expected return on our initial investment. This portion of the return may not be recognized for many years, if ever, and a realization event usually takes the form of gains on a direct or indirect disposition of the assets, including the transfer of assets to funds. This appreciation in value represents an important component of our long-term investment returns, but is only recognized in our results at irregular points in time.

Our primary financial targets and results are set out in the following table:

				Five-Year			Annual Results
YEARS ENDED DECEMBER 31	Objective			Results			2006			2005			2004			2003			2002
Operating cash flow and gains per share							$	4.43		$	2.19		$	1.55		$	1.43		$	1.05
Annual growth		12	%		37	%		102	%		41	%		8	%		35	%		15	%
Cash return on equity per share		20	%		22	%		34	%		21	%		19	%		18	%		16	%

Operating Cash Flow

We achieved 102% growth during 2006, and 37% annualized growth over the last five years. These results exceed our long-term expectations due in large measure to the realization gains recorded during the year. Accordingly, shareholders should not expect us to generate this rate of growth on an ongoing basis. We will discuss our results in the next section.

We define operating cash flow as net income prior to items such as depreciation and amortization, future income tax expense and certain non-cash items that in our view are not reflective of the actual underlying operations.

Depreciation as prescribed by GAAP, for example, implies these assets decline in value on a pre-determined basis over time, whereas we believe that the value of most of our assets, as long as regular sustaining capital expenditures are made, will typically increase over time. This increase in value will inevitably vary based on a number of market and other conditions that cannot be determined in advance, and may sometimes be negative in a particular period. Future income tax expense, in our case, is derived primarily from changes in the magnitude and quality of our tax losses and the differences between the tax values and book values of our assets, as opposed to current cash liabilities. Brookfield has access to significant tax shields as a result of the nature of our asset base, and we do not expect to incur any meaningful cash tax liability in the near future from ongoing operations, other than in our U.S. home building operations which, because they are owned separately, do not enjoy the benefits of tax shields from our other U.S. operations.

We also include dividends from our principal equity and cost accounted investments that would not otherwise be included in net income under GAAP, and exclude any equity accounted earnings from such investments. A number of our equity accounted investments operate in environments that lead to significant variations in their operating results that are not necessarily indicative of long-term value creation and unduly distort our operating results.

Operating cash flow is a non-GAAP measure, and may differ from definitions of operating cash flow used by other companies. It is provided to investors as a consistent measurement tool which we believe assists in analysis of the company, in addition to other traditional measures, which we also provide. We recognize the importance of net income as a GAAP measure to investors and provide a full reconciliation between these measures.

10            Brookfield Asset Management      |      2006 Annual Report

Return on Invested Capital

Our cash return on equity reached 34% in 2006, as a result of the continued growth in operating cash flow and a number of realization gains during the year. As stated above, realization gains may occur at irregular intervals, but they nonetheless reflect a portion of the appreciation in value of our underlying assets, which is an important part of the initial return on investment decisions. Over the past five years our return averaged 22%.

We define cash return on capital as the operating cash flow per share as a percentage of the average book value per common share during the period, and for an individual operation as the operating cash flow as a percentage of the net invested capital. The numerator in calculating return on invested capital is our operating cash flow and the denominator of the average net book value over the measurement period.

Asset Management

Our ability to earn increasing management revenues is tangible evidence of the growth in our business. Accordingly, assets under management and asset management revenues are also important measures.

	Annual Results
AS AT AND FOR THE YEARS ENDED DECEMBER 31 (MILLIONS)	2006		2005		2004
Total assets under management	$	71,121	$	49,700	$	27,146
Asset management revenues		257		246		168

Assets Under Management

Assets under management increased to $71 billion from $50 billion at the end of 2006 due to the formation of a number of new funds and continued expansions of assets under management within existing funds and platforms. Assets under management are discussed in more detail beginning on page 15 and elsewhere throughout our Operations Review.

Our calculation of assets under management may differ from that employed by other asset managers and, as a result, this measure may not be comparable to similar measures presented by other asset managers. Our assets under management include, for example, our own assets in addition to the assets that are managed on behalf of others. This is because we invest capital alongside our clients in many of our funds, and because we continue to own a number of assets that we acquired prior to the formation of our asset management operations and are therefore not part of any fund. A number of these assets are not subject to fee bearing arrangements for the same reasons. Assets under management include the assets reflected in our consolidated financial statements and, as a result, are based on book values that may differ materially from current market values, particularly in the case of long-life assets that we have owned for many years. We also include the assets managed on behalf of others that are not included in our consolidated financial statements as well as capital commitments from ourselves and clients that have not yet been drawn.

Asset Management Income

Asset management income has increased substantially since 2004, in large part due to increased assets under management. This is consistent with our overall strategy and is generally in line with our expectations. These results are discussed in more detail beginning on page 18.

Asset management income includes base management fees, transaction fees and performance returns. The management agreements which govern these earnings vary from fund to fund. For example, base fees may be calculated based on net asset value, capital commitments, invested equity or total capital as defined in each agreement. Our entitlement to performance returns is typically based on results over a prescribed measurement period, and any payments to us prior to the end of the period may be required to be returned if they exceed the actual amount determined at the end of the period (i.e. “clawed back”). We do not accrue any performance returns until such time as there is sufficient certainty that the amount recorded will not be impacted by future events, and therefore no longer subject to a clawback, even if such amounts are paid to us. Unless specifically noted, asset management income does not include any amounts earned by us on our own invested capital or assets.

Brookfield Asset Management      |      2006 Annual Report           11

OVERVIEW OF 2006 PERFORMANCE

Our 2006 financial results were among the best in our history. This reflects a number of important accomplishments within our operations, which we will highlight throughout the next few pages. Results for the past three years are summarized as follows:

AS AT AND FOR THE YEARS ENDED DECEMBER 31	Total						Per Share
(MILLIONS, EXCEPT PER SHARE AMOUNTS)	2006		2005		20041		2006		2005		20041
Net income	$	1,170	$	1,662	$	555	$	2.85	$	4.08	$	1.35
Operating cash flow		1,801		908		626		4.43		2.19		1.55
Common equity capitalization 2		19,947		13,870		9,976		48.18		33.55		24.01
Assets under management		71,121		49,700		27,146		175.46		123.30		67.07

1	Revised to conform to current presentation
2	Based on December 31 stock market prices

Net income and operating cash flow exceeded our expectations due to a number of realization gains during the current year. Aside from these items, performance was generally in line with our objectives and represented solid growth over the 2005 results.

Our common equity capitalization increased during each of the past two years on a book value and market value basis due to the operating results and appreciation in the value of our underlying assets.

Assets under management (“AUM”) have also increased over the past two years as we continue to launch new funds and expand existing ones. The market value of these assets has been derived by adding the difference between the book value and market value of our common equity and therefore does not fully reflect an appreciation in value of assets managed for others. AUM per share provides a measure of the potential leverage to a common share from management income derived from those assets. An increase in this metric represents the potential for increased income and cash flows on a per share basis.

The following is a summary of our financial position at book values and operating results over the past two years:

	Assets Under		Invested Capital												Operating Cash Flow												Return on Capital
AS AT AND FOR THE YEARS ENDED DECEMBER 31	Management		Total						Net						Total						Net						Net
(MILLIONS, EXCEPT PER SHARE AMOUNTS)	2006		2006			2005			2006			2005			2006			2005			2006			2005			2006			2005
Asset management income															$	257		$	246		$	257		$	246
Operating assets
Property	$	26,027	$	22,144		$	11,984		$	5,556		$	4,180			1,947			1,393			1,259			811			27	%		20	%
Power generation		5,390		5,390			4,752			1,368			1,197			620			469			337			230			25	%		19	%
Timberlands		1,190		1,190			1,057			315			304			113			40			58			18			18	%		9	%
Transmission infrastructure		3,143		3,143			156			549			42			119			24			37			20			20	%		77	%
Specialty investment funds		28,327		1,797			499			1,182			499			229			54			164			54			17	%		8	%
Investments		3,450		3,450			3,386			1,404			1,293			231			117			146			65			11	%		4	%
Cash and financial assets		1,673		1,673			2,558			1,149			2,130			413			245			396			236			31	%		17	%
Other assets		1,921		1,921			1,666			1,921			1,666			—			—			—			—			—			—
	$	71,121		40,708			26,058			13,444			11,311			3,929			2,588			2,654			1,680			22	%		14	%
Financial obligations
Corporate borrowings / interest				(1,507	)		(1,620	)		(1,507	)		(1,620	)		(126	)		(119	)		(126	)		(119	)		7	%		6	%
Property specific mortgages / interest				(17,148	)		(8,756	)		—			—			(751	)		(519	)		—			—			—			—
Subsidiary borrowings / interest				(4,153	)		(2,510	)		(668	)		(605	)		(212	)		(153	)		(64	)		(69	)		10	%		10	%
Other liabilities / operating expenses				(6,497	)		(4,561	)		(1,771	)		(1,260	)		(475	)		(413	)		(320	)		(251	)		22	%		6	%
Capital securities / interest				(1,585	)		(1,598	)		(1,585	)		(1,598	)		(96	)		(90	)		(96	)		(90	)		6	%		6	%
Non-controlling interests in net assets				(3,734	)		(1,984	)		(1,829	)		(1,199	)		(468	)		(386	)		(247	)		(243	)		19	%		20	%
Net assets / operating cash flow				6,084			5,029			6,084			5,029			1,801			908			1,801			908			33	%		20	%
Preferred equity / distributions				(689	)		(515	)		(689	)		(515	)		(35	)		(35	)		(35	)		(35	)		6	%		6	%
Common equity / operating cash flow			$	5,395		$	4,514		$	5,395		$	4,514		$	1,766		$	873		$	1,766		$	873			36	%		20	%
Per share 1			$	14.06		$	11.81		$	14.06		$	11.81		$	4.43		$	2.19		$	4.43		$	2.19			36	%		21	%

1 Adjusted to reflect three-for-two stock split on April 27, 2006

12           Brookfield Asset Management      |      2006 Annual Report

The discussion and analysis of our results is organized by principal operating segment within each of our core areas: property, power, timber, transmission and specialty funds. We present our invested capital and operating cash flows on a “total” basis, which is similar to our consolidated financial statements and a “net” basis. Net invested capital and net operating cash flows are, with the exception of the operations of Brookfield Properties Corporation, presented on a deconsolidated basis meaning that the assets are presented net of associated liabilities and non-controlling interests, and the net cash flows represent the operating income less carrying charges associated with the related liabilities and cash flow attributable to the related non-controlling interests. We include Brookfield Properties because it enables us to present the underlying core property and residential businesses separately. This basis of presentation is intended to enable the reader to better understand the net capital that we have invested in our various businesses and the associated operating cash flows, which is reflective of how we manage our business.

Operating Cash Flow

We discuss our operating results in more detail on a segment by segment basis within the Operations Review starting on page 15. The principal highlights are as follows:

Operating cash flow nearly doubled to $1.8 billion or $4.43 per share from $0.9 billion or $2.19 per share during 2005. This reflects continued growth in operations in nearly all of our businesses, as well as a number of realization gains. These gains represent the culmination of a number of important initiatives and reflect a small portion of the value that we have been building in our business over the years that has not otherwise been reflected in our financial results.

Asset management income increased to $257 million in 2006 compared with $246 million in 2005. The increase is due to the continued expansion of our asset management activities. We formed new funds which contributed towards the overall increase in assets under management from $49.7 billion to $71.1 billion.

Property operations contributed net operating cash flow of $1.3 billion, an increase of 55% over 2005. We benefitted from realization gains recorded within our core office, residential and retail property segments. The balance of our core property operations demonstrated stable growth over last year’s results, due to acquisitions in several markets. Residential operations benefitted from the diversification of our operations as continued strength in Canada and Brazil offset a weaker environment in the United States. We recorded a gain of $269 million from taking our Brazilian operations public during the fourth quarter of 2006, we completed the initial fundraising for our Opportunity fund and we established a Brazil retail fund which monetized a portion of our existing holdings, resulting in a realization gain of $79 million. Finally, we recorded a gain on the dilution of our interests in our North American core property operations that totalled $110 million.

The net operating cash flow from our power generation operations increased to $337 million, an increase of 47% over 2005. We continue to expand these operations through a combination of operational enhancements, acquisitions and select greenfield developments. The increase was largely due to improved hydrology conditions during 2006 compared to 2005, as well as the contribution from acquisitions and developments. Despite lower market prices in 2006, contracts and market initiatives helped to provide a modest increase in realized revenues.

We expanded our transmission operations with the acquisition of a large transmission system in Chile on behalf of ourselves and institutional co-investors and further expanded our timber operations with the formation of a publicly listed east coast timber fund.

The net operating cash flow generated by our investments increased to $146 million from $65 million in 2005. We recorded a monetization gain of $126 million on the sale of our non-core service business in Brazil while our pulp and paper operations faced a challenging operating environment resulting in operating losses and impairment charges.

Specialty investment funds, which include our bridge, restructuring, real estate finance and public securities operations, demonstrated strong growth during the year. These operations generated net operating cash flow of $164 million in 2006, an increase from $54 million in 2005 due to increased activity, higher levels of invested capital and monetization gains.

Operating cash flow from cash and financial assets increased relative to 2005, due to a higher level of invested capital over the year as well as a number of investment gains on selected equity investments.

Brookfield Asset Management      |      2006 Annual Report            13

Carrying charges on corporate and subsidiary debt and capital securities, totalled $286 million in 2006 compared with $278 million in 2005.

Operating expenses, which in the summary table includes current tax expense, were higher in 2006, reflecting increased activity within our expanded operating platform. Operating cash flow attributable to non-controlling interests was higher in 2006, reflecting the interests of other shareholders in a higher level of disposition gains recorded by partially owned subsidiaries than in 2005.

Net Income

Net income was $1.2 billion in 2006. Net income in 2005 was $1.7 billion, which included the after-tax gain of $1.1 billion on the sale of our investment in Falconbridge. The improvement in net income, excluding the Falconbridge gain, is due to the substantial increase in operating cash flow for the reasons discussed above, offset to some degree by increased depreciation on our expanded asset base and a reduction in earnings from equity accounted investments. Net income is reconciled to cash flow as set forth below:

YEARS ENDED DECEMBER 31 (MILLIONS)	2006			2005			2004 1
Operating cash flow and gains	$	1,801		$	908		$	626
Less: dividends from Falconbridge and Norbord		(66	)		(86	)		(64	)
dividends from Canary Wharf		(87	)		(183	)		—
		1,648			639			562
Non-cash items, net of non-controlling interests
Equity accounted income (loss) from investments		(36	)		219			332
Gains on disposition of Falconbridge, net of tax		—			1,350			—
Depreciation and amortization		(353	)		(290	)		(169	)
Future income tax and other provisions		(89	)		(256	)		(170	)
Net income	$	1,170		$	1,662		$	555

1 Revised to conform to current presentation

We recorded net equity accounted losses of $36 million during the year, compared to $219 million of income for the same period in 2005. The 2005 income included seven months of earnings from Falconbridge which, together with Norbord, benefitted from very strong prices for their principal products during that period. Norbord and Fraser Papers faced a weak price environment for their principal products during 2006, in addition to higher input costs.

We recorded a gain of $1.4 billion on the monetization of our investment in Falconbridge during 2005 through the sale of approximately 121 million common shares for aggregate proceeds of approximately $2.7 billion.

Depreciation and amortization increased in 2006 due to the acquisition of additional property, power and timberland assets during 2005 and 2006.

Future income taxes and other provisions include non-cash charges in respect of GAAP prescribed tax obligations, and in 2005 included approximately $250 million related to the Falconbridge gain, as well as the impact of revaluation gains and losses.

Financial Position

The following table summarizes key elements of our consolidated financial position at the end of the past three years:

AS AT DECEMBER 31 (MILLIONS)	2006		2005		2004
Consolidated assets	$	40,708	$	26,058	$	20,007
Common equity – book value		5,395		4,514		3,277
Common equity – market value		19,947		13,870		9,976

14            Brookfield Asset Management      |      2006 Annual Report

Consolidated assets increased to $40.7 billion at December 31, 2006 from $26.1 billion and $20.0 billion at the end of 2005 and 2004, respectively. The increase is due to the continued expansion of our operations. Acquisitions in 2006 included a $7.7 billion U.S. core office portfolio, a major transmission system in Chile and a number of other property, power and timber assets. During 2005, we acquired a Canadian core office portfolio, a number of smaller property and power assets and also completed an acquisition of timberland assets.

Net invested capital (i.e. assets less associated liabilities and non-controlling interests) increased by $1.9 billion overall during 2006. The amount of net capital invested in our property operations increased by approximately $1.4 billion, reflecting the purchase of the core office portfolio as well as growth in our opportunity investments. Net capital invested in transmission assets increased by $0.5 billion and our net capital dedicated to specialty funds increased by approximately $0.7 billion. We monetized a number of financial assets during the year, the proceeds of which were redeployed into these other areas.

Property-specific mortgages increased due to long-term mortgages assumed with the purchase of the U.S. office portfolio. We finance our high quality assets with long-term fixed-rate obligations that have no recourse to the Corporation. Corporate borrowings and capital securities were relatively unchanged during the year and consist principally of long-term fixed rate debt and equity securities. Common equity was $5.4 billion at book value at year end, and increased from $4.5 billion and $3.3 billion at the end of 2005 and 2004, respectively, due to net income offset in part by dividends and share buybacks. The market value of our common equity was $19.9 billion at year end, up from $13.9 billion at the end of 2005. The increase was due to a higher share price as the number of common shares outstanding was largely unchanged.

OPERATIONS REVIEW

Asset Management

Our asset management activities include the management of assets within specific investment entities on behalf of institutional and retail investors as well as a wide array of operational services provided to clients.

Assets Under Management

As at December 31, 2006, we managed approximately $71 billion of assets consisting of:

1) Physical assets, primarily property, power generation, timber and transmission assets that are owned and managed within our core operating platforms together with associated working capital for the benefit of us and our co-investors; and

2) Securities, which frequently represent investments in physical assets such as those described in the foregoing paragraph. The securities are held on behalf of ourselves and our clients and managed by dedicated teams of investment professionals within our operations.

Funds are established in several ways. Often we establish a fund with co-investors to complete a specific acquisition. This fund may then, in certain circumstances, serve as a platform to expand the assets and operations within the fund. Alternatively, we may establish a fund with a specific mandate to seek out investment opportunities. The strength of our balance sheet enables us to establish a dedicated team, build a portfolio and then market the portfolio and track record to potential investors. Finally, the breadth of our operating platform provides us the opportunity to seed funds with assets that we have owned and operated for many years, and which represent attractive investment opportunities for our co-investors.

We typically invest more than 20% of the capital committed to our funds, with clients committing the balance. We earn fees for managing the activities on behalf of our co-investors, which include base administration fees, performance returns to the extent results exceed predetermined thresholds, and we often earn transaction fees for specific activities. We also earn base management and performance returns in many of our public securities operations. We typically do not own significant interests in the funds being managed by our public securities operations, as they are either widely held publicly listed funds or securities portfolios managed on behalf of their beneficial owners pursuant to specific mandates.

Brookfield Asset Management      |      2006 Annual Report           15

The assets are managed pursuant to various strategies that reflect the nature of the assets and which are differentiated by the risk return characteristics and the intensity of management activity, both of which impact the level of asset management income and associated margins that we hope to earn.

The following tables present total assets under our management, which includes assets managed for others as well as assets owned by ourselves. The tables also present our share of the assets and net invested capital, which includes the capital that we have invested in alongside our clients as well as assets owned by us that do not form part of a fund. Within total assets under management, we present total assets, the amount of investment capital (i.e. net of debt) and the amount of capital that we and others have committed to invest in funds. Our share of the assets under management presents all of the assets included in our consolidated balance sheet as well as our net invested capital which is shown on a basis that is consistent with the table on page 12. The table differentiates the assets between fee bearing assets under management, which are grouped in turn into broad strategies, and assets that are directly held and not currently subject to asset management arrangements.

We have organized the information in this section based on the investment strategy and fund entity, as opposed to the underlying business segment analysis used in the balance of our discussion and analysis, in order to provide readers with a better understanding of the income generating potential of our various asset management activities and to enable readers to better understand the assets and capital that we have invested in various funds that generate asset management income.

	Total Assets Under Management						Brookfield’s Share
			Net Invested		Committed				Net Invested
AS AT DECEMBER 31, 2006 (MILLIONS)	Assets		Capital		Capital 1		Assets		Capital
Fee bearing assets:
Core and core plus	$	20,390	$	7,028	$	7,329	$	12,954	$	2,419
Opportunity and restructuring		2,863		714		2,152		2,278		537
Listed securities and fixed income		20,460		20,403		20,403		78		70
Total fee bearing assets / capital		43,713		28,145		29,884		15,310		3,026
Directly held and non-fee bearing assets / capital		27,408		10,822		10,822		25,398		10,418
Total assets / capital – at book values	$	71,121	$	38,967	$	40,706	$	40,708	$	13,444

1 Includes incremental co-investment capital

Further details on the activities within these funds together with the financial position and operating results are presented throughout the Operations Review.

Fee Bearing Assets

Core and core plus strategies encompass the ownership and management of high quality long-life assets with lower volatility returns and less development and repositioning activity. Current funds of this nature include:

	Total Assets Under Management								Brookfield’s Share
AS AT DECEMBER 31, 2006	Year				Net Invested		Committed				Net Invested		Ownership
(MILLIONS)	Formed		Assets		Capital		Capital 1		Assets		Capital		Level
US Core Office 2		2006	$	7,712	$	1,870	$	1,870	$	7,712	$	801		62	%
Canadian Core Office 2		2005		1,760		864		864		490		216		25	%
West Coast Timberlands		2005		925		476		476		925		236		50	%
East Coast Timber Fund		2006		199		132		132		199		32		30	%
Transmission		2006		2,810		1,162		1,162		2,810		331		28	%
Bridge Loan I		2003		1,452		1,444		1,587		637		622		39	%
Real Estate Finance		2003		1,650		442		600		139		139		33	%
Mortgage REIT		2005		3,767		560		560		23		23		4	%
Royal LePage Franchise Fund		2003		115		78		78		19		19		25	%
			$	20,390	$	7,028	$	7,329	$	12,954	$	2,419

1	Includes incremental co-investment capital
2	Held by 50%-owned Brookfield Properties

16            Brookfield Asset Management       |      2006 Annual Report

As a result of our overall business strategy, significant effort is directed towards expanding this segment of our operations. This complements our existing operating platforms and the fees, while not as high as those earned through traditional private equity activities, generate attractive margins as the opportunities are highly scalable.

Opportunity and restructuring strategies typically involve more active management and higher fees. These assets also tend to have higher risks and higher return expectations. In many cases, much of the value is created over a two to three year time period through refinancing and repositioning the assets or the business being managed. As a result, we expect to achieve higher investment returns over a shorter period than our core and core plus strategies, and our base management fees and incentive returns are intended to be similar to traditional private equity arrangements. Current funds of this nature include:

	Total Assets Under Management								Brookfield’s Share
AS AT DECEMBER 31, 2006	Year				Net Invested		Committed				Net Invested		Ownership
(MILLIONS)	Formed		Assets		Capital		Capital 1		Assets		Capital		Level
Real Estate Opportunity		2006	$	1,086	$	235	$	245	$	1,086	$	132		52	%
Brazil Retail Property		2006		800		102		800		215		28		29	%
Tricap Restructuring I		2002		835		235		448		835		235		48	%
Tricap Restructuring II		2006		142		142		659		142		142		39	%
			$	2,863	$	714	$	2,152	$	2,278	$	537

1 Includes incremental co-investment capital

Listed securities and fixed income strategies require varying degrees of risk, return and management intensity ranging from traditional fixed income management to more active strategies involving portfolios of equities, high yield and leveraged securities. The gross fees earned for managing assets of this nature tend to be much lower than our other two strategies, however, the contribution is attractive due to the ability to manage large portfolios.

	Total Assets Under Management						Brookfield’s Share
AS AT DECEMBER 31, 2006			Net Invested		Committed				Net Invested		Ownership
(MILLIONS)	Assets		Capital		Capital		Assets		Capital		Level
Equity Funds	$	749	$	692	$	692	$	21	$	21	na
Fixed Income Funds		19,711		19,711		19,711		57		49	na
	$	20,460	$	20,403	$	20,403	$	78	$	70

Directly Held and Non-Fee Bearing Assets

We also own and manage a number of assets which are not currently subject to fee bearing asset management arrangements. Most of the assets pre-date the creation of our current institutional funds, while some were more recently acquired to supplement existing platforms, or in anticipation of new funds being created. These include the following:

	Total Assets Under Management						Brookfield’s Share
			Net Invested		Committed				Net Invested		Ownership
AS AT DECEMBER 31, 2006 (MILLIONS)	Assets		Capital		Capital		Assets		Capital		Level
Core Office – North America 1	$	10,077	$	2,440	$	2,440	$	8,049	$	2,440		100	%
Core Office – Europe		765		288		288		765		288	various
Residential Properties – U.S.		1,355		397		397		1,355		223		53	%
Residential Properties – Canada 1 / Brazil		1,048		491		491		1,048		261		100% / 60	%
Power Generation – North America		5,126		1,129		1,129		5,126		1,129		100	%
Power Generation – Brazil		264		239		239		264		239		100	%
Timber – Brazil		66		47		47		66		47		100	%
Transmission – Canada / Brazil		333		218		218		333		218		100	%
Other		8,374		5,573		5,573		8,392		5,573	various
	$	27,408	$	10,822	$	10,822	$	25,398	$	10,418

1 Held by 50%-owned Brookfield Properties

Brookfield Asset Management      |      2006 Annual Report           17

We have on occasion used existing assets to seed new funds, like we did with our Brazil Retail Property Fund and the Acadian Timber Fund. Nonetheless, we are also prepared to continue to hold these assets directly as long as they meet our return thresholds, relative to our ability to redeploy the capital elsewhere on a comparable risk-adjusted basis, and taking into consideration the impact of incremental asset management income arising from a new fund formed with the assets. We have owned a number of these assets for many years and therefore the market values tend to exceed the book values by a significant amount.

Operating Results

Revenues from asset management activities, including property services and investment fees, totalled $257 million during 2006, compared with a contribution of $246 million for 2005 and $168 million in 2004. The increase over the past two years is due primarily to increased assets under management, which gave rise to increased base management fees. Continued expansion of our asset management activities should result in an increasing level of income, which, over time, should provide a very meaningful and stable component of our overall operating cash flows.

YEARS ENDED DECEMBER 31 (MILLIONS)	2006		2005		2004
Asset management income and fees	$	84	$	63	$	17
Property services fees		155		164		128
Investment fees		18		19		23
	$	257	$	246	$	168

Asset Management Income and Fees

Asset management fees represent an important area of growth for our company and will increase as we expand our assets under management. These fees typically include a stable base fee for providing regular ongoing services as well as performance returns that are earned when the performance of a fund exceeds certain predetermined benchmarks. We also earn transaction fees for investment and financing activities conducted on behalf of our funds and other clients. These fees are relatively modest in the current period as a number of our funds were launched during the year and accordingly our results reflect a partial year of contribution. Furthermore, performance returns, which can add considerably to our results, are typically not earned until later in a fund’s life cycle, and are therefore not fully reflected in these results.

The following table summarizes asset management income and fees generated for the past three years. The total amount represents the fees and income generated by the assets and capital under management on a 100% basis whereas the net amount represents only the amount earned by Brookfield on the assets and capital managed on behalf of third parties (i.e. it excludes fees and income generated on our own capital, which are eliminated in preparing our financial statements in accordance with GAAP).

	Total Income and Fees						Net to Brookfield 1
YEARS ENDED DECEMBER 31 (MILLIONS)	2006		2005		2004		2006		2005		2004
Base management fees	$	81	$	53	$	23	$	68	$	46	$	13
Transaction fees		20		16		—		13		12		—
Performance returns		3		5		4		3		5		4
	$	104	$	74	$	27	$	84	$	63	$	17

1 Excludes income related to Brookfield’s invested capital

Base management fees increased significantly over the past three years as we established new funds. As at December 31, 2006, the base management fees on established funds represent approximately $75 million on an annualized basis, compared with $60 million at the end of the third quarter and $55 million on an annualized basis at the beginning of the year. The increase in transaction fees reflects increased activity and the formation of new funds.

18            Brookfield Asset Management      |      2006 Annual Report

Asset management income by strategy is as follows:

	Total Income and Fees						Net to Brookfield 1
YEARS ENDED DECEMBER 31 (MILLIONS)	2006		2005		2004		2006		2005		2004
Core and core plus	$	49	$	32	$	13	$	40	$	27	$	10
Opportunity and restructuring		18		10		14		8		5		7
Fixed income and common equity		37		32		—		36		31		—
	$	104	$	74	$	27	$	84	$	63	$	17

1 Excludes income related to Brookfield’s invested capital

The income generated within each strategy reflects the distribution of our assets under management and the relative level of fees for each strategy as a percentage of assets or capital. As a result of our focus on high quality long-life assets, a significant amount of our activity and assets under management are within the “core and core plus” strategies. The fees and margins associated with these strategies tend to be higher than fixed income and common equity, but lower than the opportunity and restructuring strategies, which generate returns similar to more traditional private equity activities. Fixed income and common equity activities represent a significant component of asset management income despite lower fees as a percentage of assets because of the large amount of capital that can be managed relative to other strategies.

Property Services Fees

Property services include property and facilities management, leasing and project management, as well as investment banking, advisory, and a range of real estate services.

YEARS ENDED DECEMBER 31 (MILLIONS)	2006		2005		2004
Facilities, leasing and project management 1	$	22	$	47	$	42
Real estate services		117		100		76
Property advisory		16		17		10
Total property services fees	$	155	$	164	$	128

1 Includes our 40% interest in the net income of a partnership with Johnson Controls

Leasing and project management fees in 2005 include a $30 million fee relating to development at the World Financial Center, and in 2004 included $27 million in fees earned for completing subleases on behalf of the lead tenant at 300 Madison. Real estate services include a variety of services relating largely to residential properties, including property sales, home appraisal services, mortgage processing and executive home relocations. Property services, with the exception of leasing fees and advisory services, generate lower margins than our other asset management businesses. Operating costs directly attributable to these operations totalled $123 million in 2006 (2005 – $105 million, 2004 – $84 million).

Property advisory fees include fees earned from investment banking, property management and other related activities. We sold our Royal LePage Commercial advisory business to Cushman & Wakefield in the third quarter of 2005 for a gain of $28 million and present the fees generated by this business net of expenses to enhance comparability. We established a real estate investment banking and advisory group in 2004 that has demonstrated strong growth, contributing $16 million of fees during 2006. The group advised on transactions totalling $6 billion in value during the year, and secured a number of prominent mandates.

Investment Fees

Investment fees are earned in respect of financing activities and include commitment fees, work fees and exit fees. These fees are amortized as income over the lifespan of the related investment where appropriate and represent an important return from our investment activities.

Brookfield Asset Management      |      2006 Annual Report           19

Property Operations

We conduct a wide range of property operations in North America as well as in Europe and South America. Core office properties represent the largest component of our property business, with approximately 67% of net invested capital, and 65% of net operating cash flows, excluding realization gains:

	Assets Under		Invested Capital								Operating Cash Flow								Return on Capital
AS AT AND FOR THE YEARS ENDED DECEMBER 31	Management		Total				Net				Total				Net				Net
(MILLIONS)	2006		2006		2005		2006		2005		2006		2005		2006		2005		2006			2005
Core office properties	$	20,314	$	17,016	$	8,485	$	3,745	$	2,874	$	941	$	848	$	492	$	548		16	%		20	%
Residential properties		2,403		2,403		2,033		484		245		416		496		231		225		62	%		100	%
Opportunity investments		1,086		1,086		468		132		147		49		19		14		13		9	%		12	%
Retail properties		800		215		270		28		186		38		25		19		20		14	%		12	%
Infrastructure development		1,424		1,424		728		1,167		728		1		5		1		5		—	%		1	%
Realization gains												502		—		502		—		—	%		—	%
Net investment / operating cash flow	$	26,027	$	22,144	$	11,984	$	5,556	$	4,180	$	1,947	$	1,393	$	1,259	$	811		27	%		20	%

Operating cash flow from our property operations in 2006 increased by $554 million over the prior year. The increase is comprised of $148 million additional contribution from operations and $502 million of realization gains, offset by a $96 million reduction in dividends received from Canary Wharf, relative to 2005. A portion of this growth accrues to minority shareholders in the partially-owned operations that are consolidated in the financial information. The amount of net capital deployed in this sector increased by $1.4 billion year over year due to acquisitions in our core office property operations.

Core Office Properties

We own and manage one of the highest quality core office portfolios in the world and focus on major financial, energy and government centre cities in North America and Europe. Our strategy is to concentrate our operations in high growth, supply-constrained markets that have high barriers to entry and attractive tenant bases. Our goal is to maintain a meaningful presence in each of our primary markets so as to build on the strength of our tenant relationships. We own interests in 133 commercial properties totalling approximately 85 million square feet of rentable area, as well as 18 development sites with 22.6 million square feet of potential developable area.

Our North American operations are conducted through a 50%-owned subsidiary, Brookfield Properties, and our primary markets are New York, Boston, Houston, Los Angeles, Washington D.C., Toronto, Calgary and Ottawa. These operations include directly owned properties as well as those contained within our U.S. and Canadian core office funds.

Our European operations are principally located in London, U.K. where we own an interest in 17 high quality commercial properties comprising 8.5 million square feet of rentable area and a further 5.4 million square feet of development density. The properties are located in the Canary Wharf Estate, one of the leading core office developments in Europe. We hold a direct 80% ownership interest in the 550,000 square foot 20 Canada Square property and an indirect interest in the balance of the portfolio through our 15% ownership interest in privately-owned Canary Wharf Group.

20            Brookfield Asset Management      |      2006 Annual Report

The following table summarizes our core office portfolio and related cash flows:

	Assets Under		Invested Capital										Operating Cash Flow
AS AT AND FOR THE YEARS ENDED DECEMBER 31	Management 1		Total				Net						Total				Net
(MILLIONS)	2006		2006		2005		2006			2005			2006		2005		2006			2005
North America
New York, New York	$	7,321	$	6,542	$	3,885	$	6,542		$	3,885		$	374	$	348
Boston, Massachusetts		686		350		325		350			325			28		32
Toronto, Ontario		2,670		1,491		1,400		1,491			1,400			133		96
Calgary, Alberta		1,177		513		570		513			570			73		56
Washington, D.C.		1,980		1,980		395		1,980			395			78		36
Houston, Texas		941		941		—		941			—			22		—
Los Angeles, California		2,689		2,689		—		2,689			—			42		—
Ottawa, Ontario		382		96		100		96			100			9		—
Denver, Colorado		264		264		344		264			344			24		34
Minneapolis, Minnesota		423		423		429		423			429			20		22
Other North America		163		109		114		109			114			10		15
Total North America		18,696		15,398		7,562		15,398			7,562			813		639	$	813		$	639
United Kingdom
Canary Wharf Group, plc		182		182		267		182			267			87		183		87			183
20 Canada Square		583		583		531		565			492			41		26		41			26
		19,461		16,163		8,360		16,145			8,321			941		848		941			848
Other assets		853		853		125		853			125			—		—		—			—
Other liabilities								(919	)		(126	)						—			—
Property specific mortgages / interest								(11,811	)		(5,446	)						(442	)		(300	)
		20,314		17,016		8,485		4,268			2,874			941		848		499			548
Debt component of co-investors’ capital 2								(257	)		—							(7	)		—
Equity component of co-investors’ capital 2								(266	)		—							—			—
		20,314		17,016		8,485		3,745			—			941		848		492			548
Realization gains								—			—			154		—		154			—
Net investment / operating cash flow	$	20,314	$	17,016	$	8,485	$	3,745		$	2,874		$	1,095	$	848	$	646		$	548

1	Includes the book value attributed to partial interests in properties managed by us that are owned by co-investors
2	Represents interests of co-investors in the U.S. Core Office Fund

Portfolio Activity

We expanded our portfolio by 29.2 million square feet and our net effective interest by 26.7 million square feet with the acquisition of a major U.S. portfolio. We also acquired direct interest in several individual properties in Washington D.C. and sold a property in Denver. As a result, the book value of the net capital deployed in core office properties increased to $3.7 billion during the year from $2.9 billion at the end of 2005.

The U.S. portfolio we acquired in October 2006, consists of 58 properties located primarily in New York, Washington D.C., Houston and Los Angeles. This increased our total and net capital invested in each of these markets, and will have an increased impact on cash flows during 2007 when we receive a full year’s contribution. We acquired the portfolio in partnership with a private equity investor for a total purchase price of $7.7 billion. Our share of the acquisition, totalling $5.6 billion, was completed through our U.S. Core Office Fund which is managed by us on behalf of ourselves and several institutional clients, and for accounting purposes we are required to consolidate the entire portfolio. Accounting guidelines required us to allocate $722 million of the purchase price to the value of items such as above market leases and tenant relationships associated with acquired properties, presented as “other assets”, as well as deferred credits of $783 million for similar items such as below-market tenant and land leases. The net capital invested in the portfolio by the U.S. Core Office Fund, after deducting property and fund specific debt is $1.4 billion, of which we have provided 62%.

Brookfield Asset Management      |      2006 Annual Report           21

We also acquired four properties comprising 1.8 million square feet in Washington D.C. and Toronto for $400 million, further expanding our presence in this core market and sold non-core properties in Calgary, Alberta that had been acquired in 2005 as part of a major portfolio purchase, resulting in a $14 million gain. Lastly, we completed the sale of a property in Denver, Colorado for a gain of $30 million.

We formed a joint venture with a European property group to invest further in continental Europe and announced our first joint acquisition in January 2007, with the purchase of an office property in Germany. Although the capital commitment is currently modest, this is the start of the next phase of expanding our European operations.
During 2005, we acquired a portfolio in Canada to form our Canadian Core Office Fund and syndicated a 75% interest to co-investors. The table on page 21 presents our 25% interest in this fund on a proportionally consolidated basis. We also acquired several properties in Washington D.C. and an 80% interest in 20 Canada Square, located in the Canary Wharf Estate in London, U.K.

Financing

Property-specific debt, which is comprised principally of long-term mortgages secured by the underlying properties with no recourse to the Corporation, increased to $11.8 billion from $5.4 billion in 2005. The increase represented financing associated with the U.S. portfolio acquired during the year as well as financing put in place on the Washington properties acquired in 2005. This debt includes $481 million attributable to our investment partner in the portfolio acquisition.

Our core office property debt is primarily fixed-rate and non-recourse. These investment-grade financings typically reflect up to 70% loan-to-appraised value at the time that the mortgages are arranged. In addition, in certain circumstances when a building is leased almost exclusively to a high-credit quality tenant, a higher loan-to-value financing can be put in place at rates commensurate with the cost of funds for the tenant. This reduces our equity requirements to finance core office properties, and as a result, enhances equity returns. Core office property debt at December 31, 2006 had an average interest rate of 7% and an average term to maturity of eight years.

The debt and equity components of co-investors capital represents the 38% interest of our partners in the U.S. Core Office fund.

Operating Results

Total operating cash flow increased to $1,095 million during 2006, compared with the $848 million generated by the portfolio during 2005 and $641 million generated in 2004. After deducting interest expense associated with property-specific financings, the net operating cash flow was $646 million in 2006, representing a 21% return on net invested capital and an 18% increase over the $548 million generated in 2005.

The variations in reported results are due largely to dividends received from our 15% investment in Canary Wharf, which totalled $87 million in 2006 and $183 million in 2005 as well as the U.S. portfolio acquisition, which increased total operating cash flow by $135 million. On a net basis, however, after deducting carrying costs, the contribution from the new U.S. portfolio was $13 million. We expect this contribution to increase over the next few years as the portfolio is rationalized, the leasing profiles are upgraded in the currently favourable environment and lower cost long-term funding is arranged.

The balance of our North American portfolio produced operating cash flow of $678 million, which was higher than the $639 million recorded in 2005 due principally to the contribution from newly acquired properties and the improved leasing environments. The stable occupancy levels in our portfolio and our emphasis on long-term leases tends to moderate fluctuations in net operating income from existing properties. We sold properties in Calgary and Denver during the year, resulting in $44 million of disposition gains, although the reduction in the size of our Calgary portfolio was more than offset by increased contributions from remaining properties due to extremely favourable leasing markets.

We received a dividend from Canary Wharf totalling $87 million in addition to the $183 million received last year. The significant increase in cash flow from our property at 20 Canada Square reflects a full year contribution as it was acquired part-way through 2005, as well as improved leasing.

22            Brookfield Asset Management      |      2006 Annual Report

Interest expense incurred on property specific financings increased from $300 million during 2005 to $442 million during 2006. Carrying charges on the U.S. portfolio acquired during the year accounted for $101 million of the increase and the balance was due principally to financing associated with other properties acquired during 2005 and 2006.

Brookfield Properties, through which we own and manage our North American core office properties, completed a $1.3 billion equity issue during the year, with $0.8 billion purchased by shareholders other than us. The small dilution in our share of the net assets at a price in excess of our book values gave rise to a gain of $110 million. Total gains, including property sales mentioned above, amounted to $154 million.

Leasing and Occupancy Levels

Our total portfolio occupancy rate at December 31, 2006 was 95% in our core North American markets, and 95% overall, unchanged compared to 2005 as shown in the following table:

	2006							2005
	Leasable		Owned		Percentage			Leasable		Owned		Percentage
AS AT AND FOR THE YEARS ENDED DECEMBER 31 (THOUSANDS)	Area		Interest		Leased			Area		Interest		Leased
New York, New York		19,516		16,352		97	%		12,453		10,738		95	%
Boston, Massachusetts		2,163		1,103		93	%		2,163		1,103		92	%
Toronto, Ontario		12,283		6,973		96	%		12,278		6,147		93	%
Calgary, Alberta		7,845		3,544		100	%		8,936		3,816		99	%
Washington, D.C.		6,771		6,594		98	%		1,557		1,557		99	%
Houston, Texas		6,958		6,307		95	%		—		—		—
Los Angeles, California		10,672		10,438		87	%		—		—		—
Ottawa, Ontario		2,939		735		99	%		2,935		734		99	%
Core North American markets		69,147		52,046		95	%		40,322		24,095		95	%
Denver, Colorado		1,795		1,795		96	%		2,605		2,605		87	%
Minneapolis, Minnesota		3,008		3,008		89	%		3,008		3,008		88	%
Other North America		1,845		1,155		96	%		2,095		1,219		92	%
Total North America		75,795		58,004		95	%		48,030		30,927		94	%
London, United Kingdom		8,500		2,173		94	%		8,500		2,173		90	%
Total 1		84,295		60,177		95	%		56,530		33,100		94	%

1 Excludes development sites

An important characteristic of our portfolio is the strong credit quality of our tenants. We direct special attention to credit quality in order to ensure the long-term sustainability of rental revenues through economic cycles. On average, the tenant profile exceeds an “A” credit rating. Major tenants with over 600,000 square feet of space in the portfolio include Merrill Lynch, Government of Canada, Wachovia, CIBC, Bank of Montreal, JPMorgan Chase, Goldman Sachs, RBC Financial Group, Petro-Canada, Target Corporation, Continental Airlines and Imperial Oil. Our strategy is to sign long-term leases in order to mitigate risk and reduce our overall retenanting costs. We typically commence discussions with tenants regarding their space requirements well in advance of the contractual expiration, and while each market is different, the majority of our leases, when signed, extend between 10 and 20 year terms. As a result of this strategy, approximately 6.6% of our leases mature annually. The long-term nature of our leases enables us to finance these properties on a long-term basis with no recourse to us.

As at December 31, 2006, the average term of our in-place leases in North America was seven years and expiries average 6.6% during each of the next five years. The U.S. portfolio had a shorter lease maturity than the balance of our portfolio, which we will seek to extend as we re-lease the properties. The average term of property specific financings was eight years. In our European portfolio, the average lease term is 20 years and the average term of property specific debt was eight years.

We leased 6.2 million square feet in our North American portfolio during 2006, over three times the amount of space contractually expiring. This included 3.6 million square feet of new leases and 2.6 million square feet of renewals. Leasing fundamentals have improved in most of our markets with particular strength in Calgary and New York where markets are tightening. Boston has been weak recently but appears to have stabilized.

Brookfield Asset Management      |      2006 Annual Report 23

Leasing fundamentals in London also continued to improve, and 540,000 square feet was leased during the year in properties which we have an interest, bringing total occupancy across the portfolio to over 90%. Nearly 80% of the tenant rating profile is A+ or better.

Residential Properties

We conduct residential property operations in the United States, Canada and Brazil through subsidiaries in which we hold following interests: United States — 53%; Canada — 50%; Brazil — 60%. We do not as yet earn any income for managing these operations other than the return on our invested capital, although we are exploring the formation of land joint ventures on an asset management basis.

The following table summarizes our invested capital and related cash flows:

	Assets Under		Invested Capital										Operating Cash Flow
AS AT AND FOR THE YEARS ENDED DECEMBER 31	Management		Total				Net						Total				Net
(MILLIONS)	2006		2006		2005		2006			2005			2006		2005		2006			2005
United States	$	1,355	$	1,355	$	1,335	$	1,142		$	1,063		$	236	$	350
Canada		305		305		166		305			166			144		106
Brazil		743		743		532		567			396			36		40
		2,403		2,403		2,033		2,014			1,625			416		496	$	416		$	496
Borrowings / interest 1								(1,126	)		(1,238	)						(23	)		(21	)
Cash taxes																		(93	)		(141	)
Non-controlling interest in net assets								(404	)		(142	)						(69	)		(109	)
								484			245			416		496		231			225
Realization gain								—			—			269		—		269			—
Net investment / operating cash flow	$	2,403	$	2,403	$	2,033	$	484		$	245		$	685	$	496	$	500		$	225

1 Portion of interest expressed through cost of sales

Net operating cash flow prior to realization gains was relatively unchanged between 2005 and 2006 as a slowdown in our U.S. operations was offset by strong growth in Canada, where our Alberta operations are benefitting from strong energy markets. We recorded a realization gain when we took our Brazil operations public during the fourth quarter of 2006. Total assets and net capital, which include property assets as well as inventory, cash and equivalent and other working capital balances, have increased with the level of activity in Canada and Brazil.

United States

Our U.S. residential operations are conducted through a 53%-owned subsidiary named Brookfield Homes Corporation that had a $1 billion market capitalization at year end, compared with equity book value of $370 million. These operations are concentrated in four major supply constrained markets: San Francisco, Los Angeles and San Diego in California, and the Washington, D.C. area. In these operations, we own or control 28,000 lots through direct ownership, options and joint ventures. We focus on the mid-to upper-end of the home building market and are one of the twenty largest home builders in the United States. A significant portion of the value creation and operating margins in this business are achieved through the land acquisition process as opposed to the home building activity. We endeavour to option lots and acquire land that is well advanced through the entitlement process to minimize capital at risk. Most of our revenues are derived from the sales of finished homes and the associated lots, although we sell lots to other builders on a bulk basis to capture appreciation in values and recover capital.

We have experienced substantial growth in margins and volumes in each of our U.S. markets over the past five years although we experienced some retracement during 2006 as demand for new homes slowed. We are optimistic that these operations should continue to provide similar returns in 2007 and that we will achieve margin improvement and increased volumes once the current supply and demand imbalance is worked through in 2007 or 2008.

24            Brookfield Asset Management      |      2006 Annual Report

Canada

These operations are conducted as a business unit within Brookfield Properties Corporation, a 50%-owned subsidiary. Our Canadian operations are concentrated in Calgary, Edmonton and Toronto. Operations in the U.S. markets of Denver, Colorado and Texas are managed and reported within this unit. We own approximately 61,400 lots in these operations of which approximately 5,800 were under development at December 31, 2006 and 55,600 are included under development assets because of the length of time that will likely pass before they are developed. Our principal activity in this business is to acquire and develop lots for sale to other homebuilders, although we build and sell homes with some of our lots.

Operating cash flow in the Canadian operations increased significantly since the beginning of 2005 as our Alberta operations benefitted from the continued expansion of activity in the oil and gas industry. Most of the land holdings were purchased in the mid-1990’s or earlier, and as a result have an embedded cost advantage today. This has led to particularly strong margins, although the high level of activity is creating some upward pressure on building costs and production delays. Nonetheless, unless the market environment changes, we expect another very strong year in 2007.

Brazil

Our Brazilian operations are owned through a 60% subsidiary named Brascan Residential Properties S.A. that had a market capitalization of $1.6 billion at year end compared to a book value of $575 million. This operation is focussed on building residential condominiums and also deploys capital in order to secure attractive sites. Operating cash flow for 2006 was similar to that reported in 2005. Unit sales during the fourth quarter of 2006 were particularly strong, however, the associated revenues will not be recognized until the units are completed, which is expected to occur during 2007 and 2008. As discussed under infrastructure development on pages 27 and 28, we own substantial density rights that will provide the basis for continued growth.

During 2006, we established these operations as a public company listed on the São Paulo Stock Exchange raising nearly $550 million through the issuance of common shares thereby reducing our remaining interest to 60%. We recorded a gain of $269 million on the transaction.

Financing

Borrowings include property-specific financings of $145 million (2005 – $122 million) secured by assets within the business and subsidiary borrowings of $981 million (2005 – $1,116 million). Subsidiary borrowings consist primarily of construction financings which are repaid with the proceeds from sales of building lots, single-family houses and condominiums and is generally renewed on a rolling basis as new construction commences.

Home and Lot Sales

We sold 2,578 homes and condominium units during 2006. We also sold an additional 3,585 lots during the year for total lot sales of 6,163. Quantities of both homes/units and lots were both approximately 20% lower than last year, however the impact of this decline on net operating income was offset by increased margin in our Canadian operations.

The following table summarizes home and lot sales over the past three years.

	Home Sales						Lot Sales 1
YEARS ENDED DECEMBER 31 (UNITS)	2006		2005		2004		2006		2005		2004
United States
California		784		1,040		1,357		1,745		2,103		1,415
Washington, D.C. area		398		614		523		460		1,065		864
Canada
Ontario		280		391		339		280		391		339
Alberta		538		556		496		2,885		3,173		2,433
Other		—		—		—		215		369		468
Brazil
Rio de Janeiro and São Paulo		578		528		606		578		528		606
Total		2,578		3,129		3,321		6,163		7,629		6,125

1 Including lots associated with home sales

Brookfield Asset Management     |     2006 Annual Report          25

Opportunity Investments

We invest in commercial properties other than core office and have established dedicated operations to conduct these activities. Our objective is to acquire property which, through our management, leasing and capital investment expertise, can be enhanced to provide a superior return on capital. The scale of our overall operating platform in the property sector provides a substantial volume of potential investments for these operations and enables us to participate in a broad range of opportunities. During 2006, we established a fund to allow institutional investors to participate in these activities. The fund is capitalized with $245 million of equity commitments, of which we provided $125 million, and which is currently fully invested.

	Assets Under		Invested Capital										Operating Cash Flow
AS AT AND FOR THE YEARS ENDED DECEMBER 31	Management		Total				Net						Total				Net
(MILLIONS)	2006		2006		2005		2006			2005			2006		2005		2006			2005
Commercial properties	$	1,086	$	1,086	$	468	$	1,055		$	458		$	42	$	19	$	42		$	19
Disposition gains														7		—		7			—
Property specific mortgages / interest								(820	)		(311	)						(30	)		(6	)
Co-investors’ capital								(103	)		—							(5	)		—
Net investment / operating cash flow	$	1,086	$	1,086	$	468	$	132		$	147		$	49	$	19	$	14		$	13

Total assets within the fund was approximately $1.1 billion at year end, and include 70 office properties in a number of cities across North America as well as smaller investments in industrial, student housing, multi-family, and other property asset classes. The book value of commercial properties includes total and net working capital balances of $48 million (2005 – $15 million) and $17 million (2005 – $5 million), respectively. Our net invested capital at December 31, 2006 included a $23 million bridge loan to facilitate the recent portfolio acquisition, which is expected to be repaid over the next three to six months.

Opportunity investments tend to be more dynamic and typically have strong early stage value enhancement potential. Accordingly, operating results are expected to be derived more from realization gains than recurring net rental income. Debt financing for properties of this nature tends to be shorter in term to enhance flexibility, and leverage for the portfolio as a whole tends to vary between 70% and 80% of loan to value.

Retail Properties

In addition to significant retail space which we operate in conjunction with our office properties, we have owned and operated retail properties in Brazil for many years. During 2006, we formed a fund with $800 million of capital to invest in Brazilian retail properties, of which our commitment is $200 million. The fund purchased three shopping centres previously owned by us for proceeds of $252 million, resulting in a gain for accounting purposes of $79 million.

The following table summarizes our retail office property operations:

	Assets Under		Invested Capital									Operating Cash Flow
AS AT AND FOR THE YEARS ENDED DECEMBER 31	Management		Total				Net					Total				Net
(MILLIONS)	2006		2006		2005		2006			2005		2006		2005		2006			2005
Retail properties 1	$	800	$	215	$	270	$	207		$	186	$	38	$	25	$	25		$	25
Gain on establishment of Retail Fund		—		—		—		—			—		79		—		79			—
		800		215		—		207			186		117		—		104			25
Borrowings / interest								(105	)		—		—		—		(4	)		(5	)
Co-investors’ capital								(74	)		—		—		—		(2	)		—
Net investment / operating cash flow	$	800	$	215	$	270	$	28		$	186	$	117	$	25	$	98		$	20

1 The Brazil Retail Fund was established in the third quarter of 2006

The fund’s initial portfolio consists of three shopping centres and associated office space totalling 1.1 million square feet of net leasable area, located in Rio de Janeiro and São Paulo, and includes our 54% interest in the one million square foot Rio Sul Centre, which is one of Brazil’s premier shopping centres. The book value of retail properties include total and net working capital balances of $46 million (2005 – $90 million) and $38 million (2005 – $6 million), respectively. Borrowings represent debt incurred by the fund to finance the purchase of the initial portfolio assets, which is guaranteed by the obligation of ourselves and our partners to subscribe for capital in the fund up to the level of the committed amounts.

26          Brookfield Asset Management     |     2006 Annual Report

The fund’s mandate is to acquire additional retail properties in the fragmented Brazilian market and to enhance their value through active management and repositioning. We also continue to hold direct interests in a smaller portfolio of retail and associated commercial office space with a net book value of $66 million which is now included in our “Investments” segment.

Infrastructure Development

We entitle, seek approval for, build, manage and develop many types of critical backbone infrastructure in business segments where we own assets. For example, we typically acquire land or long-term rights on land, seek entitlements to construct, and then either sell the project improved by the infrastructure entitlements or build the project ourselves.

The composition of our infrastructure development properties at December 31, 2006 and 2005, was as follows:

		Invested Capital								Operating Cash Flow
AS AT AND FOR THE YEARS ENDED DECEMBER 31	Potential	Total				Net				Total				Net
(MILLIONS)	Developments	2006		2005		2006		2005		2006		2005		2006		2005
Core office properties		$	842	$	296	$	602	$	296
Bay-Adelaide Centre	2.6 million sq. ft.
Four Allen Center	1.3 million sq. ft.
Penn Station	4.7 million sq. ft.
Other	21.3 million sq. ft.
Residential lots
United States 1	15,900 lots		—		—		—		—
Canada	55,600 lots		400		225		400		225
Brazil	9.8 million sq. ft.		116		157		116		157
Rural development
Brazil	260,000 acres		66		50		49		50
Canada 2	30,000 acres		—		—		—		—
	290,000 acres
Net investment / operating cash flow		$	1,424	$	728	$	1,167	$	728	$	1	$	5	$	1	$	5

1	Book values included in United States residential property operations, see pages 24 and 25
2	Book values included as higher and better use land in western North American timber operations, see page 32

In addition to the properties listed above, we have been actively developing a number of hydroelectric power facilities in Brazil and North America as well as wind generation facilities in Canada which are described further under Power Generating Operations.

The total book value of development properties within our property operations at year end increased to $1.4 billion from $0.7 billion at the end of 2005, with the increase occurring largely in our core office property operation.

We do not typically record ongoing cash flow in respect of development properties as the associated development costs are capitalized until the property is sold, at which time any disposition gain or loss is realized, or until the property is transferred into operations.

Core Office Properties

We maintain an in-house development capability to undertake development projects when the risk-adjusted returns are adequate and significant pre-leasing has been achieved. At year end, we held projects with 29.9 million square feet of commercial density rights. During 2006, we acquired the 1.3 million square foot Four Allen Center in Houston with a joint-venture partner for $120 million and immediately signed a long-term lease with Chevron for the entire property that will commence in 2007. We raised $240 million of project-specific financing to fund the acquisition and future refurbishment costs. Development projects also include our Penn Station development in midtown New York, which recently received increased permitting for 2.5 million square feet of office density.

Brookfield Asset Management     |     2006 Annual Report          27

The Bay-Adelaide Centre development property, now 100%-owned, is located in Toronto’s downtown financial district and zoned for up to 2.6 million square feet of office and residential use. Currently, we are under construction on a 1.1 million square foot premier office property. We also own expansion rights for a third office tower at BCE Place, our flagship Toronto office complex, which would add approximately 800,000 square feet of density, and similarly we have rights to develop approximately 500,000 square feet of office space at Bankers Court in Calgary, where we also have a 265,000 square foot office property under construction. At Canary Wharf in London, we own our proportionate share of development density which totals approximately 5.4 million square feet of commercial space.

Residential Development Properties

Residential development properties include land, both owned and optioned, which is in the process of being converted to residential lots, but not expected to enter the home building process for more than three years.

We utilize options to control lots for future years in our higher cost land markets in order to reduce risk. To that end, we hold options on approximately 14,900 lots in predominantly California and Virginia in return for providing planning and development expertise to obtain the required entitlements. We invested additional capital into development land in Alberta as a result of the significant increase in activity. In Brazil, we own rights to build residential and office condominium space of a further 8.0 million square feet, to be developed over the next 15 years in São Paulo, and a further 9.1 million square feet of condominium density in Rio de Janeiro which will be built over the next 10 years.

Rural Development Properties

We acquired 74,000 acres of additional rural land in Mato Grosso State in Brazil and now own approximately 260,000 acres of prime rural development land in the States of São Paulo, Minas Gerais and Mato Grosso. These properties are being used for agricultural purposes, including the harvest of sugar cane for its use in the production of ethanol as a gasoline substitute. A substantial increase in the world-wide consumption of ethanol for use as a substitute for gasoline has resulted in a significant increase in the value of lands which are suitable for sugar cane growing. During the past three years we completed leases with an average term of 23 years on approximately 41,600 acres to operators of large sugar cane processing facilities and expect to earn growing annual cash flows. The leases have floor payments plus participations on a combination of sugar and ethanol prices, and the land reverts to us after 23 years.

We hold 30,000 acres of potentially higher and better use land adjacent to our western North American timberlands acquired during 2005, which we intend to convert into residential and other purpose land over time, and are included within our timberland operations.

Power Generating Operations

Our power generating operations are predominantly hydroelectric facilities located on river systems in North America. As at December 31, 2006, we owned and managed approximately 140 power generating stations with a combined generating capacity of approximately 3,800 megawatts. Our facilities produced approximately 13,000 gigawatt hours of electricity in 2006. All but four of our existing stations are hydroelectric facilities located on river systems in seven geographic regions, specifically Ontario, Quebec, British Columbia, New York, New England, Louisiana and southern Brazil. This geographic distribution provides diversification of water flows to minimize the overall impact of fluctuating hydrology. Our storage reservoirs contain sufficient water to produce approximately 20% of our total annual generation and provide partial protection against short-term changes in water supply. The reservoirs also enable us to optimize selling prices by generating and selling power during higher-priced peak periods. We also own and operate two natural gas-fired plants, a pumped storage facility and a 189-megawatt wind energy project that we operate under a 20-year fixed price power sales agreement.

28          Brookfield Asset Management     |     2006 Annual Report

The capital invested in our power generating operations and the associated cash flows are as follows:

					Assets Under		Invested Capital										Operating Cash Flow
AS AT AND FOR THE YEARS ENDED DECEMBER 31	Capacity				Management		Total				Net						Total				Net
(MILLIONS)	2006		2005		2006		2006		2005		2006			2005			2006		2005		2006			2005
Hydroelectric generation		(MW)
Ontario		897		847	$	1,094	$	1,094	$	944	$	1,094		$	944		$	111	$	83
Quebec		277		277		371		371		374		371			374			95		54
British Columbia		127		127		133		133		131		133			131			15		13
New England		240		201		400		400		259		400			259			55		38
New York and other northeast markets		832		730		1,016		1,016		889		1,016			889			160		123
Louisiana		192		192		478		478		497		478			497			103		112
Brazil		205		205		264		264		195		264			195			41		30
Total hydroelectric generation		2,770		2,579		3,756		3,756		3,289		3,756			3,289			580		453
Wind energy, co-generation & pumped storage		1,004		815		493		493		170		493			170			40		16
Development projects		—		—		60		60		109		60			109			—		—
Total power generation		3,774		3,394		4,309		4,309		3,568		4,309			3,568			620		469	$	620		$	469
Cash, financial assets, accounts receivable and other						1,081		1,081		1,184		1,081			1,184							—			—
Accounts payable and other liabilities												(419	)		(491	)						(2	)		—
Property specific and subsidiary debt / interest												(3,388	)		(2,839	)						(235	)		(215	)
Non-controlling interests in net assets												(215	)		(225	)						(46	)		(24	)
Net investment / operating cash flow		3,774		3,394	$	5,390	$	5,390	$	4,752	$	1,368		$	1,197		$	620	$	469	$	337		$	230

Total operating cash flow from our power generating assets increased to $620 million in 2006, compared with $469 million in 2005, due to expanded capacity, improved hydrology, and higher realized prices despite a lower price environment. After deducting interest expense and distributions to owners of partial interests in our business, these operations generated $337 million of cash flow on average net invested capital of $1.4 billion, representing a 25% return. The book value of invested capital increased by $171 million due to the acquisition of power facilities during the year offset by long-term property-specific debt financing and unsecured debt issued directly by our power generating operations.

Operating Results

The following table illustrates the components of the change in operating cash flows from our power generating operations, prior to interest expense and distributions, during the past two years:

YEARS ENDED DECEMBER 31 (MILLIONS)	2006		2005 1
Prior year’s net operating cash flow	$	469	$	352
Variances from prior year:
Hydrology variations within existing capacity		52		(23	)
Variations in realized prices and operational improvements		63		11
Capacity additions		36		129
Current year’s net operating cash flow	$	620	$	469

1 Revised to conform to current presentation

Hydrology conditions were approximately 4% above normal levels for the portfolio as a whole. We produced an additional 1,127 gigawatt hours from facilities owned throughout 2006 and 2005 and, as a result, cash flows were $52 million higher on a relative basis. Water conditions continue to be favourable in recent months and, as a result, our facilities are currently operating at average generation levels.

Brookfield Asset Management     |     2006 Annual Report          29

The decrease in natural gas prices has led to a decrease in market power prices from 2005 levels as most of the price-setting capacity in our operating regions is primarily natural gas. The impact of lower spot prices, however, was mitigated by our longstanding strategy to sell much of our power under long-term power sale agreements and financial contracts at higher prices. In addition, capacity revenues and our ability to capture peak pricing by using the flexibility of our assets also increased revenues. As a result, realized prices were actually higher in 2006 which, together with operational improvements and contribution from non-hydro operations, increased cash flows by $63 million over 2005 levels.

Capacity additions from acquisitions and selective development of additional capacity during 2006 and part way through 2005 generated 799 gigawatts of additional power and added $36 million of cash flow during 2006 compared to 2005. We added hydro facilities in Canada, Brazil and the northeastern United States and completed the development of a 189-megawatt wind energy project in Northern Ontario. We acquired a 2,933 gigawatt hour portfolio in New York in late 2004 which resulted in the substantial capacity additions in 2005 compared to 2004. The additional facilities furthered the diversification of our watersheds and energy sources, thereby reducing hydrology risk, and position us as an important participant in our core electricity markets.

The following table summarizes generation over the past two years:

YEARS ENDED DECEMBER 31	Long-Term		Actual Production				Variance to
(GIGAWATT HOURS)	Average (LTA)		2006		2005		LTA			2005
Existing capacity
Ontario		2,412		1,898		1,766		(514	)		132
Quebec		1,702		2,032		1,475		330			557
New England		1,024		1,144		1,172		120			(28	)
New York		2,903		3,602		3,025		699			577
Louisiana		903		712		813		(191	)		(101	)
Other		1,081		1,069		1,079		(12	)		(10	)
Total existing capacity		10,025		10,457		9,330		432			1,127
Acquisitions – during 2006		456		517		—		61			517
Acquisitions – during 2005		702		774		492		72			282
Total hydroelectric operations		11,183		11,748		9,822		565			1,926
Wind energy, co-generation and pump storage		1,198		1,268		1,108		70			160
Total generation		12,381		13,016		10,930		635			2,086

The following table illustrates revenues and operating costs for our hydroelectric facilities:

	2006								2005
YEARS ENDED DECEMBER 31	Actual		Realized		Operating		Operating		Actual		Realized		Operating		Operating
(GWH AND $ MILLIONS)	Production		Revenues		Costs		Cash Flows		Production		Revenues		Costs		Cash Flows
Ontario		2,059	$	150	$	39	$	111		1,766	$	118	$	35	$	83
Quebec		2,032		118		24		94		1,475		75		21		54
New England		1,438		82		27		55		1,275		63		25		38
New York		3,857		229		69		160		3,089		195		72		123
Other		2,362		211		51		160		2,217		195		40		155
Total		11,748	$	790	$	210	$	580		9,822	$	646	$	193	$	453
Per MWh			$	67	$	18	$	49			$	66	$	20	$	46

Realized prices, which include ancillary and capacity revenues and the impact of maximizing our generation during peak hour pricing, increased to $67 per megawatt hour despite a lower pricing environment for reasons described above. Operating costs on a per megawatt hour basis were lower due to the higher generation levels.

30          Brookfield Asset Management     |     2006 Annual Report

Portfolio Activity

We added seven hydroelectric stations and one wind farm during 2006 with combined capacity of 380 megawatts and an annual production capability of 1,533 gigawatt hours. The new facilities are located in northeastern United States, Canada and Brazil and have been integrated into our current operations in these regions. The total acquisition cost was approximately $678 million and resulted in a $741 million increase in the book value of our power generating assets to $4.3 billion from $3.6 billion at the end of 2005. We raised approximately $550 million of additional financing to fund acquisitions and maintain appropriate leverage on existing assets and, as a result, the net capital invested in our portfolio was relatively unchanged year over year.

We finance our power generation facilities in the same manner as our core office properties with long-term debt that is recourse only to the assets being financed. We typically achieve approximately 50% loan to value at the time of financing before taking into account any power contract arrangements, which may enable significantly higher loan-to-value ratios to be achieved. At December 31, 2006, the average term of this debt was 18 years and the average interest rate was 8%.

We have expanded our power operations significantly since 2001, at which time the book value was less than $1 billion and capacity was less than 1,000 megawatts. We will continue our efforts to expand the portfolio and are pursuing a number of opportunities in this regard.

We believe the intrinsic value of our power assets is much higher than the book value because the assets have either been held for many years and therefore depreciated for accounting purposes which, in our view, is inconsistent with the nature of hydroelectric generating assets. In addition, we have been successful in acquiring, developing and upgrading many of our facilities on an attractive basis. In addition, higher fossil fuel prices have resulted in significantly expanded operating margins for hydroelectric facilities, which have very low operating costs.

Financing

Property-specific and subsidiary debt increased to $3.4 billion from $2.8 billion at the beginning of 2006 due to new debt secured by acquired facilities and 30-year unsecured bonds issued by Brookfield Power during the fourth quarter that have no recourse to the Corporation. Property-specific debt totalled $2.7 billion at year end (2005 – $2.4 billion) and corporate unsecured notes issued by our power generating operations totalled $0.7 billion (2005 – $0.4 billion). Property-specific debt has an average interest rate of 8% and an average term of 16 years and is all investment grade quality. The corporate unsecured notes bear interest at an average rate of 5%, have an average term of 10 years and are rated BBB by S&P and BBB (high) by DBRS and BBB by Fitch.

Non-controlling interests represent the 49% interest in the Great Lakes Hydro Income Fund that is held by other shareholders.

Contract Profile

We endeavour to maximize the stability and predictability of our power generating revenues by contracting future power sales to minimize the impact of price fluctuations, by diversifying watersheds, and by utilizing water storage reservoirs to minimize fluctuations in annual generation levels.

Approximately 80% of our projected 2007 and 2008 revenues are currently subject to long-term bilateral power sales agreements or shorter-term financial contracts. The remaining revenue is generated through the sale of power in wholesale electricity markets. Our long-term sales contracts, which cover approximately 55% of projected revenues during this period, have an average term of 13 years and the counterparties are almost exclusively customers with long-standing favourable credit histories or have investment grade ratings. The financial contracts typically have a term of between one and three years.

All power that is produced and not otherwise sold under a contract is sold in wholesale electricity markets, and due to the low variable cost of hydroelectric power and the ability to concentrate generation during peak pricing periods, we are often able to generate highly attractive margins on power which is otherwise uncontracted. This approach provides an appropriate level of revenue stability, without exposing the company to undue risk of contractual shortfalls, and also provides the flexibility to enhance profitability through the production of power during peak price periods.

Brookfield Asset Management     |     2006 Annual Report          31

The following table sets out the profile of our contracts over the next five years from our existing facilities, assuming long-term average hydrology:

YEARS ENDED DECEMBER 31	2007		2008		2009		2010		2011
Generation (GWh)
Contracted
Power sales agreements		7,233		7,165		5,906		5,887		5,426
Financial contracts		3,635		2,903		292		287		—
Uncontracted		2,401		3,031		6,472		6,496		7,250
		13,269		13,099		12,670		12,670		12,676
Contracted generation
% of total		82		77		49		49		43
Revenue ($millions)		710		666		448		447		417
Price ($/MWh)		65		66		72		72		77

The increase in the average selling price for contracted power over the next five years reflects contractual step-ups in long duration contracts with attractive locked-in prices and the expiry of lower priced contracts during the period.

Timberlands

We own and manage timber assets which have investment characteristics that are similar to our property and power operations. Our current operations consist of the following:

			Assets Under		Invested Capital										Operating Cash Flow
AS AT AND FOR THE YEARS ENDED DECEMBER 31			Management		Total				Net						Total				Net
(MILLIONS)	Acres		2006		2006		2005		2006			2005			2006		2005		2006			2005
Timber
Western North America
Timberlands		603,000	$	777	$	777	$	801	$	777		$	801		$	59	$	27
Higher and better use lands		30,000		111		111		113		111			113			6		—
Eastern North America		1,076,000		189		189		48		189			48			44		8
Brazil		140,000		45		45		39		45			39			4		5
		1,849,000		1,122		1,122		1,001		1,122			1,001			113		40
Other assets, net				68		68		56		18			5			—		—
				1,190		1,190		1,057		1,140			1,006			113		40	$	113		$	40
Property specific and other borrowings / interest										(485	)		(447	)						(29	)		(15	)
Non-controlling interests in net assets										(340	)		(255	)						(26	)		(7	)
Net investment / operating cash flow			$	1,190	$	1,190	$	1,057	$	315		$	304		$	113	$	40	$	58		$	18

We have significantly expanded the operations over the past two years with the formation of the Island Timberlands Fund in western North America during 2005 and the Acadian Timber Fund in eastern North America early in 2006. Our goal is to continue to prudently invest additional capital in our timber operations when opportunities are available.

Western North America

We established the Island Timberlands Fund in mid-2005 with the purchase of 633,000 acres of high quality private timberlands on the west coast of Canada. These assets are financed with $410 million of property specific debt. We own 50% of the fund and the balance is owned by institutional investors.

Timber operations performed in line with expectations and the prospects for 2007 are promising. Demand for high quality timber exported to the U.S. and Japan remains strong, although this was offset somewhat by adverse weather conditions in western Canada and the impact of the higher Canadian dollar on operating costs. The increase in operating cash flows over 2005 reflects a full twelve months of ownership compared to seven months in 2005 and gains realized on the sale of higher and better use lands.

32          Brookfield Asset Management     |     2006 Annual Report

Eastern North America

In early 2006, we established the Acadian Timber Fund, a publicly listed income fund that acquired the 311,000 acres of private timberlands previously owned by us as well as a further 765,000 acres held by Fraser Papers. Acadian, in which we hold a 30% interest, is managed by our timber management group and completed a C$85 million initial public offering during the first quarter of 2006. To date, performance has been in line with our initial expectations; however, the current weakness in the eastern North American forest product sector is likely to persist for the next several quarters. Operating cash flows during 2006 reflect the increased holdings within the fund and include a gain of $26 million realized on the formation of the fund.

Brazil

We hold 140,000 acres of timberlands located in the State of Paraná in Brazil and are actively pursuing acquisition opportunities to expand our timberland operations in this country, which benefit from rapid rates of growth for trees.

Financing

Property-specific borrowings of $478 million (2005 – $410 million) are secured by timber assets in North America, and increased during the year with the formation of the Acadian Timber Fund. Other debt of $7 million (2005 – $37 million) represents amounts drawn at year end under working capital facilities. The property-specific borrowings have an average interest rate of 6%, an average term to maturity of 15 years and are all investment grade.

Non-controlling interests represent the interests of co-investors in our two North American funds. The increase represents the interests of other shareholders in Acadian.

Transmission Infrastructure

We have owned and managed transmission systems in northern Ontario for many years and acquired the largest electricity transmission company in Chile at the end of June 2006. We also made a non-controlling investment in a Brazilian transmission company during the fourth quarter of 2006, which we hope will lead to further opportunities. These operations generate stable rate-based cash flows that provide attractive long-term returns for us and our investment partners. We intend to further expand our transmission operations to serve the needs of the underserviced electrical infrastructure sector in our geographic markets.

	Assets Under		Invested Capital										Operating Cash Flow
AS AT AND FOR THE YEARS ENDED DECEMBER 31	Management		Total				Net						Total				Net
(MILLIONS)	2006		2006		2005		2006			2005			2006		2005		2006			2005
Transmission facilities and investments
North America	$	146	$	146	$	130	$	146		$	130		$	28	$	24
Chile		2,525		2,525		—		2,525			—			91		—
Brazil		157		157		—		157			—			—		—
		2,828		2,828		130		2,828			130			119		24	$	119		$	24
Other assets		315		315		26		315			26			—		—		(8	)		—
		3,143		3,143		156		3,143			142			119		24		111			24
Other liabilities								(267	)		(14	)
Project-specific financing and other borrowings								(1,496	)		(100	)						(55	)		(4	)
								1,380			42			119		24		56			20
Debt component of co-investors’ capital								(589	)		—							(25	)		—
Equity component of co-investors’ capital								(242	)		—							6			—
Net investment / operating cash flow	$	3,143	$	3,143	$	156	$	549		$	42		$	119	$	24	$	37		$	20

North America

We own and operate an electrical transmission system in northern Ontario. As a regulated rate base business, the operations produce stable and predictable cash flows and provide attractive returns for future investment. During 2005 and 2006, we invested $64 million of capital to upgrade our system, thereby increasing its rate base. The increase in cash flow is due to the expanded rate base and impact of the higher Canadian dollar.

Brookfield Asset Management     |     2006 Annual Report          33

Chile

During the year we acquired the Transelec electricity transmission system in Chile for approximately $2.5 billion including working capital and $483 million of goodwill. We own 28% of the business and the balance is held by our institutional investment partners. The operating results were in line with expectations during our six months of ownership taking into consideration up-front integration costs.

Transelec’s assets serve as the backbone of the Chilean electrical distribution sector, with more than 8,000 kilometres of transmission lines and 51 substations that deliver electricity to approximately 99 percent of the Chilean population through various local distribution companies. The revenues of Transelec are predominantly governed by an attractive regulatory rate base agreement that provides for inflation adjusted returns and a substantial portion of the revenues are based in U.S. currency. We expect that the operations will generate approximately $200 million of annual net operating income in the near term prior to financing costs and taxes. Furthermore, any additional qualifying capital expenditures will be added to the rate base and earn a 10% return, which is also inflation adjusted.

Brazil

During the year we acquired a 20% interest in a Brazilian transmission company for $157 million.

Financing

Property-specific financing borrowings increased to $1.5 billion during the year as a result of $1.4 billion of debt incurred and assumed with the Transelec acquisition. The balance of $100 million is secured by the Ontario transmission assets. The property-specific debt has an average interest rate of 6%, an average term to maturity of 11 years and is all investment grade.

Co-investor capital represents the 72% interests of our co-investors in the Transelec business. A portion of their capital is in the form of long-term debt that ranks pari passu with our interests and is classified as such form accounting purposes.

Specialty Investment Funds

We conduct bridge financing, real estate finance and restructuring activities through specialty investment funds. Although our primary industry focus is on property, power and long-life infrastructure assets, our mandates within our bridge finance and restructuring funds include other industries which have tangible assets and cash flows, and particularly where we have expertise as a result of previous investment experience. Our public securities operations manage funds with specific mandates to invest in public and private securities on behalf of institutional and retail investors.

The following table shows the assets currently under management and the invested capital at December 31, 2006 and 2005, together with the associated operating cash flow:

	Assets Under		Invested Capital								Operating Cash Flow
AS AT AND FOR THE YEARS ENDED DECEMBER 31	Management 1		Total				Net				Total				Net
(MILLIONS)	2006		2006		2005		2006		2005		2006		2005		2006		2005
Bridge Lending	$	1,452	$	637	$	268	$	622	$	268	$	65	$	31	$	65	$	31
Real Estate Finance		5,438		183		149		183		149		17		14		17		14
Restructuring		977		977		82		377		82		147		9		82		9
Fixed income and real estate securities 2		20,460		—		—		—		—		—		—		—		—
Net investment / operating cash flow	$	28,327	$	1,797	$	499	$	1,182	$	499	$	229	$	54	$	164	$	54

1	Represents capital committed or pledged by Brookfield and co-investors, including the book value of our invested capital
2	Capital invested in fixed income and real estate securities and associated cash flow included in Cash and Financial Assets and Other Assets

Net operating cash flows, which represent the returns from our net invested capital deployed in these activities, totalled $164 million in 2006, a three-fold increase over 2005, which was in turn 13% higher than 2004. In addition, these operations generated fees of $77 million in 2006, which is included in Asset Management revenues, and represents a meaningful increase from the $49 million recorded in 2005. Higher investment income reflects higher average levels of interest bearing securities and loans held during the year as well as realization gains.

34          Brookfield Asset Management     |     2006 Annual Report

Bridge Lending

We provide bridge loans to entities operating in industries where we have operating expertise, leveraging our 20-year history of offering tailored lending solutions to companies in need of short-term financing.

Our net capital deployed increased from $268 million to $622 million year over year. We continued to be active in 2006, reviewing many financing opportunities and issuing funding commitments totalling $3.4 billion to 24 clients. Our portfolio at year end was comprised of 21 loans, and the largest single exposure at that date was $102 million. The portfolio has an average term of 26 months excluding extension privileges. We do not employ any direct financial leverage, although loans may be structured with senior and junior tranches, and are often subordinate to other debt in the borrower’s capital structure.

Operating cash flows, which represent the return on our capital and exclude management fees, increased during the year due to the higher level of invested capital during the year compared to 2005. Our average capital deployed during the year was $519 million compared with $264 million during 2005.

Real Estate Finance

Our real estate finance operations provide financing for the ownership of real estate properties on a primary or secondary basis in a form which is senior to traditional equity, but subordinate to traditional first mortgages or investment grade debt. Our investments typically represent financing at levels between 65% and 85% of the value of the property. We equity account our 33% interest in the real estate finance fund, which is included in investments in our consolidated financial statements.

	Assets Under		Invested Capital												Operating Cash Flow
AS AT AND FOR THE YEARS ENDED DECEMBER 31	Management 1		Total						Net						Total						Net
(MILLIONS)	2006		2006			2005			2006			2005			2006			2005			2006			2005
Real estate finance investments, net of debt	$	1,650	$	417		$	366		$	417		$	366		$	42		$	36		$	42		$	36
Less: co-investor interests				(278	)		(244	)		(278	)		(244	)		(28	)		(24	)		(28	)		(24	)
Real estate finance fund		1,650		139			122			139			122			14			12			14			12
Securities – Directly held		21		21			27			21			27			2			2			2			2
Financial assets – Mortgage REIT		3,767		23			—			23			—			1			—			1			—
Net investment / operating cash flow	$	5,438	$	183		$	149		$	183		$	149		$	17		$	14		$	17		$	14

1 Represents capital committed or pledged by Brookfield and co-investors, including the book value of our invested capital

During 2006, we acquired loan positions with an aggregate principal balance of approximately $942 million. The portfolio continues to perform in line with expectations. We also sold our interests in CRIIMI MAE, a U.S. public mortgage REIT, during the first quarter of 2006, giving rise to a gain of $13 million, of which our share was $4 million. We maintain credit facilities that provide financing for these investments on a non-recourse basis, and we have also established two collateralized debt obligation vehicles. This debt funding represents $1.2 billion of low cost borrowings to finance the acquisition of mortgage loan participations, mezzanine loans, and CMBS. The credit facilities are short-term in nature. The collateralized debt obligation vehicles provide term financing for their respective portfolios of assets. This financing provides a stable, lower-risk source of funding that is intended to enhance investment returns. The quality and diversification of the portfolio enabled us to apply non-recourse leverage of 81% at year end.

During 2006, we completed the initial public offering of a mortgage REIT in the United States, managed by us, which generated a total of $560 million of equity capital from the IPO and initial private placement. Our $23 million investment in the Mortgage REIT is included in financial assets in our consolidated financial statements.

Restructuring

Our restructuring group, which operates under the name “Tricap”, invests long-term capital in companies facing financial or operational difficulties which have tangible assets and cash flows, and in particular in industries where we have expertise resulting from prior operating experience. Tricap benefits from our 30-year record of restructuring companies experiencing financial and operational difficulties.

Brookfield Asset Management     |     2006 Annual Report          35

The following table shows the assets held within our restructuring funds and the associated operating cash flow:

	Assets Under		Invested Capital									Operating Cash Flow
AS AT AND FOR THE YEARS ENDED DECEMBER 31	Management		Total				Net					Total				Net
(MILLIONS)	2006		2006		2005		2006			2005		2006		2005		2006			2005
Property, plant and equipment	$	453	$	453	$	—	$	453		$	—
Securities		29		29		74		29			74
Loans receivable		23		23		8		23			8
Other assets		472		472		—		472			—
		977		977		82		977			82	$	147	$	9	$	147		$	9
Other liabilities								(235	)		—		—		—		(3	)		—
Subsidiary debt								(175	)		—		—		—		(13	)		—
Non-controlling interests								(190	)		—		—		—		(49	)		—
	$	977	$	977	$	82	$	377		$	82	$	147	$	9	$	82		$	9

We completed the investment phase of our first fund and recently formed our second restructuring fund, Tricap II, with initial committed capital of $659 million, including $260 million from ourselves. Our net invested capital in restructuring opportunities at year end was $377 million, significantly higher than the $82 million deployed at the end of 2005. The increase represents our initial investment in Stelco, additional capital invested in Western Forest Products to fund the acquisition of Cascadia, which was previously reported within our Investments segments, and new investments for Tricap II.

Total invested capital and operating cash flows are substantially higher than net amounts and the total amounts in 2005 because we began consolidating the accounts of our investments in Concert Industries and Western Forest Products (“Western”) for accounting purposes during 2006 as they are majority owned. Total operating cash flow, which tends to fluctuate due to the nature of the investments, was substantially higher during the year at $147 million due to the receipt by Western of $109 million in respect of the pending softwood lumber settlement. Net capital and cash flows reflect our pro rata share of the investee results after deducting financing and other shareholder interests.

Tricap completed the financial restructuring of Stelco, a major Canadian integrated steel company during 2006, which resulted in Tricap owning a 37% equity interest. We installed a new management team that has extensive experience in the steel industry and intend to benefit from the improved fundamentals and consolidation within this sector. We include our share of Stelco’s results together with equity accounted results from other Investments in our reconciliation between operating cash flow and net income.

Tricap also increased its equity interest of Western Forest Products, a western Canadian forest products company, to 70% through a rights offering during the second quarter of 2006. Western continued to rationalize its operations, and during 2006, merged with Cascadia Forest Products (“Cascadia”), another Vancouver Island lumber company that we previously acquired in connection with the purchase of private timberlands by our timber Fund and was held in our Private Equity Investments. We have invested $51 million of capital in two new initiatives at year end through Tricap II.

Fixed Income and Real Estate Securities

We manage fixed income and real estate securities on behalf of our clients. We specialize in equities and fixed income securities including government, municipal and corporate bonds, and structured investments such as asset-backed, mortgage-backed and commercial mortgage-backed securities. Our clients include but are not limited to pension funds, insurance companies, foundations, mutual and other closed-end funds, and structured funds. For a number of our insurance clients, we also provide ancillary services including asset allocation and asset/liability management.

We earn base management fees that vary from mandate to mandate, and earn performance returns in respect of certain mandates depending on investment results. We have a modest amount of capital invested in these operations which is included with Financial Assets together with the associated investment returns. Fee revenues, which are included in Asset Management Income, increased to $36 million in 2006 due primarily to growth in the underlying assets under management.

36          Brookfield Asset Management     |     2006 Annual Report

Private Equity Investments

We own direct interests in a number of investments which will be sold once value has been maximized, integrated into our core operations or used to seed new funds. Although not core to our broader strategy, we expect to continue to make new investments of this nature and dispose of more mature assets.

The following table sets out these investments, together with associated cash flows and gains:

					Assets Under		Invested Capital									Operating Cash Flow
AS AT AND FOR THE YEARS ENDED DECEMBER 31					Management		Total				Net					Total						Net
(MILLIONS)	Location	Interest			2006		2006		2005		2006		2005			2006			2005			2006			2005
Forest products
Norbord Inc.	North America / UK		24	%	$	178	$	178	$	199	$	26	$	(12	)	$	66		$	62		$	39		$	37
Fraser Papers Inc.	North America		49	%		141		141		197		141		197			—			—			—			—
Privately held	North America		100	%		140		140		428		95		285			(64	)		(35	)		(64	)		(41	)
Mining
Coal lands	Alberta		100	%		73		73		77		73		77			5			4			5			4
Business services
Insurance	Various		80-100	%		2,357		2,357		2,028		593		495			37			27			25			20
Banco Brascan, S.A.	Rio de Janeiro		40	%		75		75		69		75		69			6			6			6			6
Privately held	Various		100	%		369		369		304		278		133			179			53			131			41
Publicly listed	Canada		60	%		51		51		84		23		49			—			—			—			(2	)
Property
Privately held	Brazil	Various				66		66		—		100		—			2			—			4			—
Net investment / operating cash flows					$	3,450	$	3,450	$	3,386	$	1,404	$	1,293		$	231		$	117		$	146		$	65

We account for our non-controlled public investments such as Norbord and Fraser Papers using the equity method, and include dividends received from these investments in operating cash flow and our proportional share of their earnings in net income. We consolidate the results of our majority owned private companies and accordingly include our proportional share of their results in the operating cash flow shown above.

Forest Products

Norbord Inc.

We control 38% and own a net beneficial interest in approximately 24% or 34 million shares of Norbord Inc. (“Norbord”). We previously issued debentures exchangeable into 20 million Norbord shares that are recorded at the market value of the Norbord shares. Our net investment had a market value of approximately $262 million at year end.

							Assets Under		Invested Capital										Operating Cash Flow
AS AT AND FOR THE YEARS ENDED DECEMBER 31							Management		Total				Net						Total				Net
(MILLIONS)	Shares			Interest			2006		2006		2005		2006			2005			2006		2005		2006			2005
Common shares owned		54.4			38	%	$	178	$	178	$	199	$	178		$	199		$	66	$	62	$	66		$	62
Exchangeable debentures		(20.0	)		(14	%)		—		—		—		(152	)		(211	)		—		—		(27	)		(25	)
Net investment / operating cash flows		34.4			24	%	$	178	$	178	$	199	$	26		$	(12	)	$	66	$	62	$	39		$	37

Norbord is an international producer of wood panels with operations in the United States, Canada and Europe. The company’s principal product is oriented strandboard. Norbord contributed $66 million of dividends to our cash flow during the current year resulting in a net contribution of $39 million after deducting exchangeable debenture interest. Norbord is traded on the Toronto Stock Exchange. Further information on Norbord is available through its web site at www.norbord.com.

Fraser Papers Inc.

We own approximately 14.4 million common shares of Fraser Papers, which represent a 49% equity interest in the company. Fraser Papers produces a wide range of specialty paper products from its operations which are located principally in Maine and New Brunswick. Fraser Papers is traded on the Toronto Stock Exchange. Further information on Fraser Papers is available through its web site at www.fraserpapers.com.

Brookfield Asset Management     |     2006 Annual Report          37

Privately Held

We acquired Katahdin Paper in connection with the purchase of power generation operations. Katahdin owns a 250,000 ton-per-year directory paper mill and a 180,000 ton-per-year super-calendered fine paper mill. These operations, located in Maine, were acquired out of bankruptcy in April 2003. Katahdin has faced a difficult operating environment over the past two years, which has resulted in losses and asset impairment charges. Subsequent to the end of the year, we entered into an agreement to sell these operations to 49%-owned Fraser Papers for proceeds of $50 million plus working capital, as well as an ongoing direct participation in a portion of Katahdin’s operations. Invested capital at the end of 2005 included our investment in Cascadia, a coastal British Columbia lumber producer. We merged Cascadia with Western Forest Products, which is owned within our restructuring fund, during 2006.

Mining

Coal Lands

Brookfield owns the coal rights under approximately 475,000 acres of freehold lands in central Alberta. These lands supply approximately 11% of Alberta’s coal-fired power generation through the production of approximately 13 million tonnes of coal annually. Royalties from this production generate $5 million of operating cash flow and provide a stable source of income as they are free of crown royalties. In addition, we own a 3.5% net profit interest in 75 million tonnes of proven reserves, and 35 million tonnes of potential reserves of high quality metallurgical coal in British Columbia.

Business Services and Other

Insurance Operations

Our insurance operations are conducted through 80%-owned Imagine Insurance, a specialty reinsurance business which operates internationally; Hermitage Insurance, a property and casualty insurer which operates principally in the northeast United States; and Trisura, a surety company based in Toronto. We manage the securities portfolios of these companies, which total $1.5 billion and consist primarily of highly rated government and corporate bonds, through our public securities operations. Imagine is rated A- and A- (excellent) by Fitch and AM Best, respectively and Hermitage is rated B++ (good) by AM Best. We continue to explore a variety of options to surface the value of our insurance business, which could result in a reduced ownership interest in the future.

Banco Brascan, S.A.

We currently own a 40% interest in Banco Brascan, which is a Brazilian investment bank based in Rio de Janeiro and São Paulo. The balance of the company is owned 40% by Mellon Financial Group and 20% by management. We have agreed to acquire an incremental 11% of Banco Brascan from management which we expect to complete in the first quarter of 2007. Banco Brascan advises, lends to and provides asset management services to domestic and foreign companies in Brazil.

Other Privately Held

During the year we agreed to sell to the Accor Group of France our interest in a joint venture with them that owns and manages the Accor Group hotel brands in Brazil, and a voucher services business. We will receive $200 million cash proceeds during 2007 and recorded a monetization gain of $126 million on the transaction. Other privately held investments include our investment in NBS Technologies Inc., which we privatized during the year. NBS provides secure identification solutions, financial transaction services and operates a commerce gateway that facilitates electronic payment processing. In 2005, we sold a tin mining operation in Brazil for a gain of $21 million.

Other Publicly Listed

Publicly listed business service investments include a controlling interest in MediSolution Ltd. MediSolution develops and manages medical human resources management software and systems for the health industry, primarily in Canada.

Privately Held Properties

We continue to hold several properties that do not form part of our other designated portfolios. These properties will be managed to maximize their value and will likely then be sold.

38          Brookfield Asset Management     |     2006 Annual Report

Cash and Financial Assets

We hold a substantial amount of financial assets, cash and equivalents that represents liquid capital to fund operating activities and investment initiatives. The market value of cash and financial assets was approximately $2.1 billion at year end compared with a book value of $1.7 billion. Security positions within designated portfolios and equity derivative positions are carried at market value and all other positions are carried at book value.

Our net holdings of cash and financial assets declined by $1.1 billion during the year as surplus liquidity received from the sale of a major investment during 2005 was redeployed into new property, power and infrastructure assets.

The following table shows the composition of these assets and associated cash flow:

	Assets Under		Invested Capital										Operating Cash Flow
AS AT AND FOR THE YEARS ENDED DECEMBER 31	Management		Total				Net						Total				Net
(MILLIONS)	2006		2006		2005		2006			2005			2006		2005		2006			2005
Financial assets
Government bonds	$	57	$	57	$	59	$	57		$	59
Corporate bonds – Xstrata convertible		375		375		375		375			375
– Other		199		199		232		199			232
Asset backed securities		16		16		69		16			69
High yield bonds		137		137		220		137			220
Preferred shares – Falconbridge		—		—		570		—			570
– Other		26		26		107		26			107
Common shares		548		548		494		548			494
Loans and other		10		10		15		10			15
Total financial assets		1,368		1,368		2,141		1,368			2,141		$	407	$	240	$	407		$	240
Cash and cash equivalents		305		305		417		305			417			6		5		6			5
Deposits and other liabilities		—		—		—		(524	)		(428	)		—		—		(17	)		(9	)
Net investment / operating cash flow	$	1,673	$	1,673	$	2,558	$	1,149		$	2,130		$	413	$	245	$	396		$	236

The Falconbridge preferred shares were redeemed during the second quarter of 2006. We also monetized a number of high yield bond and common share positions for substantial gains. At year end, we held debentures exchangeable into 13.6 million Xstrata common shares at a price of £15.27 per Xstrata share, which have a value based on quoted market prices that is substantially higher than our book value.

Deposit and other liabilities include broker deposit liabilities associated with our securities portfolio and borrowed securities sold short with a value of $84 million at December 31, 2006.

Operating cash flows include gains and losses on a number of marketable security positions taken in undervalued companies that we felt were likely to be restructured or positioned for sale, particularly if we believed we might have the opportunity to participate in the process. Positions such as these may be monetized upon our determination not to pursue a transaction, upon sale to the ultimate acquirer or if it became unlikely that an event would occur to surface value. As these investments are typically not marked to market, the timing of the realization of gains or losses have resulted in cash flows varying on a quarter over quarter basis. Commencing in 2007, most of these holdings will be carried at market values with changes in value included in our current operating results, in accordance with new accounting guidelines. As a result of the transition rules, however, any unrealized gains on our financial assets at January 1, 2007 including our Xstrata securities, will be recorded as an adjustment to shareholders’ equity at that time. Accordingly, if we realize any of these gains in future periods they will not be reflected in net income.

Brookfield Asset Management     |     2006 Annual Report          39

Other Assets

The following is a summary of other assets:

	Invested Capital				Operating Cash Flow
AS AT AND FOR THE YEARS ENDED DECEMBER 31 (MILLIONS)	2006		2005		2006		2005
Accounts receivable	$	386	$	605
Restricted cash		517		367
Goodwill and intangible assets		130		160
Prepaid and other assets		888		534
	$	1,921	$	1,666	$	—	$	—

Other assets include working capital balances employed in our business that are not directly attributable to specific operating units. The magnitude of these balances varies somewhat based on seasonal variances and increased year-over-year with overall growth in business activity and expansion of our operating base. These balances include $846 million (2005 – $347 million) associated with Brookfield Properties Corporation and the balance of $1,075 million (2005 – $1,319 million) represents the other assets of the Corporation that have not been allocated to specific business units.

Accounts receivable include balances in respect of contracted revenues owing but not yet collected, dividend, interest and fees owing to the company. Restricted cash relates primarily to commercial property financing arrangements including defeasement of debt and the required use of borrowed funds for specific capital expenditures and investments. Prepaid and other assets include amounts recorded in respect of the straight-lining of long-term contracted revenues in accordance with accounting guidelines.

CAPITAL RESOURCES AND LIQUIDITY

The following sections describe our capitalization and liquidity profile on both a consolidated and deconsolidated basis. The strength of our capital structure and the liquidity that we maintain enables us to achieve a low cost of capital for our shareholders and at the same time provides us with the flexibility to react quickly to potential investment opportunities as they arise, as well as to withstand sudden adverse changes in economic circumstances.

Our capitalization structure is comprised largely of long-term financings and permanent equity. We believe this is the most appropriate method of financing our long-term assets, and the high quality of the assets and the associated cash flows enable us to raise long-term financing in a cost effective manner. We prudently finance our operations with debt and other forms of leverage that match the profile of the business and without any recourse to the Corporation. The leverage employed is reflective of the liquidity and duration of the assets and operations being financed and varies from fund to fund and operation to operation. Our policy is to guarantee the obligations of any fund or operating entity other than our equity commitment only in limited circumstances. Funds also have the ability to raise additional capital through asset sales or debt financings, from their stakeholders, including us, from the public capital markets or through private issuances.

To ensure we are able to react to investment opportunities quickly and on a value basis, we typically maintain a high level of liquidity at the corporate level. This takes the form of financial assets and committed bank term facilities. We also hold a number of direct investments that are non-core and represent additional sources of liquidity.

Capitalization

Credit Profile

Brookfield makes judicious use of debt and preferred equity to enhance returns to common shareholders. We arrange our financial affairs so as to maintain strong investment grade ratings, which lower our cost of borrowing and broadens our access to capital. We also endeavour to minimize liquidity and refinancing risks to the company by issuing long-dated securities and spreading out maturities.

40          Brookfield Asset Management     |     2006 Annual Report

The credit ratings for the company at the time of the printing of this report were as follows:

	DBRS	S&P		Moody’s		Fitch
Commercial paper	R-1 (low)	A-1 (low)			—		—
Term debt	A (low)		A-	Baa2		BBB+
Preferred shares	Pfd-2 (low)		P-2		—		—

We endeavour to ensure that our principal operations maintain investment grade ratings in order to provide continuous access to a wide range of financings and to enhance borrowing flexibility, a low cost of capital and access to various forms of financing that are not available to non-investment grade borrowers.

Our capitalization at year end, which totalled $41 billion on a consolidated basis and $13 billion on a net investment basis, includes corporate debt, property-specific mortgages, subsidiary obligations, capital securities and preferred equity, as well as our common equity. The following table details our liabilities and shareholders’ interests at the end of 2006 and 2005 and the related components of cash flows:

							Book Value										Operating Cash Flow 2
AS AT AND FOR THE YEARS ENDED DECEMBER 31	Cost of Capital 1						Total				Net						Total				Net
(MILLIONS)	2006			2005			2006		2005		2006			2005			2006		2005		2006		2005
Corporate borrowings		7	%		7	%	$	1,507	$	1,620	$	1,507		$	1,620		$	126	$	119	$	126	$	119
Non-recourse borrowings
Property-specific mortgages		7	%		7	%		17,148		8,756		—			—			751		519		—		—
Subsidiary borrowings		7	%		6	%		4,153		2,510		668	3		605	3		212		153		64		69
Other liabilities		9	%		7	%		6,497		4,561		1,771			1,386			475		413		320		251
Capital securities		6	%		6	%		1,585		1,598		1,585			1,598			96		90		96		90
Non-controlling interest in net assets		19	%		22	%		3,734		1,984		1,829			1,199			468		386		247		243
Shareholders’ equity
Preferred equity		6	%		6	%		689		515		689			515			35		35		35		35
Common equity		20	%		20	%		5,395		4,514		5,395			4,514			1,766		873		1,766		873
		9.5	%		9.5	%	$	40,708	$	26,058	$	13,444		$	11,437		$	3,929	$	2,588	$	2,654	$	1,680

1	Based on operating cash flows as a percentage of average book value
2	Interest expense in the case of borrowings. Attributable operating cash flows in the case of minority and equity interests, including cash distributions. Current taxes and operating expenses in the case of accounts payable and other liabilities
3	Represents subsidiary obligations guaranteed by the Corporation or issued by fully integrated corporate subsidiaries

Our consolidated capitalization, which includes liabilities and shareholders’ equity, increased in line with the growth in our total assets. This increase is reflected mostly in property specific mortgages, accounts payable and other liabilities, and common equity. The increase in property specific mortgages reflects the financing associated with the acquisition of additional assets, in particular, the purchase of a major U.S. core office portfolio and power assets acquired during the year, and the financing associated with the purchase of the Transelec electricity transmission system in Chile.

Our capitalization on a net investment basis increased by $1.9 billion at the end of 2006 as compared with 2005. Our financial obligations, which consist of corporate borrowings, subsidiary obligations and capital securities, were relatively unchanged during the year. Other liabilities and non-controlling interests increased with the acquisition of additional operations during the year and associated co-investor capital. The book value of our common equity increased to $5.4 billion from $4.5 billion due to the net income recorded during the year, offset in part by dividends. The market value of our common equity capitalization at year end was $20 billion.

Our overall weighted average cash cost of capital, using a 20% return objective for our common equity, is 9.5%, unchanged from 2005. This reflects the low cost of non-participating perpetual preferred equity issued over a number of years, as well as the low cost of term debt, capital securities and non-recourse investment grade financings, achievable due to the high quality of our core office properties and power generating plants.

Brookfield Asset Management     |     2006 Annual Report          41

Corporate Borrowings

Corporate borrowings represent long-term and short-term obligations of the Corporation. Long-term corporate borrowings are in the form of bonds and debentures issued in the Canadian and U.S. capital markets both on a public and private basis. Short-term financing needs are typically met by issuing commercial paper that is backed by long-term fully committed lines of credit from a group of international banks.

The following table summarizes Brookfield’s corporate credit facilities and guaranteed obligations of subsidiaries:

AS AT AND FOR THE YEARS ENDED DECEMBER 31	Cost of Capital 1						Book Value				Operating Cash Flow 2
(MILLIONS)	2006			2005			2006		2005		2006		2005
Commercial paper and bank borrowings		5	%		4	%	$	—	$	—	$	11	$	8
Publicly traded term debt		7	%		7	%		1,463		1,574		113		110
Privately held term debt 3		6	%		6	%		44		46		2		1
								1,507		1,620		1,267		119
Subsidiary obligations 4		10	%		10	%		668		605		64		69
		7	%		7	%	$	2,175	$	2,225	$	190	$	188

1	As a percentage of average book value of debt
2	Interest expense
3	$43 million is secured by coal assets included in Investments
4	Guaranteed by the Corporation or issued by fully integrated corporate subsidiaries

During 2006 we redeemed C$125 million ($107 million) of publicly traded term debt on maturity. During 2005, we issued C$300 million ($259 million) of 30-year debt at an interest rate of 5.95% referenced to the Canadian government bond to capitalize on historically low interest rates and strong market liquidity. The average interest rate on our term debt was 7% during 2006, similar to 2005, and the average term was 11 years (2005 – 12 years).

The Corporation has $960 million of committed corporate credit facilities which are utilized principally as back-up credit lines to support commercial paper issuance. At December 31, 2006, none of these facilities were drawn, although approximately $43 million (2005 – $95 million) of the facilities were utilized for letters of credit issued to support various business initiatives.

Subsidiary obligations include $171 million (C$200 million) retractable preferred shares issued by corporate subsidiaries that are fully integrated into our ownership structure as well as financial obligations that are guaranteed by the Corporation. The retractable preferred shares were redeemed in January 2007 and a number were replaced with newly issued retractable preferred shares. The company does not typically guarantee the debts of subsidiaries, with the principal exception being a guarantee of subsidiary debt originally issued in 1990, during a higher interest rate environment, that was assumed by the Corporation upon amalgamating with the original guarantor. The increase in the carrying amount during 2006 to $497 million reflects accrued interest and advances that will be repaid on maturity of the underlying debt in 2015.

Non-Recourse Borrowings

As part of our financing strategy, we raise the majority of our debt capital in the form of asset specific mortgages or subsidiary obligations. With limited exceptions, these obligations have no recourse to the Corporation.

The nature of these borrowings and activity during the period is discussed within the Operations Review as part of the relevant business unit reviews

Capital Securities

Capital securities represent long-term preferred shares and preferred securities that can be settled by issuing, solely at our option, a variable number of common shares and, as a result of accounting guidelines, are no longer classified as equity in our financial statements.

42          Brookfield Asset Management     |     2006 Annual Report

The following table summarizes capital securities issued by the company:

AS AT AND FOR THE YEARS ENDED DECEMBER 31	Cost of Capital 1						Book Value				Operating Cash Flow 2
(MILLIONS)	2006			2005			2006		2005		2006		2005
Corporate preferred shares and preferred securities		6	%		6	%	$	663	$	669	$	44	$	41
Subsidiary preferred shares		6	%		6	%		922		929		52		49
		6	%		6	%	$	1,585	$	1,598	$	96	$	90

1	As a percentage of average book value
2	Interest expense

Distributions paid on these securities, which are largely denominated in Canadian dollars, are recorded as interest expense, even though the legal form for all but two of the issues are dividends.

The average distribution yield on the capital securities at December 31, 2006 was 6% (2005 – 6%) and the average term was 12 years (2005 – 13 years). We redeemed C$125 million ($107 million) of 8.35% capital securities due 2050 in January 2007 with the proceeds from a 4.75% perpetual preferred share issue.

Non-Controlling Interests in Net Assets

Non-controlling interests in net assets are comprised of two components: participating interests of other shareholders in our operating assets and subsidiary companies, and non-participating preferred equity issued by subsidiaries.

Interests of others in our operations were as follows:

	Number of Shares /			Invested Capital								Operating Cash Flow 1
AS AT AND FOR THE YEARS ENDED DECEMBER 31	% Interest			Total				Net				Total					Net
(MILLIONS)	2006			2006		2005		2006		2005		2006			2005		2006		2005
Participating interests
Property
Brookfield Properties Corporation		135.1/50	%	$	1,633	$	999	$	1,633	$	999	$	243		$	221	$	243	$	221
Brookfield Homes Corporation		12.4/47	%		174		128		—		—		69			108		—		—
Property funds and other	various				601		69		—		—		8			1		—		—
Power generation	various				203		225		—		—		42			19		—		—
Timberlands		50% / 70	%		338		255		—		—		26			7		—		—
Transmission infrastructure		72	%		242		—		—		—		(6	)		—		—		—
Other	various				347		101		—		—		82			17		—		—
					3,538		1,777		1,633		999		464			373		243		221
Non-participating interests					196		207		196		200		4			13		4		22
				$	3,734	$	1,984	$	1,829	$	1,199	$	468		$	386	$	247	$	243

1 Represents share of operating cash flows attributable to the interests of the respective shareholders and includes cash distributions

We include Brookfield Properties on a fully consolidated basis in our segmented basis of presentation and accordingly the interest of others in these operations are reflected in both the total and net results. The other entities shown above are presented on a deconsolidated basis in our segmented analysis, and, as a result, the interests of other shareholders are presented in total invested capital and total operating cash flow only. The book values of these interests may vary each year, and typically increase with the excess of net income over normal cash distributions and decrease with share repurchases and special dividends. The total operating cash flow attributable to these interests is shown as a deduction in arriving at the net operating cash flow for each respective business unit.

Brookfield Asset Management     |     2006 Annual Report          43

Brookfield Properties issued $1.3 billion of common equity in the fourth quarter of 2006, of which $0.8 billion was issued to shareholders other than the Corporation resulting in the increase in net assets attributable to others. The operating cash flow attributable to these interests increased due to increased cash flow within the company arising from both North American core office property and our Canadian residential property operations.

The interests of others in Brookfield Homes increased to $174 million from $128 million during the year due to retained earnings offset by dividends paid and share repurchases. Operating cash flow attributable to these interests declined commensurate with the reduction in cash flow generated by the company. The increase in participating interests of other investors in the company represents their share of undistributed net income recorded during the year. Other interests in property funds increased due to the launch of our opportunity and retail funds and the acquisition of a major portfolio within our U.S. core office fund.

Power generating interests include the 50% interest of unit holders in the Great Lakes Hydro Income Fund, through which we own a portion of our power generating operations, and a 25% residual equity interest held by others in our Louisiana operations. The book value of these interests declined, which largely represents their share of depreciation recorded on the underlying assets for accounting purposes. The increase in cash flow reflects significantly higher water levels at generation facilities in Ontario and Quebec owned through the Income Fund.

Timberlands represents the 50% interest of institutional partners in our Island Timberlands Fund, established in 2005. The increase reflects shareholder interests in our Acadian Timber Fund which was established during 2006. Transmission infrastructure reflects the equity capital contributed by our investment partners towards the acquisition of Transelec mid-way through 2006. Other non-controlling interests increased since year end with the consolidation of Western Forest Products and Concert Industries, which are investee companies held within our restructuring operations. The 2006 cash flow includes $50 million in respect of the payment received by Western related to the pending softwood lumber settlement.

Operating cash flow distributed to other non-controlling shareholders in the form of cash dividends totalled $147 million in 2006 compared with $109 million in 2005. The undistributed cash flows attributable to non-controlling shareholders, which totalled $321 million in 2006 (2005 – $277 million), are retained in the respective operating businesses and are available to expand their operations, reduce indebtedness or repurchase equity.

Other Liabilities and Operating Costs

	Invested Capital									Operating Cash Flow
AS AT AND FOR THE YEARS ENDED DECEMBER 31	Total				Net					Total				Net
(MILLIONS)	2006		2005		2006		2005			2006		2005		2006		2005
Accounts payable	$	1,778	$	2,037	$	952	$	875
Insurance liabilities		1,619		1,433		—		—
Deferred tax liability / (asset)		436		14		349		(51	)
Other liabilities		2,664		1,077		470		436
Other operating costs										$	210	$	146	$	193	$	135
Property services expenses											123		105		123		105
Other											333		251		316		240
Cash taxes											142		162		4		11
	$	6,497	$	4,561	$	1,771	$	1,260		$	475	$	413	$	320	$	251

Accounts payable and other liabilities, which include those associated with Brookfield Properties, increased during the year on both a total and net basis due to the assumption of working capital balances on the acquisition of additional operating assets, as well as overall growth in the level of business activity.

44          Brookfield Asset Management     |     2006 Annual Report

Insurance liabilities include claims and deposit liabilities within our insurance operations. These liabilities increased during the year on both a total and net basis due to the expansion of these operations which resulted in a corresponding increase in the securities held within these operations. Deferred taxes represent future tax obligations that arise largely due to holding assets whose book value exceeds their value for tax purposes. Other liabilities includes $152 million representing the debentures exchangeable into 20 million Norbord common shares.

Operating costs include those of Brookfield Properties, and reflect the costs of our asset management activities as well as costs which are not directly attributable to specific business units. Costs increased from $240 million in 2005 to $316 million in 2006 on a net basis, due to the continued expansion of our business and increased level of activity.

Cash taxes relate principally to the taxable income generated within our U.S. home building operations as well as cash tax liability incurred on realization gains within our Brazilian operations. This income cannot be sheltered with tax losses elsewhere in the business due to the separate public ownership of this operation.

Preferred Equity

Preferred equity represents perpetual floating rate preferred shares that provide an attractive form of permanent equity leverage to our common shares.

AS AT AND FOR THE YEARS ENDED DECEMBER 31	Cost of Capital 1						Book Value				Operating Cash Flow 2
(MILLIONS)	2006			2005			2006		2005		2006		2005
Preferred equity		6	%		6	%	$	689	$	515	$	35	$	35

1	As a percentage of average book value
2	Dividends

On November 20, 2006, we issued C$200 million ($174 million) of perpetual preferred shares yielding 4.75%.

Common Equity

On a diluted basis, Brookfield had 407.2 million common shares outstanding at year end with an aggregate book value of $5.4 billion or $14.06 per share. The market capitalization of our common shares on December 31, 2006 was $19.9 billion or $48.18 per share. The difference of $14.5 billion (2005 – $9.4 billion) reflects in part the appreciation in the value of our assets that is not reflected in our book values due to accounting depreciation and economic appreciation and, in some cases, acquisitions at a discount to long-term value.

The number of shares outstanding increased by 1.9 million shares from December 31, 2005. During 2006, we repurchased 0.2 million common shares under issuer bids at an average price of $47.84 per share and issued 2.2 million options at an average price of $C41.04 per share. We also completed a three-for-two stock split which has been reflected in all of the results presented in this report. During 2005, 6.0 million common shares were repurchased at a price of $27.09 per share.

Brookfield has two classes of common shares outstanding: Class A and Class B. Each class of shares elects one-half of the Corporation’s Board of Directors. The Class B shares are held by Partners Ltd., a private company owned by 45 individuals, including a number of the senior executive officers of Brookfield, who collectively hold direct and indirect beneficial interests in approximately 69 million Class A shares representing an approximate 17% equity interest in the company. Further details on Partners Ltd. can be found in the company’s management information circular.

Brookfield Asset Management     |     2006 Annual Report          45

Deconsolidated Capitalization

The capitalization of the Corporation on a deconsolidated basis (i.e. excluding the capitalization of Brookfield Properties Corporation and other entities otherwise included in our consolidated financial statements), together with relevant credit statistics is as follows:

													Operating Cash Flow
	Market Value 1						Book Value						Underlying				Remitted
	2006			2005			2006			2005			2006		2005		2006		2005
Corporate borrowings	$	1,507		$	1,620		$	1,507		$	1,620		$	126	$	119	$	126	$	119
Subsidiary borrowings 2		668			605			668			605			64		69		64		69
Other liabilities		983			974			983			974			234		210		234		210
Capital securities		663			669			663			669			44		41		44		41
Non-controlling interests		69			70			69			70			1		16		1		16
Shareholders’ equity
Preferred equity		689			515			689			515			35		35		35		35
Common equity		19,947			13,870			5,395			4,514			1,766		873		1,535		620
Total capitalization cash flows	$	24,526		$	18,323		$	9,974		$	8,967		$	2,270	$	1,363	$	2,039	$	1,110
Debt to total capitalization 3		9	%		12	%		22	%		25	%
Interest coverage 4														12x		7x		11x		6x
Fixed charge coverage 5														8x		5x		8x		4x

1	Common equity values based on December 31 market prices
2	Guaranteed by the Corporation or issued by fully integrated corporate subsidiaries
3	Corporate and subsidiary borrowings as a percentage of total capitalization
4	Total cash flows divided by interest in corporate and subsidiary borrowings
5	Total cash flows divided by interest on corporate and subsidiary borrowings and distributions on capital securities and preferred equity

We target a debt to capitalization level on a book value basis of between 20% and 30%.

Liquidity

We attempt to maintain sufficient financial liquidity at all times so that we are able to participate in attractive investment opportunities as they arise, and to also better to withstand sudden adverse changes in economic circumstances. Our principal sources of liquidity are financial assets, undrawn committed credit facilities, free cash flow and the turnover of assets on our balance sheet. We structure the ownership of our assets to enhance our ability to monetize their embedded value to provide additional liquidity if necessary.

Our financial assets and committed bank facilities are described further on pages 39 and 42 of this report and represent aggregate liquidity of $2.6 billion as at December 31, 2006. We held $3.5 billion of similar liquidity at the end of 2005, which included proceeds from the sale of a major investment a portion of which was redeployed during 2006.

Our free cash flow represents the operating cash flow retained in the business after operating costs and cash taxes, interest payments, dividend payments to other shareholders of consolidated entities, preferred equity distributions and sustaining capital expenditures. This cash flow is available to pay common share dividends, invest for future growth, reduce borrowings or repurchase equity.

46          Brookfield Asset Management     |     2006 Annual Report

The following table summarizes our free cash flow on a consolidated basis sustaining capital expenditures reflects a normalized level for the asset base during each year. The actual amounts will vary from year to year.

YEARS ENDED DECEMBER 31 (MILLIONS)	2006			2005			2004
Cash flow from operations	$	1,801		$	908		$	626
Disbursements
Brookfield’s share of sustaining capital expenditures		(73	)		(55	)		(55	)
Preferred share dividends		(35	)		(35	)		(24	)
Free cash flow before the following		1,693			818			547
Cash flow retained in operations, net of minority share of dividends and sustaining capital expenditures
Brookfield Properties		130			120			175
Brookfield Homes		64			103			83
Consolidated free cash flow	$	1,887		$	1,041		$	805

Maturity Profile of Debt Obligations

We endeavour to finance our long-term assets with long-term financing and to diversify our principal repayment over a number of years. Principal repayments on debt obligations due over the next five years and thereafter are as follows:

Corporate Borrowings

	Average
YEARS ENDED DECEMBER 31 (MILLIONS)	Term		2007			2008			2009			2010			2011			Beyond			Total
Commercial paper and bank borrowings		—	$	—		$	—		$	—		$	—		$	—		$	—		$	—
Publicly traded term debt		12		107			300			—			200			—			856			1,463
Privately held term debt		14		3			2			2			2			2			33			44
Total		12	$	110		$	302		$	2		$	202		$	2		$	889		$	1,507
Percentage of total				7	%		20	%		—	%		14	%		—	%		59	%		100	%

Property-Specific Borrowings

	Average
YEARS ENDED DECEMBER 31 (MILLIONS)	Term		2007			2008			2009			2010			2011			Beyond			Total
Commercial properties		8	$	870		$	962		$	1,069		$	356		$	4,976		$	4,237		$	12,470
Power generation		16		296			57			124			63			78			2,086			2,704
Timberlands		15		—			—			36			—			32			410			478
Transmission infrastructure		11		211			—			—			—			465			820			1,496
Total		9	$	1,377		$	1,019		$	1,229		$	419		$	5,551		$	7,553		$	17,148
Percentage of total				8	%		6	%		7	%		3	%		32	%		44	%		100	%

Other Debt of Subsidiaries

	Average
YEARS ENDED DECEMBER 31 (MILLIONS)	Term		2007			2008			2009			2010			2011			Beyond			Total
Subsidiary borrowings
Properties		2	$	457		$	416		$	125		$	4		$	5		$	104		$	1,111
Power generation		10		—			—			385			—			—			299			684
Investments		2		138			46			12			99			1			2			298
Corporate subsidiaries		8		—			—			—			—			171			497			668
Co-investor capital
Properties		7		—			—			—			—			—			803			803
Transmission infrastructure		10		—			—			—			—			—			589			589
Total		6	$	595		$	462		$	522		$	103		$	177		$	2,294		$	4,153
Percentage total				14	%		11	%		13	%		3	%		4	%		55	%		100	%

Brookfield Asset Management       |       2006 Annual Report            47

Capital Securities

	2007			2012			2017			2022
YEARS ENDED DECEMBER 31 (MILLIONS)	to 2011			to 2016			to 2021			to 2026			Beyond			Total
Corporate preferred shares and preferred securities	$	—		$	300		$	149		$	—		$	214		$	663
Subsidiary preferred shares		171			751			—			—			—			922
Total	$	171		$	1,051		$	149		$	—		$	214		$	1,585
Percentage of total		11	%		66	%		9	%		—	%		14	%		100	%

Corporate Guarantees, Commitments and Contingent Obligations

Our policy is to not guarantee liabilities of subsidiaries or affiliates. We do, however, provide limited guarantees and indemnities when required from time-to-time to further the growth of our power marketing and asset management businesses. Certain of these obligations, together with $232 million of obligations included in accounts payable and other liabilities, are subject to credit rating provisions and are supported by financial assets of the principal obligor. The Corporation has guaranteed $497 million of subsidiary debt previously guaranteed by a company with which the Corporation amalgamated. We also provide normal course commitments, none of which are material at the current time.

We may be contingently liable with respect to regulatory proceedings, litigation and claims that arise in the normal course of business. We do not believe we have any material exposure in this regard and any expected claims have been provided for in our accounts. In addition, we may execute agreements that provide indemnifications and guarantees to third parties. Disclosure of commitments, guarantees and contingencies can be found in the Notes to the Consolidated Financial Statements.

Contractual Obligations

The following table presents the contractual obligations of the company by payment periods:

	Payments Due by Period
			Less than		1 - 3		4 - 5		After 5
(MILLIONS)	Total		One Year		Years		Years		Years
Long-term debt
Property-specific mortgages	$	17,148	$	1,377	$	2,248	$	5,970	$	7,553
Other debt of subsidiaries		4,153		595		984		280		2,294
Corporate borrowings		1,507		110		304		204		889
Capital securities		1,585		—		—		171		1,414
Lease obligations		27		5		10		6		6
Commitments		1,074		1,074		—		—		—
Interest expense 1
Long-term debt		11,604		1,600		2,727		2,305		4,972
Capital securities		1,396		96		192		183		925
Interest rate swaps		234		36		34		7		157

1 Represents aggregate interest expense expected to be paid over the term of the obligations. Variable interest rate payments have been calculated based on current rates

Contractual obligations include $1,074 million (2005 – $737 million) of commitments by the company and its subsidiaries provided in the normal course of business, including commitments to provide bridge financing, and letters of credit and guarantees provided in respect of power sales contracts and reinsurance obligations, of which $20 million is included as liabilities in the consolidated balance sheet and the balance treated as contingent obligations.

Off Balance Sheet Arrangements

We conduct our operations primarily through entities that are fully or proportionately consolidated in our financial statements. We do hold non-controlling interests in investment companies such as Norbord, Fraser Papers and Stelco which are accounted for on an equity basis, as are interests in some of our funds, however we do not guarantee any financial obligations of these entities other than our contractual commitments to provide capital to a fund which are limited to predetermined amounts.

48            Brookfield Asset Management       |       2006 Annual Report

We utilize various financial instruments in our business to manage risk and make better use of our capital. The mark-to-notional values of these instruments that are not reflected on our balance sheet are disclosed in Note 16 to our Consolidated Financial Statements and discussed on page 60 under Financial and Liquidity Risks.

ANALYSIS OF CONSOLIDATED FINANCIAL STATEMENTS

The information in this section enables the reader to reconcile this basis of presentation to that employed in our Operations Review. We also provide additional information for items not covered within that section. The tables presented on pages 55 through 56 provide a detailed reconciliation between our consolidated financial statements and the basis of presentation throughout the balance of our MD&A.

Consolidated Statements of Income

The following table summarizes our consolidated statement of net income:

YEARS ENDED DECEMBER 31 (MILLIONS)	2006			2005
Revenues	$	6,897		$	5,220
Net operating income	$	3,776		$	2,319
Expenses
Interest		(1,185	)		(881	)
Current income taxes		(142	)		(162	)
Asset Management and other operating costs		(333	)		(251	)
Non-controlling interests in the foregoing		(468	)		(386	)
		1,648			639
Other items, net of non-controlling interests		(478	)		1,023
Net income	$	1,170		$	1,662

Revenues

YEARS ENDED DECEMBER 31 (MILLIONS)	2006		2005
Property	$	3,288	$	3,161
Power generation		894		800
Timberlands		276		135
Transmission Infrastructure		152		35
Specialty funds		908		58
Investment income and other		1,379		1,031
	$	6,897	$	5,220

Property and power generation revenues increased due to the expansion of our operations. Power generation revenues were also impacted by improved hydrology and higher realized prices. Revenues in our Timberlands operations increased with the formation of Acadian Timber Income Fund in 2006. Transmission revenues increased due to the acquisition of Transelec, the electricity transmission system in Chile. Our Specialty Funds revenues increased due to the increased value of loans issued during the year and the consolidation of revenues from Western Forest Products and Concert Industries.

Net Operating Income

Net operating income includes the following items from our consolidated statement of income: fees earned; other operating revenues less direct operating expenses; investment and other income; and realization gains. These items are described for each business unit in the Operations Review beginning on page 15.

Brookfield Asset Management       |       2006 Annual Report            49

The following table reconciles total operating cash flow in the segmented basis of presentation presented on page 12 and net operating income:

YEARS ENDED DECEMBER 31 (MILLIONS)	Business Unit	2006			2005
Total operating cash flow		$	3,929		$	2,588
Less dividends received:
Canary Wharf Group	Core office		(87	)		(183	)
Falconbridge and Norbord	Investments		(66	)		(86	)
Net operating income		$	3,776		$	2,319

Expenses

The following table summarizes interest expense during each of the past two years and reconciles total interest expense to the categories discussed in the Operations Review and Capital Resources and Liquidity sections.

YEARS ENDED DECEMBER 31 (MILLIONS)	2006		2005
Corporate borrowings	$	126	$	119
Property specific mortgages		751		519
Subsidiary borrowings		212		153
Capital securities		96		90
	$	1,185	$	881

Current income taxes relate principally to our U.S. home building operations. Asset management and other operating costs include expenses allocated to our asset management activities and other operating costs that are not attributed to specific business units.

The interests of non-controlling parties in the foregoing items aggregated $468 million on a consolidated basis during 2006, compared with $386 million on a similar basis during 2005. The increase was due primarily to the overall increase in operating cash flows within existing partially owned operations, as well as the formation of additional partially owned operations during 2005 and 2006 that are consolidated in our financial results. The composition of non-controlling interests is detailed in the table on page 43.

Other Items

Other items are summarized in the following table, and include items that are either non-cash in nature or not considered by us to form part of our operating cash flow. Accordingly, they are included in the reconciliation between net income and operating cash flow presented on page 14.

YEARS ENDED DECEMBER 31 (MILLIONS)	2006			2005
Equity accounted income (loss) from investments	$	(36	)	$	219
Gains on disposition of Falconbridge		—			1,350
Depreciation and amortization		(600	)		(374	)
Other provisions		57			(59	)
Future income taxes		(203	)		(265	)
Non-controlling interests in the foregoing items		304			152
	$	(478	)	$	1,023

Equity accounted income reflects our share of the net income recorded by Norbord, Fraser Papers and Stelco, and in 2005 only, Falconbridge. The decline relative to 2005 is due to the monetization of our interest in Falconbridge during 2005, reduced earnings recorded by Norbord and Fraser Papers as a result of a difficult operating environment and the impact of a major restructuring on Stelco.

50            Brookfield Asset Management       |       2006 Annual Report

The following table summarizes earnings from our equity accounted investments over the past two years:

YEARS ENDED DECEMBER 31 (MILLIONS)	2006			2005
Norbord	$	37		$	87
Fraser Papers		(62	)		(13	)
Stelco		(11	)		—
Falconbridge		—			145
	$	(36	)	$	219

Depreciation and amortization prior to non-controlling interests increased to $600 million from $374 million during 2005. The increase is due to the acquisition of additional property, power and timber assets during 2005 and 2006. Depreciation and amortization for each principal operating segment is summarized in the following table:

YEARS ENDED DECEMBER 31 (MILLIONS)	2006		2005
Property	$	330	$	189
Power generation		124		104
Timberlands		29		16
Transmission infrastructure		39		8
Specialty funds		32		5
Other		46		52
	$	600	$	374

Other provisions, which represent revaluation items, contributed $57 million to net income in 2006 compared with a net charge of $59 million in 2005 and are summarized in the following table:

YEARS ENDED DECEMBER 31 (MILLIONS)	2006			2005
Norbord exchangeable debentures		59			(10	)
Interest rate contracts		7			(16	)
Intangible and other assets		(9	)		(33	)
	$	57		$	(59	)

Revaluation items include a revaluation gain of $59 million on debentures issued by us that are exchangeable into 20 million Norbord common shares, equal to the increase in the Norbord share price during the period, as required by accounting rules. We hold the 20 million shares into which the debentures are exchangeable, but are not permitted to mark the investment to market.

Revaluation items also include the impact of revaluing fixed rate financial contracts that we maintain in order to provide an economic hedge against the impact of possible higher interest rates on the value of our long duration interest sensitive assets. Accounting rules require that we revalue certain of these contracts each period even if the corresponding assets are not revalued. Over the course of the year we recorded a revaluation gain of $7 million. It is important to note that the corresponding increase in the value of our long duration interest sensitive assets is not reflected in earnings.

We charged off intangible assets totalling $9 million (2005 – $33 million) that would otherwise have been expensed over time as depreciation and amortization.

Our future income tax provision was lower than in 2005, due principally to the inclusion in that year of an accounting tax provision of $251 million associated with the Falconbridge disposition gain. The non-cash tax provisions also reflect changes in the carrying value of our tax shield during the period, and tax provisions in respect of the non-cash equity earnings.

Consolidated Balance Sheets

Total assets at book value increased to $40.7 billion as at December 31, 2006 from $26.1 billion at the end of the preceding year, which was accompanied by a commensurate increase in our capitalization. The increase was due to the expansion of our operating platform in several business segments as reflected in the $12.3 billion increase in property, plant and equipment, including the acquisition of a $7.7 billion core office portfolio. Our consolidated liabilities are reviewed under Capital Resources and Liquidity and our consolidated assets are reviewed in the following section.

Brookfield Asset Management       |       2006 Annual Report            51

Consolidated Assets

The following is a summary of our consolidated assets for the past two years:

	Book Value
AS AT DECEMBER 31 (MILLIONS)	2006		2005
Assets
Cash and cash equivalents and financial assets	$	2,869	$	3,122
Investments		775		595
Accounts receivable and other		5,951		3,984
Goodwill		669		164
Operating assets
Property, plant and equipment		28,082		15,776
Securities		1,711		2,069
Loans and notes receivable		651		348
	$	40,708	$	26,058

Investments

Investments represent equity accounted interests in partially owned companies including Norbord, Fraser Papers and Stelco, as set forth in the following table, which are discussed further within the Operations Review.

	Business		Number of Shares			% of Investment						Book Value
AS AT DECEMBER 31 (MILLIONS)	Segment	2006		2005		2006			2005			2006		2005
Norbord Inc.	Investments		54.4		53.8		38	%		37	%	$	178	$	199
Fraser Papers Inc.	Investments		14.4		13.4		49	%		46	%		141		197
Stelco Inc.	Specialty Funds		6.2		—		23	%		—			44		—
Real Estate Finance Fund	Specialty Funds												139		199
Brazil Transmission	Transmission												157		—
Other	Various												116		—
Total												$	775	$	595

Accounts Receivable and Other

Accounts receivable and other increased to $6.0 billion from $4.0 billion at the end of 2005. The following table is a summary of consolidated accounts receivable and other assets.

	Book Value
AS AT DECEMBER 31 (MILLIONS)	2006		2005
Accounts receivable	$	1,593	$	1,709
Prepaid expenses and other assets		3,053		1,377
Restricted cash		960		651
Inventory		345		247
	$	5,951	$	3,984

The increase in 2006 is due to the continued expansion of our operations, and includes the consolidated working capital balances of our various operating companies including several businesses acquired during the year. These include amounts receivable by the company in respect of contracted revenues owing but not yet collected, and dividends, interest and fees owing to the company. Prepaid expenses and other assets include amounts accrued to reflect the straight-lining of long-term contracted revenues and capitalized lease values in accordance with accounting guidelines. The increase during the year is due largely to the capitalization of lease values and other tenant relationships on the purchase of the U.S. core office portfolio. Restricted cash represents cash balances placed on deposit in connection with financing arrangements and insurance contracts, including the defeasement of long-term property specific mortgages. The distribution of these assets among our business units is presented in the tables on pages 55 and 56.

52            Brookfield Asset Management       |       2006 Annual Report

Goodwill

Goodwill represents purchase consideration that is not specifically allocated to the tangible and intangible assets being acquired, and increased during the year due to $483 million of goodwill incurred on the purchase of a transmission system in Chile.

Property, Plant and Equipment

The following table is a summary of property, plant and equipment for the past two years:

	Book Value
AS AT DECEMBER 31 (MILLIONS)	2006		2005
Property
Commercial properties	$	17,091	$	8,688
Residential properties		1,444		1,205
Development properties		1,679		942
Property services		—		39
		20,214		10,874
Power generation		4,309		3,568
Timberlands		1,011		888
Transmission infrastructure		1,929		130
Other plant and equipment		619		316
	$	28,082	$	15,776

The changes in these balances are discussed within each of the relevant business units within our Operations Review. Commercial properties includes core office, opportunity and retail property assets.

Securities

Securities include $1.4 billion (2005 – $1.6 billion) of largely fixed income securities held through our insurance operations, which are described under Investments on page 38, as well as our $182 million (2005 – $267 million) common share investment in Canary Wharf Group, which is included in our core office property operations.

Loans and Notes Receivable

Loans and notes receivable consist largely of loans advanced by our bridge lending operations, included in Specialty Funds. The outstanding balance increased since the end of 2005 due to new bridge loan positions originated during the year.

Consolidated Statements of Cash Flows

The following table summarizes the company’s cash flows on a consolidated basis as set forth in the consolidated statement of cash flows on page 74:

YEARS ENDED DECEMBER 31 (MILLIONS)	2006			2005
Operating activities	$	689		$	830
Financing activities		8,701			1,013
Investing activities		(9,137	)		(1,296	)
Increase in cash and cash equivalents	$	253		$	547

Operating Activities

Cash flow from operating activities is reconciled to the operating cash flow measure utilized elsewhere in this report as follows:

YEARS ENDED DECEMBER 31 (MILLIONS)		2006		2005
Cash flow from operating activities		$	689	$	830
Adjust for:	Net change in working capital balances and other		418		(105	)
	Dividends received from Canary Wharf Group		87		183
	Realization gains		607		—
Operating cash flow		$	1,801	$	908

Brookfield Asset Management      |      2006 Annual Report           53

Operating cash flow is discussed in detail elsewhere in this report. We invested additional capital into working capital balances due to the expansion of our operating base and we deployed further working capital in our residential property operations. The dividends received from Canary Wharf Group are included in Investing Activities in our consolidated financial statements, whereas in our segmented basis of presentation we include the dividends as part of our operating cash flow. Realization gains are excluded from cash flow from operating activities for the purpose of this statement as well as and included in the total proceeds from the associated transaction within Investing Activities.

Financing Activities

Financing activities generated $8.7 billion of cash during 2006 compared with $1.0 billion during 2005. Approximately $5.4 billion of property specific financings were arranged during the year, mostly in connection with the acquisition of the U.S. core office portfolio, whereas approximately $1 billion was raised in the previous year. Debt assumed upon business acquisitions is not shown as a source of cash flow for these purposes.

We raised $2.0 billion of cash from non-controlling interests, which represent capital provided by co-investors in funds established during the year, including our transmission fund, the U.S. Core Office Fund and the Acadian Timber Fund. The $263 million raised in 2005 represented co-investor capital in the Island Timber Fund.

We issued $174 million of perpetual fixed rate preferred shares during 2006 compared with the repurchase of $76 million floating rate preferred shares in 2005. We repurchased $141 million of our common shares in 2005, net of issuances, whereas we issued $10 million of common shares in 2006. Our subsidiaries issued $1.1 billion of common equity during the year, principally $0.7 billion issued to minority shareholders in Brookfield Properties and $0.4 billion raised on the initial public offering of Brascan Residential Properties S.A. During 2005, we repurchased $187 million of common shares of subsidiaries, mostly shares of Brookfield Properties and Brookfield Homes.

We retained $321 million (2005 – $265 million) of operating cash flow within our consolidated subsidiaries in excess of that distributed by way of dividends and paid shareholder distributions to holders of our common and preferred shares totalling $258 million (2005 – $190 million).

Investing Activities

We invested net capital of $9.1 billion on a consolidated basis during 2006 compared with $1.3 billion during 2005.

Net investment in property assets totalled $6.5 billion during 2006, compared with $1.0 billion during 2005. The current year’s investment principally represents purchase of the U.S. core office portfolio as well as smaller additions to our core office and opportunity portfolios. The capital invested in property assets during 2005 relates principally to our share of the purchase of the Canadian Core Office portfolio.

We continued to expand our power generating operations during 2006 with the purchase of several hydroelectric facilities in North America and Brazil and developed a large wind energy project in Canada. During 2005, we acquired additional hydroelectric facilities in North America and Brazil as well as a pump storage facility in New Hampshire.

We invested $828 million in timberlands in 2005 with the purchase of major timber holdings in Western Canada. Acadian Timber was formed in 2006 from assets owned by ourselves and Fraser Papers and therefore did not represent an incremental investment. The investment in transmission infrastructure in 2006 represents the capital assets purchased in Chile, net of assumed debt. The capital deployed in 2005 represents upgrades to our Northern Ontario rate base.

The net investment in securities and loans during 2006 of $0.7 billion and loan relates largely to the increased activity in our bridge lending operations. The monetization of financial assets provided $0.7 billion of cash during 2006, largely from the sale of Falconbridge preferred shares.

Proceeds from the disposition of Investments during 2005 totalled $1.3 billion net of acquisitions and related largely to proceeds from the sale of our investment in Falconbridge. The dividends received from Canary Wharf Group during 2006 and 2005 are presented as a reduction in the carrying value of our investment in our consolidated financial statements, whereas we consider the dividends to form part of our operating cash flow.

54           Brookfield Asset Management      |      2006 Annual Report

Reconciliation of Segmented Disclosure to Consolidated Financial Statements

Balance Sheet

	AS AT DECEMBER 31, 2006
															Cash and
						Trans-		Timber-		Specialty		Invest-			Financial		Other
(MILLIONS)	Property			Power		mission		lands		Funds		ments			Assets		Assets		Corporate			Consolidated
Assets
Operating assets
Property, plant and equipment
Property	$	20,105		$	—	$	—	$	111	$	—	$	(2	)	$	—	$	—	$	—		$	20,214
Power generation		—			4,309		—		—		—		—			—		—		—			4,309
Timberlands		—			—		—		1,011		—		—			—		—		—			1,011
Transmission infrastructure		—			—		1,929		—		—		—			—		—		—			1,929
Other plant and equipment		—			—		—		—		453		166			—		—		—			619
Securities		182			—		—		—		29		1,500			—		—		—			1,711
Loans and notes receivable		—			—		—		—		645		6			—		—		—			651
Cash and cash equivalents		418			86		17		18		42		318			305		—		—			1,204
Financial assets		(15	)		532		81		—		23		—			1,044		—		—			1,665
Investments		—			—		157		—		160		439			19		—		—			775
Accounts receivable and other		1,454			436		476		50		445		990			305		1,808		—			5,964
Goodwill		—			27		483		—		—		33			—		113		—			656
Total assets	$	22,144		$	5,390	$	3,143	$	1,190	$	1,797	$	3,450		$	1,673	$	1,921	$	—		$	40,708
Liabilities and shareholders’ equity
Corporate borrowings	$	—		$	—	$	—	$	—	$	—	$	—		$	—	$	—	$	1,507		$	1,507
Property-specific financing		12,470			2,704		1,496		478		—		—			—		—		—			17,148
Other debt of subsidiaries		1,889			684		589		7		175		67			74		—		668			4,153
Accounts payable and other liabilities		1,380			419		267		50		250		1,914			446		—		1,771			6,497
Capital securities		—			—		—		—		—		—			—		—		1,585			1,585
Non-controlling interests in net assets		849			215		242		340		190		65			4		—		1,829			3,734
Preferred equity		—			—		—		—		—		—			—		—		689			689
Common equity / net invested capital		5,556			1,368		549		315		1,182		1,404			1,149		1,921		(8,049	)		5,395
Total liabilities and shareholders’ equity	$	22,144		$	5,390	$	3,143	$	1,190	$	1,797	$	3,450		$	1,673	$	1,921	$	—		$	40,708

Results from Operations

	YEAR ENDED DECEMBER 31, 2006
																	Investment
	Asset											Specialty					Income /
(MILLIONS)	Management		Property		Power		Transmission			Timberlands		Funds		Investments			Gains		Corporate			Consolidated
Fees earned	$	257	$	—	$	—	$	—		$	—	$	—	$	—		$	—	$	—		$	257
Revenues Less Direct Operating Costs
Property		—		1,860		—		—			6		—		(2	)		—		—			1,864
Power generation		—		—		620		—			—		—		—			—		—			620
Timberlands		—		—		—		—			107		—		—			—		—			107
Transmission infrastructure		—		—		—		119			—		—		—			—		—			119
Specialty funds		—		—		—		—			—		228		—			—		—			228
Investment and other income		—		—		—		—			—		1		167			413		—			581
		257		1,860		620		119			113		229		165			413		—			3,776
Expenses
Interest		—		510		235		80			29		13		32			—		286			1,185
Asset management and other operating costs		—		—		—		—			—		—		17			—		316			333
Current income taxes		—		99		2		8			—		3		26			—		4			142
Non-controlling interests		—		79		46		(6	)		26		49		10			17		247			468
Net income before the following		257		1,172		337		37			58		164		80			396		(853	)		1,648
Dividends from Norbord		—		—		—		—			—		—		66			—		—			66
Dividend from Canary Wharf		—		87		—		—			—		—		—			—		—			87
Cash flow from operations		257		1,259		337		37			58		164		146			396		(853	)		1,801
Preferred share dividends		—		—		—		—			—		—		—			—		35			35
Cash flow to common shareholders	$	257	$	1,259	$	337	$	37		$	58	$	164	$	146		$	396	$	(888	)	$	1,766

Brookfield Asset Management     |      2006 Annual Report          55

Balance Sheet

	AS AT DECEMBER 31, 2005
													Cash and
					Trans-		Timber-		Specialty		Invest-		Financial		Other		-
(MILLIONS)	Property		Power		mission		lands		Funds		ments		Assets		Assets		Corporate			Consolidated
Assets
Operating assets
Property, plant and equipment
Property	$	10,722	$	—	$	—	$	113	$	—	$	—	$	—	$	39	$	—		$	10,874
Power generation		—		3,568		—		—		—		—		—		—		—			3,568
Timberlands		—		—		—		888		—		—		—		—		—			888
Transmission infrastructure		—		—		130		—		—		—		—		—		—			130
Other plant and equipment		—		—		—		—		—		316		—		—		—			316
Securities		267		—		—		—		134		1,571		97		—		—			2,069
Loans and notes receivable		—		—		—		—		241		47		60		—		—			348
Cash and cash equivalents		253		115		2		21		—		143		417		—		—			951
Financial assets		—		187		—		—		—		—		1,984		—		—			2,171
Investments		—		—		—		—		122		473		—		—		—			595
Accounts receivable and other		742		882		24		35		2		803		—		1,514		—			4,002
Goodwill		—		—		—		—		—		33		—		113		—			146
Total assets	$	11,984	$	4,752	$	156	$	1,057	$	499	$	3,386	$	2,558	$	1,666	$	—		$	26,058
Liabilities and shareholders’ equity
Corporate borrowings	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	1,620		$	1,620
Property-specific financing		5,881		2,365		100		410		—		—		—		—		—			8,756
Other debt of subsidiaries		1,138		474		—		37		—		110		146		—		605			2,510
Accounts payable and other liabilities		589		491		14		51		—		1,874		282		—		1,260			4,561
Capital securities		—		—		—		—		—		—		—		—		1,598			1,598
Non-controlling interests in net assets		196		225		—		255		—		109		—		—		1,199			1,984
Preferred equity		—		—		—		—		—		—		—		—		515			515
Common equity / net invested capital		4,180		1,197		42		304		499		1,293		2,130		1,666		(6,797	)		4,514
Total liabilities and shareholders’ equity	$	11,984	$	4,752	$	156	$	1,057	$	499	$	3,386	$	2,558	$	1,666	$	—		$	26,058

Results from Operations

	YEAR ENDED DECEMBER 31, 2005
																Investment
	Asset										Specialty					Income /
(MILLIONS)	Management		Property		Power		Transmission		Timberlands		Funds		Investments			Gains		Corporate			Consolidated
Fees earned	$	246	$	—	$	—	$	—	$	—	$	—	$	—		$	—	$	—		$	246
Revenues Less Direct Operating Costs
Property		—		1,210		—		—		—		—		—			—		—			1,210
Power generation		—		—		469		—		—		—		—			—		—			469
Timberlands		—		—		—		—		40		—		—			—		—			40
Transmission infrastructure		—		—		—		24		—		—		—			—		—			24
Specialty funds		—		—		—		—		—		54		—			—		—			54
Investment and other income		—		—		—		—		—		—		34			242		—			276
		246		1,210		469		24		40		54		34			242		—			2,319
Expenses
Interest		—		332		215		4		15		—		28			9		278			881
Asset management and other operating costs		—		—		2		—		—		—		9			—		240			251
Current income taxes		—		141		—		—		—		—		10			—		11			162
Non-controlling interests		—		109		22		—		7		—		5			—		243			386
Net income before the following		246		628		230		20		18		54		(18	)		233		(772	)		639
Dividends from Falconbridge		—		—		—		—		—		—		24			—		—			24
Dividends from Norbord		—		—		—		—		—		—		62			—		—			62
Dividends from Canary Wharf		—		183		—		—		—		—		—			—		—			183
Cash flow from operations		246		811		230		20		18		54		68			233		(772	)		908
Preferred share dividends		—		—		—		—		—		—		—			—		35			35
Cash flow to common shareholders	$	246	$	811	$	230	$	20	$	18	$	54	$	68		$	233	$	(807	)	$	873

56           Brookfield Asset Management     |      2006 Annual Report

BUSINESS ENVIRONMENT AND RISKS

Brookfield’s operating performance is impacted by various factors that are specific to each of our operations as well as the specific sectors and geographic locations in which we operate. We are also impacted by macro-economic factors such as economic growth, changes in currency, inflation and interest rates, regulatory requirements and initiatives, and litigation and claims that arise in the normal course of business.

Our strategy is to invest in high quality long-life assets which generate sustainable streams of cash flow. While high quality assets may initially generate lower returns on capital, we believe that the sustainability and future growth of their cash flows is more assured over the long term, and as a result, warrant higher valuation levels. We also believe that the high quality of our asset base protects the company against future uncertainty and enables us to invest with confidence when opportunities arise.

The following is a review of certain risks that could adversely impact our financial condition, results of operation and the value of our common shares. Additional risks and uncertainties not previously known to the Corporation, or that the Corporation currently deems immaterial may also impact our operations and financial results.

Execution of Strategy

Our strategy for building shareholder value is to acquire or develop high quality assets and businesses that generate sustainable and increasing cash flows on behalf of ourselves and co-investors, with the objective of achieving higher returns on invested capital and increasing asset management fees over the long term.

We consider effective capital allocation to be one of the most important components to achieving long-term investment success. As a result, we apply a rigorous approach towards the allocation of capital among our operations. Capital is invested only when the expected returns exceed pre- determined thresholds, taking into consideration both the degree and magnitude of the relative risks and upside potential and, if appropriate, strategic considerations in the establishment of new business activities.

The successful execution of a value investment strategy requires careful timing and business judgment, as well as the resources to complete asset purchases and restructure them as required, notwithstanding difficulties experienced in a particular industry. Our diversified business base, liquidity and the sustainability of our cash flows provide important elements of strength in executing this strategy.

We endeavour to maintain an appropriate level of liquidity in order to invest on a value basis when attractive opportunities arise. Our approach to business entails adding assets to our existing businesses when the competition for assets is lowest, either due to depressed economic conditions or when concerns exist relating to a particular industry. However, there is no certainty that we will be able to acquire or develop additional high quality assets at attractive prices to supplement our growth. Conversely, overly favourable economic conditions can limit the number of attractive investment opportunities and thereby restrict our ability to increase assets under management and the related income streams. Competition from other well-capitalized investors may significantly increase the purchase price or prevent us from completing an acquisition. We may be unable to finance acquisitions on favourable terms, or newly acquired assets and businesses may fail to perform as expected. We may underestimate the costs necessary to bring an acquisition up to standards established for its intended market position or may be unable to quickly and efficiently integrate new acquisitions into our existing operations.

We develop property and power generation assets. In doing so, we must comply with extensive and complex regulations affecting the development process. These regulations impose on us additional costs and delays, which may adversely affect our business and results of operations. In particular, we are required to obtain the approval of numerous governmental authorities regulating matters such as permitted land uses, levels of density, the installation of utility services, zoning and building standards. We must also comply with a variety of local, state and federal laws and regulations concerning the protection of health and the environment, including with respect to hazardous or toxic substances. These environmental laws sometimes result in delays, cause us to incur additional costs, or severely restrict development activity in environmentally sensitive regions or areas.

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Our ability to successfully expand our asset management business is dependent on our reputation with our current and potential investment partners. We believe that our track record and recent investments, as well as adherence to operating principles that emphasize a constructive management culture, will enable us to continue to develop productive relationships with institutional investors. However, competition for institutional capital, particularly in the asset classes on which we focus, is intense. Although we seek to differentiate ourselves there is no assurance that we will be successful in doing so and this competition may reduce the margins of our asset management business and may decrease the extent of institutional investor involvement in our activities.

Our executive and other senior officers have a significant role in our success. Our ability to retain our management group or attract suitable replacements should any members of the management group leave is dependent on the competitive nature of the employment market. The loss of services from key members of the management group or a limitation in their availability could adversely impact our financial condition and cash flow. Further, such a loss could be negatively perceived in the capital markets. The conduct of our business and the execution of our growth strategy rely heavily on teamwork. Co-operation amongst our operations and our team-oriented management structure are essential to responding promptly to opportunities and challenges as they arise. We believe that our hiring and compensation practices encourage retention and teamwork.

We participate in joint ventures, partnerships, co-tenancies and funds affecting many of our assets and businesses. Investments in partnerships, joint ventures, co-tenancies or other entities may involve risks not present were a third party not involved, including the possibility that our partners, co-tenants or co-venturers might become bankrupt or otherwise fail to fund their share of required capital contributions. Additionally, our partners, co-venturers or co-tenants might at any time have economic or other business interests or goals. In addition, we do not have sole control of certain major decisions relating to these assets and businesses, including: decisions relating to the sale of the assets and businesses; refinancing; timing and amount of distributions of cash from such entities to the Corporation; and capital expenditures.

Some of our management arrangements permit our partners to terminate the management agreement in limited circumstances relating to enforcement of the managers’ obligations. In addition, the sale or transfer of interests in some of our entities is subject to rights of first refusal or first offer and some agreements provide for buy-sell or similar arrangements. Such rights may be triggered at a time when we may not want to sell but may be forced to do so because we may not have the financial resources at that time to purchase the other party’s interest. Such rights may also inhibit our ability to sell our interest in an entity within our desired time frame or on any other desired basis.

General Risks

We are exposed to the local, regional, national and international economic conditions and other events and occurrences that affect the markets in which we own assets and operate businesses. In general, a decline in economic conditions will result in downward pressure on our operating margins and asset values. We believe that the long life nature of our assets and, in many cases, the long-term nature of revenue contracts mitigates this risk to some degree.

Each segment of our business is subject to competition in varying degrees. This can result in downward pressure on revenues which can, in turn, reduce operating margins and thereby reduce operating cash flows and investment returns. In addition, competition could result in scarcity of inputs which can impact certain of our businesses through higher costs. We believe that the high quality and low operating costs of many of our assets and businesses provides some measure of protection in this regard.

A number of our long life assets are interest rate sensitive: an increase in long-term interest rates will, absent all else, tend to decrease the value of the assets. We mitigate this risk in part by financing many of these assets with long-term fixed rate debt, which will typically decrease in value as rates increase. In addition, we believe that many of the conditions that lead to higher interest rates, such as inflation, can also give rise to higher revenues from the assets which will, absent all else, tend to increase the value of the asset.

The trading price of our common shares in the open market cannot be predicted. The trading price could fluctuate significantly in response to factors such as: variations in our quarterly or annual operating results and financial condition; changes in government regulations affecting our business; the announcement of significant events by or our competitors; market conditions and events specific to the industries in which we operate; changes in general economic conditions; differences between our actual financial

58            Brookfield Asset Management     |      2006 Annual Report

and operating results and those expected by investors and analysts; changes in analysts’ recommendations or projections; the depth and liquidity of the market for shares of our common shares; investor perception of our business and industry; investment restrictions; and our dividend policy. In addition, securities markets have experienced significant price and volume fluctuations in recent years that have often been unrelated or disproportionate to the operating performance of particular companies. These broad fluctuations may adversely affect the trading price of our common shares.

Financial and Liquidity Risks

We employ debt and other forms of leverage in the ordinary course of our business in order to enhance returns to shareholders and our co-investors. We attempt to match the profile of the leverage to the associated assets and accordingly fund shorter duration floating rate assets with shorter term floating rate debt and fund long-term fixed rate and equity like assets with long-term fixed rate and equity capital. Most of the debt within our business has recourse only to the assets or subsidiary being financed and has no recourse to the Corporation.

Accordingly, we are subject to the risks associated with debt financing. These risks, including the following, may adversely affect our financial condition and results of operations: our cash flow may be insufficient to meet required payments of principal and interest; payments of principal and interest on borrowings may leave us with insufficient cash resources to pay operating expenses; we may not be able to refinance indebtedness on our assets at maturity due to company and market factors including: the estimated cash flow of our assets; the value of our assets; liquidity in the debt markets; financial, competitive, business and other factors, including factors beyond our control; and if refinanced, the terms of a refinancing may not be as favourable as the original terms of the related indebtedness. We structure our financing arrangements to mitigate these risks through the use of long-term debt and by diversifying our maturities over an extended period of time. We also strive to maintain adequate liquidity to refinance obligations if necessary.

The terms of our various credit agreements and other indebtedness require us to comply with a number of customary financial and other covenants, such as maintaining debt service coverage and leverage ratios and maintaining insurance coverage. These covenants may limit our flexibility in our operations, and breaches of these covenants could result in defaults under the instruments governing the applicable indebtedness even if we had satisfied our payment obligations.

If we are unable to refinance our indebtedness on acceptable terms, or at all, we may need to dispose of one or more of our assets upon disadvantageous terms, prevailing interest rates or other factors at the time of refinancing could increase our interest expense, and if we pledge assets to secure payment of indebtedness and are unable to make required payments, the creditor could foreclose upon such asset or appoint a receiver to receive an assignment of the associated cash flows.

A large proportion of our capital is invested in physical assets such as office properties, hydro electric power generating facilities and transmission systems which can be hard to sell, especially if local market conditions are poor. Such liquidity could limit our ability to vary our portfolio or assets promptly in response to changing economic or investment conditions. Additionally, financial or operating difficulties of other owners resulting in distress sales could depress asset values in the markets in which we operate in times of illiquidity. These restrictions could reduce our ability to respond to changes in the performance of our investments and market conditions and could adversely affect our financial condition and results of operations.

We periodically enter into agreements that commit us to acquire assets or securities. In some cases we may enter into such agreements with the expectation that we will syndicate or assign all or a portion of our commitment to other investors prior to, at the same time as, or subsequent to the anticipated closing. We may be unable to complete this syndication or assignment which may increase the amount of capital that we are required to invest. These activities can have an adverse impact on our liquidity which may reduce our ability to pursue further acquisitions or meet other financial commitments.

We enter into financing commitments in the normal course of business and, as a result, may be required to fund these. Although we do not typically do so, we from time to time guarantee the obligations of funds or other entities that we manage and/or invest in. If we are unable to fulfill any of these commitments this could result in damages being pursued against us or a loss of opportunity through default of contracts that are otherwise to our benefit.

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Our business is impacted by changes in currency rates, interest rates, commodity prices and other financial exposures. As a general policy, we endeavour to maintain balanced positions, although unmatched positions may be taken from time to time within predetermined limits. The company’s risk management and derivative financial instruments are more fully described in the notes to our Consolidated Financial Statements. We selectively utilize financial instruments to manage these exposures.

We have pursued and intend to continue to pursue growth opportunities in international markets and often invest in countries where the U.S. dollar is not the notional currency. As a result, we are subject to foreign currency risk due to potential fluctuations in exchange rates between foreign currencies and the U.S. dollar. A significant depreciation in the value of the foreign currency of one or more countries where we have a significant investment may have a material adverse effect on our results of operations and financial position. Although we attempt to maintain a hedged position with respect to the carrying value of net assets denominated in currencies other than the U.S. dollar, this is not always possible or economical to do. Even if we do so, the carrying value may not equal the economic value, meaning that any difference may not be hedged. In addition, the company receives certain cash flows that are denominated in foreign currencies that are not hedged. We mitigate adverse effects by borrowing under debt agreements denominated in foreign currencies and through the use of financial contracts, however, there can be no assurance that those attempts to mitigate foreign currency risk will be successful.

We typically finance assets that generate predictable long-term cash flows with long-term fixed rate debt in order to provide stability in cash flows and protect returns in the event of changes in interest rates. We also make use of fixed rate preferred equity financing as well as financial contracts to provide additional protection in this regard. Similarly, we typically finance shorter term floating rate assets with floating rate debt. Historically, the company and our subsidiaries have tended to maintain a net floating rate liability position because we believe that this results in lower financing costs over the long-term although in recent years we have maintained a net floating rate asset position given our view on interest rates.

As at December 31, 2006, our net floating rate asset position was $0.9 billion (2005 – liability of $0.8 billion). As a result, a 100 basis point increase in interest rates would increase operating cash flow by $9 million, or $0.02 per share. Our fixed-rate obligations at year end include a notional amount of $1.1 billion (2005 – $1.2 billion) which we are required to record at market value and any changes in value recorded as current income, with the result that a 10 basis point increase in long-term interest rates will result in a corresponding increase in income of $11 million before tax or $0.03 per share and vice versa, based on our year end positions. It is important for shareholders to keep in mind that these interest rate related revaluation gains or losses are offset by corresponding changes in values of the assets and cash flow streams that they relate to, which are not reflected in current income.

We selectively utilize credit default swaps and equity derivatives to hedge financial positions and may establish unhedged positions from time to time. These instruments are typically utilized as an alternative to purchasing or selling the underlying security when they are more effective from a capital employment perspective.

Core Office Properties

Our strategy is to invest in high quality core office properties as defined by the physical characteristics of the assets and, more importantly, the certainty of receiving rental payments from large corporate tenants which these properties attract. Nonetheless, we remain exposed to certain risks inherent in the core office property business.

Core office property investments are generally subject to varying degrees of risk depending on the nature of the property. These risks include changes in general economic conditions (such as the availability and cost of mortgage funds), local conditions (such as an oversupply of space or a reduction in demand for real estate in the markets in which we operate), the attractiveness of the properties to tenants, competition from other landlords with competitive space and our ability to provide adequate maintenance at an economical cost.

Certain significant expenditures, including property taxes, maintenance costs, mortgage payments, insurance costs and related charges, must be made regardless of whether or not a property is producing sufficient income to service these expenses. Our core office properties are subject to mortgages which require substantial debt service payments. If we become unable or unwilling to meet mortgage payments on any property, losses could be sustained as a result of the mortgagee’s exercise of its rights of foreclosure or of sale. We believe the stability and long-term nature of our contractual revenues is an effective mitigant to these risks.

60            Brookfield Asset Management     |      2006 Annual Report

Our core office properties generate a relatively stable source of income from contractual tenant rent payments. We endeavour to stagger our lease expiry profile so that we are not faced with a disproportionate amount of space expiring in any one year. Continued growth of rental income is dependent on strong leasing markets to ensure expiring leases are renewed and new tenants are found promptly to fill vacancies. While we believe the outlook for commercial office rents is positive for both 2007 and in the longer term, it is possible that rental rates could decline or that renewals may not be achieved. The company is, however, substantially protected against short-term market conditions, since most of our leases are long-term in nature. A protracted disruption in the economy, such as the onset of a severe recession, could place downward pressure over time on overall occupancy levels and net effective rents.

Residential Properties

In our residential land development and home building operations, markets have been favourable over most of the past five years with strong demand for well located building lots, particularly in the United States, Alberta and Brazil. Our operations are concentrated in high growth areas which we believe have positive demographic and economic conditions.

The residential homebuilding and land development industry is cyclical and is significantly affected by changes in general and local economic conditions, such as consumer confidence, employment levels, availability of financing for homebuyers and interest rates due to their impact on home buyers’ decisions. Competition from rental properties and used homes may depress prices and reduce margins for the sale of new homes. Homebuilders are also subject to risks related to the availability and cost overruns. Furthermore, the market value of undeveloped land, buildable lots and housing inventories held by us can fluctuate significantly as a result of changing economic and real estate market conditions. If there are significant adverse changes in economic or real estate market conditions, we may have to sell homes at a loss or hold land in inventory longer than planned. Inventory carrying costs can be significant and can result in losses in a poorly performing project or market. Our residential property operations may be particularly affected by changes in local market conditions in California, Virginia, Alberta and Brazil where we derive a large proportion of our residential property revenue.

Many of our customers finance their home acquisitions through lenders providing mortgage financing. Mortgage rates have recently been at or near their lowest levels in many years. Increases in mortgage rates or decreases in the availability of mortgage financing could depress the market for new homes because of the increased monthly mortgage costs to potential homebuyers. Even if potential customers do not need financing, changes in interest rates and mortgage availability could make it harder for them to sell their homes to potential buyers who need financing, which would result in reduced demand for new homes. As a result, rising mortgage rates could adversely affect our ability to sell new homes and the price at which we can sell them.

Power Generating Operations

Our strategy is to own primarily hydroelectric generating facilities, which have operating costs significantly below that of most competing forms of generation. As a result, there is a high level of assurance that we will be able to deliver power on a profitable basis. In addition, we sell most of our generation pursuant to contracts that protect us from variations in future prices. Nonetheless, we are subject to certain risks, the most significant of which are hydrology and price, but also include changes in regulation, risk of increased maintenance costs, dam failure and other disruptions.

The revenues generated by our power facilities are proportional to the amount of electricity generated, which is dependent upon available water flows. Although annual deviations from long-term average water flows can be significant, we strive to mitigate this risk by increasing the geographic diversification of our facilities which assists in balancing the impact of generation fluctuations in any one geographic region.

Demand for electricity varies with economic activity. Accordingly, an economic slowdown could have an adverse impact on prices. In addition, oversupply in our markets may result from excess generating capacity. Pricing risk is mitigated through fixed-price contracts and forward sales of electricity. Future pricing levels are dependent on economic and supply conditions and the terms on which of contracts are renewed. A portion of our power generation revenue is tied, either directly or indirectly, to the spot market price for electricity. Electricity price volatility could have a significant effect on our business, operating results, financial condition or prospects.

Brookfield Asset Management     |      2006 Annual Report           61

There is a risk of equipment failure due to, among other things, wear and tear, latent defect, design error or operator error which could adversely affect revenues and cash flows. Although the power systems have operated in accordance with expectations, there can be no assurance that they will continue to do so. In the future, our generation assets may require significant capital expenditures and operations could be exposed to unexpected increases in costs such as labour, water rents and taxes. Nevertheless, this risk is substantially mitigated by the proven nature of hydroelectric technology, the design of the plants, capital programs, adherence to prudent maintenance programs, comprehensive insurance and significant operational flexibility as a result of having generating units which can operate independently.

The operation of hydroelectric generating facilities and associated sales of electricity are regulated to varying degrees in most regions. Changes in regulation can affect the quantity of generation and the manner in which we produce it, which could impact revenues.

The occurrence of dam failures at any of our hydroelectric generating stations could result in a loss of generating capacity and repairing such failures could require us to incur significant expenditures of capital and other resources. Such failures could result in us being exposed to liability for damages. There can be no assurance that our dam safety program will be able to detect potential dam failures prior to occurrence or eliminate all adverse consequences in the event of failure. Upgrading all dams to enable them to withstand all events could require us to incur significant expenditures of capital and other resources.

The occurrence of a significant event which disrupts the ability of our generation assets to produce or sell power for an extended period, including events which preclude existing customers from purchasing electricity, could have a material negative impact on the business. Our generation assets could be exposed to effects of severe weather conditions, natural disasters and potentially catastrophic events such as a major accident or incident at our generation facilities. In addition, many of our generation assets are located in remote areas which makes access for repair of damage difficult.

Timberlands

The financial performance of our timberland operations depends on the state of the lumber and pulp and paper industries. Decreases in the level of residential construction activity generally reduce demand for logs and wood products, resulting in lower revenues, profits and cash flows for lumber mills who are important customers to us. Depressed commodity prices of lumber, pulp or paper may cause mill operators to temporarily or permanently shut down their mills if their product prices fall to a level where mill operation would be uneconomic. Moreover, these operators may be required to temporarily suspend operations at one or more of their mills to bring production in line with market demand or in response to the market irregularities. Any of these circumstances could significantly reduce the amount of timber that such operators purchase from us.

Weather conditions, timber growth cycles, access limitations and regulatory requirements associated with forestry practices, sale of logs and environmental matters, may restrict our harvesting, as may other factors, including damage by fire, insect infestation, disease, prolonged drought and other natural and man-made disasters. There can be no assurance that we will achieve harvest levels in the future necessary to maintain or increase revenues, earnings and cash flows. Although management believes it follows best practices with regard to forest sustainability and general forest management, there can be no assurance that our forest management planning, including silviculture, will have the intended result of ensuring that our asset base appreciates over time. If management’s estimates of merchantable inventory are incorrect harvesting levels on the our timberlands may result in depletion of our timber assets.

Transmission Infrastructure

Our transmission operations are subject to regulation. The regulated rates are designed to recover allowed costs, including debt financing costs, and permit earning a specified rate of return on assets or equity. Any changes in the rate structure for the transmission assets or any reallocation or redetermination allowed costs relating to the transmission assets, could have a material adverse effect on our transmission revenues and operating margins.

62            Brookfield Asset Management     |      2006 Annual Report

Specialty Investment Funds

Our specialty funds operations are focussed on the ownership and management of securities and businesses that are supported by underlying tangible assets and cash flows. The principal risks in this business are potential loss of invested capital as well as insufficient investment or fee income to cover operating expenses and cost of capital.

Unfavourable economic conditions could have a significant impact on the value and liquidity of our investments and the level of investment income. Since most of our investments are in our areas of expertise and given that we strive to maintain adequate supplemental liquidity at all times, we are well positioned to assume ownership of and operate most of the assets and businesses that we finance. Furthermore, if this situation does arise, we typically acquire the assets at a discount to the underwritten value, which protects us from loss.

Other Risks

As an owner and manager of real property, we are subject to various United States and Canadian federal, provincial, state and municipal laws relating to environmental matters. These laws could hold us liable for the costs of removal and remediation of certain hazardous substances or wastes released or deposited on or in our properties or disposed of at other locations. The failure to remove or remediate such substances, if any, could adversely affect our ability to sell our real estate or to borrow using real estate as collateral, and could potentially result in claims or other proceedings against us. We are not aware of any material non-compliance with environmental laws at any of our properties. We are also not aware of any material pending or threatened investigations or actions by environmental regulatory authorities in connection with any of our properties or any material investigations or actions by environmental regulatory authorities in connection with any of our properties or any material pending threatened claims relating to environmental conditions at our properties. We have made and will continue to make the necessary capital expenditure for compliance with environmental laws and regulations. Environmental laws and regulations can change rapidly and we may become subject to more stringent environmental laws and regulations in the future. Compliance with more stringent environmental laws and regulations could have an adverse effect on our business, financial condition or result of operation.

The ownership and operation of our assets carry varying degrees of inherent risk of liability related to worker health and safety and the environment, including the risk of government imposed orders to remedy unsafe conditions and/or to contravention of health, safety and environmental laws, licenses, permits and other approvals, and potential civil liability. Compliance with health, safety and environmental laws (and any future laws or amendments enacted) and the requirements of licenses, permits and other approvals will remain material to our business. We have incurred and will continue to incur significant capital and operating expenditures to comply with health, safety and environmental laws and to obtain and comply with licenses, permits and other approvals and to assess and manage its potential liability exposure. Nevertheless, from time to time it is possible that we may be unsuccessful in obtaining an important license, permit or other approval or become subject to government orders, investigations, inquiries or other proceedings (including civil claims) relating to health, safety and environmental matters. The occurrence of any of these events or any changes, additions to or more rigorous enforcement of, health, safety and environmental laws, licenses, permits or other approvals could have a significant impact on operations and/or result in additional material expenditures. As a consequence, no assurance can be given that additional environmental and workers’ health and safety issues relating to presently known or unknown matters will not require unanticipated expenditures, or result in fines, penalties or other consequences (including changes to operations) material to its business and operations.

Our core office portfolio is concentrated in large metropolitan areas, some of which have been or may be perceived to be subject to terrorist attacks. Furthermore, many of our properties consist of high-rise buildings, which may also be subject to this actual or perceived threat, which could be heightened in the event that the United States continues to engage in armed conflict. This could have an adverse effect on our ability to lease office space in our portfolio. Each of these factors could have an adverse impact on our operating results and cash flows. Our core office property operations have insurance covering certain acts of terrorism for up to $500 million of damage and business interruption costs. We continue to seek additional coverage equal to the full replacement cost of our assets; however, until this type of coverage becomes commercially available on a reasonably economic basis, any damage or business interruption costs as a result of uninsured acts of terrorism could result in a material cost to the company.

Brookfield Asset Management     |      2006 Annual Report           63

We carry various insurance coverages that provide comprehensive protection for first party and third party losses to our properties. These coverages contain policy specifications, limits and deductibles customarily carried for similar properties. We also self-insure a portion of certain of these risks. We believe all of our properties are adequately insured.

There are certain types of risks (generally of a catastrophic nature such as war or environmental contamination such as toxic mold) which are either uninsurable or not economically insurable. Should any uninsured or underinsured loss occur, we could lose our investment in, and anticipated profits and cash flows from, one or more of our assets or operations, and would continue to be obligated to repay any recourse mortgage indebtedness on such properties.

In the normal course of our operations, we become involved in various legal actions, typically involving claims relating to personal injuries, property damage, property taxes, land rights and contract disputes. We endeavour to maintain adequate provisions for outstanding or pending claims. The final outcome with respect to outstanding, pending or future actions cannot be predicted with certainty, and therefore there can be no assurance that their resolution will not have an adverse effect on our financial position or results of our operations in a particular quarter or fiscal year. We believe that they are not currently involved in any litigation, claims or proceedings in which an adverse outcome would have a material adverse effect on their consolidated financial position or results.

Ongoing changes to the physical climate in which we operate may have an impact on our business. In particular, changes in weather patterns may impact hydrology levels thereby influencing generation levels and power generation levels. Climate change may also give rise to changes in regulations and consumer sentiment that could impact other areas of our business.

The U.S. Investment Company Act of 1940 (the “Act”) requires the registration of any company which holds itself out to the public as being engaged primarily in the business of investing, reinvesting or trading in securities. In addition, the Act may also require the registration of a company that is engaged or proposes to engage in the business of investing, reinvesting, owning, holding or trading in securities and which owns or proposes to acquire investment securities with a value of more than 40% of the company’s assets on an unconsolidated basis. We are not currently an investment company in accordance with the Act and we believe we can continue to arrange our business operations in ways so as to avoid becoming an investment company within the meaning of the Act. If we were required to register as an investment company under the Act, we would, among other things, be restricted from engaging in certain businesses and issuing certain securities. In addition, certain of our contracts may become void.

There are many other laws and governmental regulations that apply to us, our assets and businesses. Changes in these laws and governmental regulations, or their interpretation by agencies or the courts, could occur. Further, economic and political factors, including civil unrest, governmental changes and restrictions on the ability to transfer capital across borders in the United States, but primarily in the foreign countries in which we have invested, can have a major impact on us as a global company.

A portion of the workforce in our operations is unionized and if we are unable to negotiate acceptable contracts with any of our unions as existing agreements expire, we could experience a significant disruption of the affected operations, higher ongoing labour costs and restriction of its ability to maximize the efficiency of its operations, which could have an adverse effect on our operations and financial results.

OUTLOOK

We are optimistic as we review the outlook for our operations in 2007 and believe we are well positioned for continued growth.

We are continuing to expand our distribution capabilities, which should enable us to broaden our range of asset management clients and the amount of capital committed to us. This should increase the capital available to invest and lead to growth in asset management income and assets under management.

The investment market continues to be competitive and acquisition prices have increased due in large part to the availability of low-cost capital for many investors. The breadth of our operating platform, our disciplined approach to investing, and our ability to supplement returns with asset management fees should enable us to continue to invest capital on a favourable basis.

64            Brookfield Asset Management     |      2006 Annual Report

In our core property sector, the leasing markets in which we operate appear to have stabilized and are improving on a measured basis with positive absorption rates in most markets. The most significant improvements have taken place in New York and Calgary. Our strong tenant lease profile and low vacancies give us a high level of confidence that we can achieve our operating targets in 2007. The lack of development, especially in central business districts, has created some stability and the erosion in rental rates experienced over the past two years has stabilized. Office vacancy rates are generally expected to continue to decline gradually over the near term, with the pace of absorption accelerating during 2007. As a result, rental rates are expected to continue to move upward this year, with leasing costs and landlord incentives expected to decline at the same time. However, any significant slowdown in the economy could have a dampening effect on the recovery of office markets.

Residential markets remain mixed in our core markets. Sales growth has slowed in our U.S. markets and, although we continue to generate strong returns, the current supply/demand imbalance must be worked through before we will see growth. Our Alberta operations have benefitted greatly from the continued expansion of activity in the oil and gas industry. Most of the land holdings were purchased in the mid-1990’s or earlier and as a result have an embedded cost advantage today. This has led to particularly strong margins, although the high level of activity is creating some upward pressures on bidding costs and production delays. Nonetheless, unless the market environment changes, we expect to record favourable results in 2007.

Our power operations benefitted from higher water levels and expanded capacity during 2006 and, although market prices declined year-over-year, our strategy of locking in future prices through contractual arrangements and optimizing our ability to deliver power at peak price intervals enabled us to achieve higher realized prices than in 2005. We are well positioned to achieve our hydrology targets in 2007 based on current storage levels and should therefore achieve higher generation levels based on the expansion in our operating base. Accordingly, we expect to record continued growth in operating cash flows during 2007.

We continue to expand our specialized funds and our timberlands and infrastructure operations by committing additional resources and launching new funds. During 2006, we increased the level of invested capital which positively impacted our results. We will focus on maintaining a high level of invested capital, and deploy the capital from new funds, which should lead to continued growth.

There are many factors that could impact our performance in 2007, both positively and negatively. And while we expect to demonstrate continued growth during 2007, our 2006 reported results may be an unrealistic measure due to the significant realization gains recorded during the year. It is for that reason, amongst others, that we measure on growth over the long term as opposed to quarter-over-quarter or year-over-year.

We have described the principal risks earlier in this report, and we will continue to manage our business with the objective of reducing the impact of short-term market fluctuations through the use of long-term revenue contracts and long-term financings, among other measures. This approach to business provides us with confidence that we will meet our ongoing performance objectives with respect to cash flow growth and value creation.

Brian D. Lawson	Bryan K. Davis
Managing Partner and Chief Financial Officer	Managing Partner, Finance
February 9, 2007

Brookfield Asset Management     |      2006 Annual Report           65

SUPPLEMENTAL INFORMATION

This section contains information required by applicable continuous disclosure guidelines and to facilitate additional analysis.

Quarterly Results

The 2006 and 2005 results by quarter are as follows:

	2006												2005
(MILLIONS)	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
Total revenues	$	2,904		$	1,405		$	1,405		$	1,183		$	1,740		$	1,356		$	1,162		$	962
Fees earned	$	70		$	64		$	69		$	54		$	106		$	58		$	46		$	36
Revenues less direct operating costs
Property		865			380			337			282			461			270			257			222
Power generation		142			122			156			200			128			92			115			134
Timberlands		21			24			23			39			9			13			14			4
Transmission infrastructure		49			56			7			7			6			6			6			6
Specialty funds		131			29			29			39			11			17			13			13
Investment and other income		227			180			84			90			8			95			98			75
		1,505			855			705			711			729			551			549			490
Expenses
Interest		420			291			250			224			229			218			235			199
Asset management and other operating costs		108			70			84			71			87			60			51			53
Current income taxes		68			23			37			14			88			28			30			16
Non-controlling interest in net income before the following		142			108			118			100			151			74			78			83
Net income before the following		767			363			216			302			174			171			155			139
Equity accounted income (loss) from investments		(10	)		(7	)		3			(22	)		9			34			73			103
Gains on disposition of Falconbridge		—			—			—			—			—			785			565			—
Depreciation and amortization		(233	)		(136	)		(127	)		(104	)		(103	)		(102	)		(92	)		(77	)
Future income taxes and other provisions		(34	)		(45	)		(16	)		(51	)		5			(180	)		(121	)		(28	)
Non-controlling interests in the foregoing items		121			70			59			54			66			28			30			28
Net income	$	611		$	245		$	135		$	179		$	151		$	736		$	610		$	165

The 2006 and 2005 cash flow from operations by quarter are as follows:

	2006								2005
(MILLIONS, EXCEPT PER SHARE AMOUNTS)	Q4		Q3		Q2		Q1		Q4		Q3		Q2		Q1
Net income before the following	$	767	$	363	$	216	$	302	$	174	$	171	$	155	$	139
Dividends from Falconbridge		—		—		—		—		—		—		12		12
Dividends from Norbord		5		5		51		5		5		5		48		4
Dividends from Canary Wharf		87		—		—		—		73		110		—		—
Cash flow from operations and gains		859		368		267		307		252		286		215		155
Preferred share dividends		8		7		10		10		10		8		9		8
Cash flow to common shareholders	$	851	$	361	$	257	$	297	$	242	$	278	$	206	$	147
Common equity – book value	$	5,395	$	4,905	$	4,721	$	4,663	$	4,514	$	4,586	$	3,872	$	3,411
Common shares outstanding 1		387.9		387.3		386.8		386.6		386.4		391.7		390.3		389.3
Per common share 1
Cash flow from operations	$	2.13	$	0.91	$	0.64	$	0.75	$	0.61	$	0.69	$	0.52	$	0.37
Net income		1.51		0.60		0.31		0.43		0.36		1.82		1.51		0.39
Dividends		0.16		0.16		0.16		0.10		0.10		0.10		0.10		0.09
Book value		14.06		12.90		12.46		12.29		11.81		11.83		10.05		8.91
Market trading price (NYSE)		48.18		44.34		40.62		36.71		33.55		31.07		25.44		25.17
Market trading price (TSX) – C$	$	56.36		49.42		44.86		42.85		39.07		36.09		31.20		30.47

1 Adjusted to reflect three-for-two stock split on April 27, 2006

66          Brookfield Asset Management     |     2006 Annual Report

For the three months ended December 31, 2006, cash flow from operations and gains totalled $859 million ($2.13 per share) compared with $252 million ($0.61 per share) in 2005. The 2006 fourth quarter cash flows contain a number of monetization gains and other significant items. Our property operations include an $87 million dividend received on our investment in Canary Wharf and a $292 million gain on the initial public offering of our Brazil residential business. Our specialty funds benefitted from the receipt of $109 million in regard to the pending settlement of the softwood lumber dispute between Canada and the United States. Investments and other income includes a $149 million gain on the sale of our joint venture with Accor in Brazil. Net income from the three months ended December 31, 2006 totalled $611 million ($1.51 per share) compared with $151 million ($0.36 per share) in 2005. This increase reflects the higher level of cash flow offset in part by increased depreciation expense arising from a large portfolio of core properties acquired at the beginning of the fourth quarter of 2006.

Core property operations tend to produce consistent results throughout the year due to the long-term nature of the contractual lease arrangements. Quarterly seasonality does exist in our residential property and power generation operations. With respect to our residential operations, the fourth quarter tends to be the strongest as this is the period during which most of the construction is completed and homes are delivered. With respect to our power generation operations, seasonality exists in water inflows and pricing. During the fall rainy season and spring thaw, water inflows tend to be the highest leading to higher generation during those periods; however prices tend not to be as strong as the summer and winter seasons due to the more moderate weather conditions during those periods and associated reductions in demand for electricity. We periodically record property disposition and other gains, special distributions, as well as gains on losses or any unhedged financial positions throughout our operations and, while the timing of these items is difficult to predict, the dynamic nature of our asset base tends to result in these items occurring on a relatively frequent basis.

Related-Party Transactions

In the normal course of operations, the company enters into various transactions on market terms with related parties which have been measured at exchange value and are recognized in the consolidated financial statements. There were no transactions, individually or in aggregate, that were material to the overall operations.

Corporate Dividends

The distributions paid by Brookfield on outstanding securities during the past three years are as follows:

	Distribution per Security
	2006		2005		2004
Class A Common Shares 1	$	0.58	$	0.39	$	0.36
Class A Preferred Shares
Series 1 2		—		—		0.30
Series 2		0.88		0.63		0.54
Series 3 3		—		2,012.46		1,744.04
Series 4 + Series 7		0.88		0.63		0.54
Series 8		1.10		0.74		0.56
Series 9		1.25		1.16		1.08
Series 10		1.27		1.19		1.11
Series 11		1.22		1.14		1.06
Series 12		1.19		1.12		1.04
Series 13		0.88		0.63		—
Series 14		3.10		2.25		—
Series 15		1.00		0.65		—
Series 17 4		0.12		—		—
Preferred Securities
Due 2050		1.85		1.73		1.61
Due 2051		1.84		1.71		1.60

1	Adjusted to reflect three-for-two stock split on April 27, 2006
2	Redeemed July 30, 2004
3	Redeemed November 8, 2005
4	Issued November 20, 2006

Brookfield Asset Management     |     2006 Annual Report          67

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to select appropriate accounting policies 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 during the reporting period. In particular, critical accounting policies and estimates utilized in the normal course of preparing the company’s financial statements require the determination of future cash flows utilized in assessing net recoverable amounts and net realizable values; depreciation and amortization; value of goodwill and intangible assets; ability to utilize tax losses; the determination of the primary beneficiary of variable interest activities; effectiveness of financial hedges for accounting purposes; and fair values for disclosure purposes.

In making estimates, management relies on external information and observable conditions where possible, supplemented by internal analysis as required. These estimates have been applied in a manner consistent with that in the prior year and there are no known trends, commitments, events or uncertainties that we believe will materially affect the methodology or assumptions utilized in this report. The estimates are impacted by, among other things, movements in interest rates and other factors, some of which are highly uncertain, as described in the analysis of Business Environment and Risks beginning on page 57 and in the section entitled Financial and Liquidity Risk beginning on page 59. The interrelated nature of these factors prevents us from quantifying the overall impact of these movements on the company’s financial statements in a meaningful way. For further reference on critical accounting policies, see our significant accounting policies contained in Note 1 and Changes in Accounting Policies as described below.

Changes in Accounting Policies

Effective January 1, 2006 the company adopted the following new accounting policies, none of which individually or collectively had a material impact on the consolidated financial statements of the company, unless otherwise noted. These changes were the result of changes to the Canadian Institute of Chartered Accountants (“CICA”) Handbook, Accounting Guidelines (“AcG”) and Emerging Issues Committee Abstracts (“EIC”).

Implicit variable interests

On January 1, 2006, the company adopted CICA Emerging Issues Committee Abstract No. 157, Implicit Variable Interests under AcG-15 (EIC-157). This EIC clarifies that implicit variable interests are implied financial interests in an entity that change with the fair value of the entity’s net assets exclusive of variable interests. An implicit variable interest is similar to an explicit variable interest except that it involves absorbing and/or receiving variability indirectly from the entity. The identification of an implicit variable interest is a matter of judgement that depends on the relevant facts and circumstances. The implementation of this EIC did not have a material impact on our consolidated financial position or results of operations.

Stock-based compensation

On July 6, 2006, the Emerging Issues Committee (EIC) issued Abstract No. 162, Stock-Based Compensation for Employees Eligible to Retire Before the Vesting Date (EIC-162). This EIC clarifies that the compensation cost attributable to options and awards, granted to employees who are eligible to retire or will become eligible to retire during the vesting period, should be recognized immediately if the employee is eligible to retire on the grant date or over the period between the grant date to the date the employee becomes eligible to retire. This EIC became effective for us on January 1, 2006, and require retroactive application to all stock-based compensation awards accounted for in accordance with the CICA Handbook Section 3870, Stock-Based Compensation and Other Stock-Based Payments (CICA 3870). The adoption of this interpretation did not have a material impact on the company.

68          Brookfield Asset Management      |    2006 Annual Report

Additional Share Data

Issued and Outstanding Common Shares

During 2006 and 2005, the number of issued and outstanding common shares changed as follows:

(MILLIONS)	2006			2005 1
Outstanding at beginning of year		386.4			388.1
Issued (repurchased)
Dividend reinvestment plan		0.1			0.1
Management share option plan		1.6			2.3
Conversion of debentures and minority interests		—			1.9
Issuer bid purchases		(0.2	)		(6.0	)
Outstanding at end of year		387.9			386.4
Unexercised options		19.3			18.9
Total diluted common shares		407.2			405.3

1 Adjusted to reflect three-for-two stock split on April 27, 2006

Basic and Diluted Earnings Per Share

The components of basic and diluted earnings per share are summarized in the following table:

(MILLIONS)	2006			2005 1
Net income	$	1,170		$	1,662
Preferred share dividends		(35	)		(35	)
Net income available for common shareholders	$	1,135		$	1,627
Weighted average		387			389
Dilutive effect of the conversion of notes and options using treasury stock method		12			10
Common shares and common share equivalents		399			399

1 Adjusted to reflect three-for-two stock split on April 27, 2006

Assessment and Changes in Internal Control Over Financial Reporting

Management has evaluated the effectiveness of the Company’s internal control over financial reporting. Refer to Management’s Report on Internal Control over Financial Reporting. There have been no changes in our internal control over financial reporting during the year ended December 31, 2006 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

Disclosure Controls

Management, including the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in the Canadian Securities Administrators Multilateral Instrument 52-109). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that such disclosure controls and procedures were effective as of December 31, 2006 in providing reasonable assurance that material information relating to the company and our consolidated subsidiaries would be made known to them within those entities.

Brookfield Asset Management     |     2006 Annual Report          69

Internal Control Over Financial Reporting

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management of Brookfield Asset Management Inc. (“Brookfield”) is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of, the President and Chief Executive Officer and the Chief Financial Officer and effected by the Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Management assessed the effectiveness of Brookfield’s internal control over financial reporting as of December 31, 2006, based on the criteria set forth in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management believes that, as of December 31, 2006, Brookfield’s internal control over financial reporting is effective. Also, management determined that there were no material weaknesses in Brookfield’s internal control over financial reporting as of December 31, 2006. Management excluded from its assessment the internal control over financial reporting at HQI Transelec Chile S.A. (“Transelec”) and Trizec Properties Inc. and Trizec Canada Inc. (collectively, “Trizec”), which were acquired during 2006, whose total assets, net assets, total revenues, and net income on a combined basis constitute approximately 27%, 12%, 5% and nil% respectively of the consolidated financial statement amounts as of and for the year ended December 31, 2006.

Management’s assessment of the effectiveness of BAM’s internal control over financial reporting as of December 31, 2006, has been audited by Deloitte & Touche, LLP, our Independent Registered Chartered Accountants, who also audited Brookfield’s Consolidated Financial Statements for the year ended December 31, 2006, as stated in the Report of Independent Registered Chartered Accountants, which expressed an unqualified opinion on management’s assessment of Brookfield’s internal control over financial reporting and an unqualified opinion on the effectiveness of Brookfield’s internal control over financial reporting.

Toronto, Canada	J. Bruce Flatt	Brian D. Lawson
March 14, 2007	Chief Executive Officer	Chief Financial Officer

REPORT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS

To the Board of Directors and Shareholders of Brookfield Asset Management Inc.

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control over Financial Reporting, that Brookfield Asset Management Inc. and subsidiaries (the “company”) maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. As described in Management’s Report on Internal Control over Financial Reporting, management excluded from its assessment the internal control over financial reporting at HQI Transelec Chile S.A. (“Transelec”) and Trizec Properties Inc. And Trizec Canada Inc. (collectively, “Trizec”), which were acquired during 2006 and whose financial statements on a combined basis constitute approximately 27%, 12%, 5% and nil% respectively of total assets, net assets, total revenues and net income of the consolidated financial statement amounts as of and for the year ended December 31, 2006. Accordingly, our audit did not include the internal control over financial reporting at Transelec or Trizec. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2006 of the company and our report dated March 14, 2007 expressed an unqualified opinion on those financial statements.

Toronto, Canada	Deloitte & Touche, LLP
March 14, 2007	Independent Registered Chartered Accountants

70          Brookfield Asset Management      |    2006 Annual Report