Exhibit 99.2

Financial Results

CONTENTS

Management’s Discussion and Analysis of Financial Results
Introduction	8
Performance Measurement	9
Overview of 2005 Performance	10
Operations Review	14
Capital Resources and Liquidity	33
Business Environment and Risks	38
Outlook	42
Consolidated Financial Analysis	43
Supplemental Information	54
Report of Independent Registered Chartered Accountants	59
Consolidated Financial Statements	60

This section of our annual report includes management’s discussion and analysis of our financial results (“MD&A”), our consolidated financial statements for the most recent year and the report of the Corporation’s auditors. The MD&A is intended to provide you with an assessment of our performance over the past two years as well as our financial position, performance objectives and future prospects.

The information in this section should be read in conjunction with our audited consolidated financial statements, which are included on pages 59 through 96 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 97 of this report.

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, 2005 in providing reasonable assurance that material information relating to the company and our consolidated subsidiaries would be made known to them within those entities.

Brian D. Lawson	Bryan K. Davis
Managing Partner and Chief Financial Officer	Managing Partner, Finance
February 10, 2006

Brookfield Asset Management   |   2005 Annual Report     7

Management’s Discussion and Analysis of Financial Results

INTRODUCTION

Brookfield is an asset management company. Our cash flows and earnings are based on the profits generated by our operations, as well as the fees that we earn by managing these activities on behalf of co-investors. The value of our company will grow to the extent that we increase the value of our invested capital and the contribution received from asset management fees.

We conduct most of our operations through public and private entities that are owned in partnership with institutional and other investors. A number of these entities are funds that are managed by us pursuant to contractual arrangements whereby we earn asset management and other fees. Our ability to earn management fees is important to our success in that it enables us to increase our returns on invested assets without compromising on quality or our disciplined approach to financing.

We typically commit to invest between 25% and 50% of the capital in our managed funds. We believe that our ability to commit a meaningful amount of capital to a fund strongly aligns our interests with our co-investors and differentiates us from many of our competitors. Furthermore, it gives us the opportunity to earn an attractive return on our capital. The fees we earn for managing these funds typically includes a base fee in respect of ongoing services, a performance fee that represents a portion of the amount by which investment returns exceed a predetermined threshold, and transaction fees in respect of certain activities.

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 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 not to guarantee the obligations of any fund or operating entity other than our equity commitment. Funds also have the ability to raise additional equity capital 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. Finally, our operations generate significant free cash flows each year, which in 2005 totalled nearly $1 billion. Our liquidity at the end of 2005 is significantly higher than usual due to the sale of a major investment during the year for proceeds of $2.7 billion.

A key objective for us is to increase assets managed on behalf of others and as a result, increase the contribution from asset management fees.

Basis of Presentation

The discussion and analysis of our financial results is organized to illustrate how our capital is invested in terms of assets under management, to show which assets are beneficially owned by us, to present the net capital invested by us in each of our operations, and to show you the returns that we earn from our invested capital and our fee generating activities. This is reflective of how we manage the business.

8      Brookfield Asset Management   |   2005 Annual Report

All financial data included in Management’s Discussion and Analysis have been prepared in accordance with Canadian generally accepted accounting principles (“GAAP”), with 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 a reconciliation between the basis of presentation in this section and our consolidated financial statements in the Consolidated Financial Analysis commencing on page 43, and we specifically reconcile operating cash flow and net income on page 12. 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.

PERFORMANCE MEASUREMENT

Our single most important performance measurement is operating cash flow measured on a per share basis. Our principal objective is to increase operating cash flow per share at a reasonable annualized rate, which we currently consider to be 12%, over the long term. We believe that this is the most important measure because it reflects the value of our underlying businesses and should translate into greater intrinsic value for our company over time.

Operating Cash Flow

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 underlying operations. Operating cash flow also includes dividends from our principal equity and cost accounted investments that would not otherwise be included in net income under GAAP, and excludes any equity accounted earnings from such investments. We discuss each of these items in detail on pages 49 and 50 of this report. Operating cash flow is a non-GAAP measure, and may differ from definitions of operating cash flow used by other companies.

Return on Invested Capital

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 by the operating cash flow as a percentage of the net invested capital.

One of the major opportunities to increase returns is to effectively re-invest our considerable surplus financial liquidity into higher yielding investments. At year end, we held cash and financial assets of approximately $2.6 billion that earned an average yield of 6% on equity. We also hold a number of investments and development properties that are not yet generating their full return potential. Accordingly, a key objective for us is to continually reinvest capital and convert non-income producing assets, that are not earning a current return, into opportunities that have the potential to earn an appropriate return. Having said that, it is likely that we will have a meaningful level of liquidity at any point in time to ensure we can capitalize on opportunities as they arise, and given the dynamic nature of our business there will most often be some component of our asset base that is transitional in nature.

The other opportunity to increase returns is to continue to optimize our existing operations by managing them more effectively and financing them in a manner that enhances financial returns without taking on an inappropriate level of risk. Our management teams are charged with the responsibility of doing so, and this is an important component of their own performance assessment. We have had considerable success in achieving this over the years and will continue to maintain a strong focus on this area.

Contribution from Fee Generating Activities

Fees earned during 2005 totalled $282 million, resulting in a net contribution of $98 million or $0.37 per share, after deducting directly attributable operating expenses. This is an increase of 34% over the $73 million contributed in 2004 and nearly three times the contribution in 2003. Nevertheless, we are still in our early stages of building these operations and this represented only 11% of our operating cash flow for 2005. The contribution from these fees represents cash flow above and beyond the investment

Brookfield Asset Management   |  2005 Annual Report      9

return, and therefore our ability to increase this contribution will have a significant impact on the operating cash flow per share in the future.

We plan to increase the contribution from fee generating activities by introducing new funds and increasing the capital deployed within existing funds. Furthermore, as our existing funds mature, we expect to earn performance fees that will also increase returns. Our ability to increase fees will be dependent on our ability to introduce new funds, leverage our operating base to contain costs and the achievement of strong returns in order to earn performance fees.

OVERVIEW OF 2005 PERFORMANCE

Our 2005 financial results were the highest in the history of our company. 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 (MILLIONS, EXCEPT PER SHARE AMOUNTS)	2005		20041		20031
Revenues	$	5,256	$	3,899	$	3,370
Net income	$	1,662	$	555	$	232
Per share	$	6.12	$	2.02	$	0.78
Operating cash flow	$	908	$	626	$	590
Per share	$	3.28	$	2.32	$	2.14
Assets under management	$	49,700	$	27,146	$	23,108

1 Revised to conform to current presentation

Revenues increased to $5.3 billion during 2005, an increase of $1.3 billion over 2004. Property revenues increased by $0.5 billion relative to 2004, driven in large part by continued growth in residential property operations. Revenues from our power operations increased by $0.3 billion during the year. Approximately $0.5 billion of the additional revenues were generated by timberland and associated forest product operations acquired during 2005. The increase in 2004 revenues relative to 2003 was due largely to the expansion of our power operations and higher prices and volumes in our residential property operations.

Net income totalled $1.7 billion, or $6.12 per share, including an after tax gain of $1.1 billion on the disposition of our investment in Falconbridge. Operating cash flow, which excludes this gain, increased by 45% to $908 million or $3.28 per share compared with $626 million or $2.32 per share during 2004. The growth in cash flow is due to improved results within almost all of our operations.

Our principal financial objective is to increase operating cash flow per share, with a target of 12% annualized growth rate over the long term. We achieved 41% growth during 2005, and 27% annualized growth over the last three years. These results exceed our long-term expectations and, accordingly, shareholders should not expect us to generate this rate of growth on an ongoing basis. Our financial targets and results are set out in the following table:

				Three Year			Annual Results
YEARS ENDED DECEMBER 31	Objective			Results			2005			2004			2003
Operating cash flow and gains per share
Annual growth		12	%		27	%		41	%		8	%		35	%
Cash return on equity per share		20	%		19	%		21	%		19	%		18	%

Our cash return on equity reached 21% in 2005 as a result of the continued growth in operating cash flow, although the substantial increase in the book value of our equity due to the net income recorded during the year has increased the level of cash flow required to meet our 20% objective during 2006 to $3.87 per share based on the book value per common share at year end.

Assets under management nearly doubled to approximately $50 billion due to the continued expansion of our asset management activities, in particular within our public securities operation and through the formation of several funds during the year, including two major property and timberlands funds.

10      Brookfield Asset Management   |    2005 Annual Report

Summary of Operating Results

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

	Assets Under		Invested Capital1												Operating Cash Flow2												Return on Capital
AS AT AND FOR THE YEARS ENDED DECEMBER 31	Management		Total						Net						Total						Net						Total			Net
MILLIONS, EXCEPT PER SHARE AMOUNTS	2005		2005			2004			2005			2004			2005			2004			2005			2004			2005			2005
Fees earned															$	282		$	199		$	98		$	73
Operating assets
Property	$	16,073	$	11,859		$	9,802		$	4,181		$	3,988			1,393			973			811			540			13	%		20	%
Power		4,752		4,752			3,550			1,197			1,176			469			268			230			169			11	%		19	%
Timber and infrastructure		1,213		1,213			215			346			91			64			26			38			21			9	%		17	%
Specialty investment funds		19,927		499			897			499			897			54			48			54			48			8	%		8	%
Investments		3,386		3,386			3,606			1,293			2,375			120			124			68			113			3	%		4	%
Cash and financial assets		2,558		2,558			985			2,130			646			193			128			184			124			11	%		13	%
Other assets / disposition gains		1,791		1,791			952			1,791			952			49			123			49			123			4	%		4	%
	$	49,700		26,058			20,007			11,437			10,125			2,624			1,889			1,532			1,211			11	%		14	%
Financial obligations
Corporate debt / interest				(1,620	)		(1,675	)		(1,620	)		(1,675	)		(119	)		(103	)		(119	)		(103	)		7	%		6	%
Property specific mortgages / interest				(8,756	)		(6,045	)		—			—			(519	)		(321	)		—			—			7	%		—
Subsidiary borrowings / interest				(2,510	)		(2,373	)		(605	)		(664	)		(153	)		(105	)		(69	)		(61	)		6	%		10	%
Other liabilities / operating expense				(4,561	)		(2,719	)		(1,386	)		(1,097	)		(449	)		(295	)		(103	)		(92	)		7	%		6	%
Capital securities / interest				(1,598	)		(1,548	)		(1,598	)		(1,548	)		(90	)		(79	)		(90	)		(79	)		6	%		6	%
Non-controlling interests in net assets				(1,984	)		(1,780	)		(1,199	)		(1,274	)		(386	)		(360	)		(243	)		(250	)		21	%		20	%
Net assets / operating cash flow				5,029			3,867			5,029			3,867			908			626			908			626			20	%		20	%
Preferred equity / distributions				(515	)		(590	)		(515	)		(590	)		(35	)		(24	)		(35	)		(24	)		6	%		6	%
Common equity / operating cash flow			$	4,514		$	3,277		$	4,514		$	3,277		$	873		$	602		$	873		$	602			22	%		22	%
Per share			$	17.72		$	12.76		$	17.72		$	12.76		$	3.28		$	2.32		$	3.28		$	2.32			21	%		21	%

1	Brookfield’s invested capital, at book value
2	Brookfield’s share of operating cash flows

Operating Cash Flow

We discuss our operating results in more detail within the Operations Review starting on page 14. The principal highlights are as follows:

Fees earned increased to $282 million in 2005 with a net contribution of $98 million after associated expenses, up from a net contribution of $73 million in 2004. The increase is due to the continued expansion of our asset management activities. Highlights included acquisitions and the formation of new funds which increased assets under management by $20 billion, and provided $30 million of additional fees during the year.

Property operations contributed net operating cash flow of $811 million, an increase of 50% over 2004. Residential property results continued to exceed expectations. Core property operations benefitted from $183 million in dividends from Canary Wharf Group, which represents a 20% yield when measured over the life of our investment. The balance of our core property operations demonstrated stable growth over last year’s results, due to acquisitions in London, U.K. and Washington, D.C.

The net operating cash flow from our power generation operations increased to $230 million, an increase of 36% over 2004. We continue to expand these operations through a combination of operational enhancements, acquisitions and select greenfield developments. Although hydrology conditions during 2005 were below long term averages, we did benefit from significantly higher prices during 2005. This will become more evident in our results going forward as we renew power sale contracts, assuming prices continue at these higher levels.

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We expanded our timber and infrastructure operations substantially during the year with the formation of the Island Timberlands Fund, which owns 635,000 acres of high quality private timberlands on Vancouver Island. More recently, while not included in 2005 results, we established a publicly listed east coast timber fund. Our transmission and distribution operations in northern Ontario achieved planned results and completed a major upgrade during the year.

Contribution from our investments decreased to $68 million from $113 million in 2004 as a result of a challenging operating environment for our pulp and paper operations. This was offset in part by an increase in dividends received from our investment in Norbord.

Specialty funds include our bridge, restructuring, real estate finance and public securities operations. These operations generated net cash flow of $54 million in 2005, an increase relative to 2004 due to higher levels of invested capital.

The contribution from cash and financial assets increased relative to 2004 whereas the income from investments declined. This reflects the sale of our investment in Falconbridge during the year and the investment of the proceeds into cash and financial assets pending redeployment.

Financing charges, which represent carrying charges on debt and capital securities, totalled $278 million in 2005 compared with $243 million in 2004. The increase reflects the impact of our shift from floating to fixed rates which, despite increased carrying charges, should provide greater stability and lower cost of capital over the long term.

Operating expenses were higher in 2005, reflecting increased activity within our expanded operating platform. Non-controlling interest was higher in 2004 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 increased substantially in 2005, reflecting the gain of $1.4 billion ($1.1 billion net of tax) on the sale of our investment in Falconbridge. This was offset in part by lower equity accounted earnings from Falconbridge and Norbord following the sale of our investments, and prior to reinvestment of the capital generated. Net income is reconciled to cash flow as set forth below:

YEARS ENDED DECEMBER 31 (MILLIONS)	2005			20041			20031
Operating cash flow and gains	$	908		$	626		$	590
Less: dividends from Falconbridge and Norbord		(86	)		(64	)		(67	)
dividends from Canary Wharf		(183	)		—			—
		639			562			523
Non-cash items, net of non-controlling interests
Equity accounted income from investments		219			332			43
Gains on disposition of Falconbridge		1,350			—			—
Depreciation and amortization		(290	)		(169	)		(110	)
Future income taxes and other provisions		(256	)		(170	)		(224	)
Net income	$	1,662		$	555		$	232

1 Revised to conform to current presentation

Equity accounted income from Falconbridge, Norbord and Fraser Papers contributed $219 million during the year compared to $332 million for the same period in 2004. The current year included only seven months of equity accounted earnings from our investment in Falconbridge, due to the monetization of our remaining investment. Norbord continued to benefit from a strong price environment for their principal products, as well as increases in production volumes, although the contribution was lower than last year when oriented strandboard prices were particularly strong and our ownership position was higher.

12      Brookfield Asset Management   |  2005 Annual Report

We recorded a gain of $1.4 billion ($1.1 billion net of tax) on the monetization of our investment in Falconbridge during the year through the sale of approximately 121 million common shares for aggregate proceeds of approximately $2.7 billion.

Depreciation and amortization increased in 2005 due to the acquisition of additional property, power and timberland assets. We are required to record depreciation expense in a manner prescribed by GAAP; however we caution that this implies these assets decline in value on a pre-determined basis over time, whereas we believe that the value of these assets, as long as regular sustaining capital expenditures are made, will typically increase over time. This increase 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 taxes and other provisions include non-cash charges in respect of GAAP prescribed tax obligations, including approximately $250 million related to the Falconbridge gain, as well as the impact of revaluation gains and losses. These items are discussed further on pages 49 and 50.

Financial Position

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

YEARS ENDED DECEMBER 31 (MILLIONS)	2005		2004		2003
Total assets	$	26,058	$	20,007	$	16,309
Net invested capital		11,437		10,125		8,913
Non-recourse borrowings	$	11,266	$	8,418	$	6,956
Corporate borrowings		1,620		1,675		1,213
Capital securities		1,598		1,548		1,168
Shareholders’ equity		5,029		3,867		3,250

Total assets increased to $26.1 billion at December 31, 2005 from $20.0 billion and $16.3 billion at the end of 2004 and 2003, respectively. The increase is due to the continued expansion of our operations in 2005. During 2005 and 2004, we acquired additional property and power assets and also acquired timberland assets in 2005. The sale of our investment in Falconbridge during the year for proceeds of $2.7 billion generated a $1.1 billion after tax gain which is included in net income. This resulted in a substantial increase in cash and financial assets, pending redeployment, and a decrease in investments.

The net capital (i.e. assets less associated liabilities) invested in our business increased by $1.3 billion overall during 2005. The amount of net capital invested in our property operations increased by approximately $200 million, reflecting growth in our opportunity investments and core office portfolio. Net capital invested in specialty funds declined by approximately $400 million as a number of larger bridge loans were repaid during the year. The capital in our timber and infrastructure operations increased by $255 million due principally to the capital invested in the Island Timberlands Fund that we established during the year.

Our corporate financial obligations were relatively unchanged during the year and consist principally of long-term fixed rate debt and equity securities. Non-recourse borrowings increased in line with the addition of property, power and timberland assets. We finance our high quality assets with long-term fixed-rate obligations that have no recourse to the Corporation. The book value of our common equity increased to $4.5 billion from $3.3 billion due to the substantial net income recorded during the year, offset in part by dividends and share buybacks. The market value of our common equity was $13.0 billion at year end, up from $9.3 billion at the end of 2004.

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OPERATIONS REVIEW

Fees Earned

Fee income totalled $282 million during 2005, which contributed $98 million, net of associated expenses, compared with a contribution of $73 million for 2004.

	Total Operating Cash Flow				Net Operating Cash Flow
YEARS ENDED DECEMBER 31 (MILLIONS)	2005		2004		2005		2004
Asset management	$	63	$	17	$	20	$	7
Property services		200		159		59		43
Investment		19		23		19		23
	$	282	$	199	$	98	$	73

The increasing contributions from fees enhances our return on capital because in most cases these fees either do not require an outlay of capital or are in addition to the existing investment. Our expansion of these activities will result in an increasing level of fees which, over time, should provide a very meaningful and stable component of our overall operating cash flows.

Asset Management 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 fees 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 most of our funds are less than two years old and accordingly our results reflect partial year contributions. Furthermore, performance fees, which can add considerably to fee revenue, typically arise later in a fund’s life cycle, and are therefore not fully reflected in these results.

The following table summarizes asset management fees and associated expenses for the past two years:

YEARS ENDED DECEMBER 31 (MILLIONS)	2005		2004
Base management fees	$	46	$	13
Transaction fees		12		—
Performance fees		5		4
Total operating cash flow		63		17
Less: expenses		43		10
Net operating cash flow	$	20	$	7

As at December 31, 2005, the base management fees on established funds represent $55 million on an annualized basis.

Property Services Fees

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

YEARS ENDED DECEMBER 31 (MILLIONS)	2005		2004
Facilities, leasing and project management1	$	47	$	42
Residential real estate services		100		75
Property advisory		53		42
Total operating cash flow		200		159
Less: direct operating costs		141		116
Net operating cash flow	$	59	$	43

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

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Leasing and project management fees in 2005 include a $30 million fee for assisting in the development of Goldman Sachs’ headquarters 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. Residential real estate includes a variety of services relating to residential properties, including home appraisal services, mortgage processing and executive home relocations.

Property advisory fees include fees earned from investment banking, property management and other related activities. We also earn transaction fees for investment and finance activities conducted on behalf of our funds and other clients. We sold our Royal LePage Commercial advisory business to Cushman & Wakefield in the third quarter of 2005 for a gain of $28 million. We will, however, continue to earn fees from our successful real estate advisory group that we established in 2004, as well as the property relocation, facilities management and other property related services that provide the majority of these fees.

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 life span of the relative investment as appropriate and represent an important return from our investment activities.

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 70% of net invested capital, and 68% of net operating cash flows:

	Assets Under		Invested Capital								Operating Cash Flow								Return on Capital
AS AT AND FOR THE YEARS ENDED DECEMBER 31	Management		Total				Net				Total				Net				Total			Net
MILLIONS	2005		2005		2004		2005		2004		2005		2004		2005		2004		2005			2005
Core office properties	$	12,574	$	8,360	$	7,177	$	2,875	$	2,729	$	848	$	641	$	548	$	387		11	%		20	%
Residential properties		2,033		2,033		1,444		245		203		496		305		225		137		29	%		100	%
Opportunity investments		468		468		83		147		72		19		3		13		2		7	%		12	%
Retail properties		270		270		271		186		157		25		23		20		13		9	%		12	%
Development properties		728		728		827		728		827		5		1		5		1		1	%		1	%
Net investment / operating cash flow	$	16,073	$	11,859	$	9,802	$	4,181	$	3,988	$	1,393	$	973	$	811	$	540		13	%		20	%

Operating cash flow from our property operations in 2005 increased substantially over the prior year, due principally to dividends received on our Canary Wharf investment during 2005, as well as the continued growth in profits generated by our home building operations. A portion of this growth accrues to minority shareholders in certain partially-owned operations that are consolidated in the financial information. The amount of net capital deployed in this sector increased only modestly year over year.

Core Office Properties

We own and manage one of the highest quality core office portfolios in North America, which consists of 66 commercial properties totalling 48 million square feet of rentable area, as well as 10 developments sites with over 8 million square feet of potential developable area. 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. Currently our primary markets are the financial, energy and government centre cities of New York, Boston, Washington, D.C., Toronto, Calgary and Ottawa. Our North American operations are conducted through a 51%-owned subsidiary.

In London, U.K. we own an interest in 16 high quality commercial properties comprising 8.3 million square feet of rentable area and a further 5.7 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 hold an indirect interest in the balance of the portfolio through our 15% ownership interest in privately-owned Canary Wharf Group.

Brookfield Asset Management   |  2005 Annual Report      15

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, Barclays Bank, CIBC, Clifford Chance, Bank of Montreal, JPMorgan Chase, Lehman Brothers, RBC Financial Group, Petro-Canada, Target Corporation 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 5% of our leases mature annually. The long-term nature of our leases enable us to finance these properties on a long-term basis with no recourse to us.

As at December 31, 2005, the average term of our in-place leases in North America was nine years and expiries average 5.6% during each of the next five years. The average term of property specific financings was also in excess of 10 years. In our European portfolio, the average lease term is 20 years and the average term of property specific debt exceeds 20 years.

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		Total				Net						Total				Net
MILLIONS	2005		2005		2004		2005			2004			2005		2004		2005			2004
North America
New York, New York	$	4,795	$	3,885	$	3,576	$	3,885		$	3,576		$	348	$	371
Boston, Massachusetts		650		325		328		325			328			32		34
Toronto, Ontario		3,090		1,400		1,068		1,400			1,068			96		85
Calgary, Alberta		1,384		570		448		570			448			56		53
Washington, D.C.		395		395		439		395			439			36		22
Ottawa, Ontario		400		100		—		100			—			—		—
Denver, Colorado		344		344		370		344			370			34		32
Minneapolis, Minnesota		429		429		414		429			414			22		20
Other North America		289		114		84		114			84			15		24
Total North America		11,776		7,562		6,727		7,562			6,727			639		641	$	639		$	641
United Kingdom
Canary Wharf Group, plc		267		267		450		267			450			183		—		183			—
20 Canada Square		531		531		—		492			—			26		—		26			—
		12,574		8,360		7,177		8,321			7,177			848		641		848			641
Property specific mortgages / interest								(5,446	)		(4,448	)						(300	)		(254	)
Net investment / operating cash flow	$	12,574	$	8,360	$	7,177	$	2,875		$	2,729		$	848	$	641	$	548		$	387

Operating Results

Operating cash flow increased to $848 million during 2005, a significant increase over the $641 million generated by the portfolio during 2004 and $585 million generated in 2003. After deducting interest expense associated with property specific financings, the net operating cash flow was $548 million in 2005, representing a 20% return on net invested capital and a 42% increase over the $387 million generated in 2004.

The increase was due to a substantial contribution from our U.K. operations which included $183 million in dividends received from our 15% investment in Canary Wharf, as well as operating cash flow of $26 million from our 20 Canada Square property. The Canary Wharf dividends, which are the first received since our initial investment in 2003, represent a 20% annualized return on our invested capital over that period.

16      Brookfield Asset Management   |  2005 Annual Report

Our North American portfolio produced operating cash flow of $639 million, which was slightly lower than 2004 due principally to acquisitions, offset in part by vacancies in higher rent space within our portfolio. 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.

Interest expense incurred on property specific financings increased from $254 million during 2004 to $300 million during 2005. Carrying charges on the U.K. property acquired during the year accounted for $21 million of the increase and the balance was due principally to financing associated with the acquisition of the Canadian core portfolio and the Washington properties acquired during 2004.

Portfolio Activity

During 2005, we expanded our core office portfolio by 11 million square feet and increased our net effective interest by 4.6 million square feet with the acquisition of a major Canadian portfolio and an acquisition in Europe. We also completed the redevelopment of Three World Financial Center, which was previously included in development properties. As a result, total core office assets increased to $8.4 billion at the end of 2005 compared with $7.2 billion at the end of 2004.

The Canadian portfolio acquisition enabled us to establish a Canadian core property fund that is 25% owned by Brookfield with two institutional investors owning the balance. The total cost of the portfolio was $1.8 billion, including the assumption of $1.3 billion of property specific debt. The Canadian core fund comprises 24 high quality office properties and one development site totalling 11.6 million square feet in five Canadian markets, principally Toronto, Calgary and Ottawa. The flagship property is the 2.8 million square foot First Canadian Place Tower in Toronto. The portfolio was 96% leased at year end.

In London, we acquired an 80% interest in 20 Canada Square located in the Canary Wharf Estate, which we acquired from Canary Wharf Group in the first quarter of 2005. The remaining 20% is owned by an institutional investment partner. The acquisition is consistent with our strategy of increasing our presence in London, which is an attractive base for us to expand our European asset management operations. This 12 floor property contains 550,000 square feet which was 100% leased at year end. Three properties within the Canary Wharf Estate, including 20 Canada Square, were sold by Canary Wharf Group during 2005 for proceeds totalling nearly £900 million ($1.6 billion).

Property specific debt, which is comprised principally of long-term mortgages secured by the underlying properties with no recourse to the Corporation, increased to $5.4 billion from $4.4 billion in 2004. The increase represented financing associated with the properties acquired during the year as well as financing put in place on the Washington properties acquired in 2004. As a result, the book value of the net capital deployed in core office properties increased to $2.9 billion during the year from $2.7 billion at the end of 2004.

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. In addition, in certain circumstances when a building is leased almost exclusively to a high-credit quality tenant, a higher loan-to-value financing, based on the tenant’s credit quality, is 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, 2005 had an average interest rate of 6.5% and an average term to maturity of ten years.

Property valuations continued to increase in North America and the U.K., driven by the continued low interest rate environment, improving leasing fundamentals and strong investor demand.

Brookfield Asset Management   |  2005 Annual Report      17

Occupancy Levels

Our total portfolio occupancy rate at December 31, 2005 was 95% in our core North American markets, and 94% overall, as shown in the following table:

	2005							2004
	Gross		Net					Gross		Net
	Leasable		Leasable		Percentage			Leasable		Leasable		Percentage
YEARS ENDED DECEMBER 31 (THOUSANDS)	Area		Area		Leased			Area		Area		Leased
New York, New York		12,453		10,738		95	%		12,453		9,506		92	%
Boston, Massachusetts		2,163		1,103		92	%		2,163		1,103		97	%
Toronto, Ontario		12,278		6,147		93	%		7,882		4,777		93	%
Calgary, Alberta		8,936		3,816		99	%		6,331		3,166		98	%
Washington, D.C.		1,557		1,557		99	%		1,557		1,557		93	%
Ottawa, Ontario		2,935		734		99	%		—		—		—
Core North American markets		40,322		24,095		95	%		30,386		20,109		94	%
Denver, Colorado		2,605		2,605		87	%		3,017		2,811		85	%
Minneapolis, Minnesota		3,008		3,008		88	%		3,008		3,008		86	%
Other North America		2,095		1,219		92	%		926		926		91	%
Total North America		48,030		30,927		94	%		37,337		26,854		92	%
London, United Kingdom		10,556		2,173		90	%		10,000		1,617		90	%
Total1		58,586		33,100		94	%		47,337		28,471		92	%

1 Excludes development sites

We leased 3.8 million square feet in our North American portfolio during 2005, approximately three times the amount of space contractually expiring. This included 2.2 million square feet of new leases and 1.6 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. Average net rents in our markets were $25 per square foot compared with an average in-place net rent in our portfolio of $23 per square foot, indicating that we should be able to maintain or increase net operating income as leases mature and are replaced, even if market rents do not increase.

Leasing fundamentals in London also continued to improve, and 900,000 square feet was leased during the year in properties in 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 Property

We conduct residential property operations in the United States, Canada and Brazil.

	Assets Under		Invested Capital										Operating Cash Flow
AS AT AND FOR THE YEARS ENDED DECEMBER 31	Management		Total				Net						Total				Net
MILLIONS	2005		2005		2004		2005			2004			2005		2004		2005			2004
United States	$	1,335	$	1,335	$	967	$	1,063		$	769		$	350	$	238
Canada		166		166		132		166			132			106		42
Brazil		532		532		345		396			297			40		25
		2,033		2,033		1,444		1,625			1,198			496		305	$	496		$	305
Cash taxes								—			—							(141	)		(71	)
Borrowings / interest1								(1,238	)		(858	)						(21	)		(13	)
Non-controlling interest in net assets								(142	)		(137	)						(109	)		(84	)
Net investment / operating cash flow	$	2,033	$	2,033	$	1,444	$	245		$	203		$	496	$	305	$	225		$	137

1 Portion of interest expressed through cost of sales

18      Brookfield Asset Management   |   2005 Annual Report

Operating cash flow has more than doubled over the past two years as a result of strong growth in our U.S. operations and more recently in Canada, where our Alberta operations are benefitting from strong energy markets. Total assets and net capital invested in the business have increased with the level of activity. We focus on optioning lots and acquiring land that is well advanced through the entitlement process to minimize capital at risk, and sell lots to other builders on a bulk basis to capture appreciation in values and recover capital.

United States

Our U.S. residential operations are conducted through a 52%-owned subsidiary that had a $1.5 billion market capitalization at year end. 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 30,000 lots through direct ownership, options and joint ventures. We focus on the mid- to upper-end of the home building market and rank as one of the twenty largest home builders in the United States.

We have experienced substantial growth in margins in each of our U.S. markets and, although conditions remain favourable, it is unlikely that this pace of growth will continue. We are optimistic that, with orders representing approximately 35% of planned 2006 closings in hand, these operations should continue to provide solid returns in 2006.

Canada

Our Canadian operations are concentrated in Calgary, Edmonton and Toronto. We own over 36,000 lots in three operations of which approximately 4,100 were under development at December 31, 2005. We build and sell homes on our lots and we are a major supplier of lots to other homebuilders. These operations are conducted through a 51%-owned subsidiary.

Operating cash flow in the Canadian operations increased significantly in 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 2006.

Brazil

Our Brazilian operations, which are focussed on building residential condominiums, produced strong growth in operating cash flow when converted to U.S. dollars as the Brazilian currency appreciated substantially in 2005. As discussed under development properties on pages 20 and 21, we own substantial density rights that will provide the basis for continued growth.

Home and Lot Sales

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

	Home Sales						Lot Sales1
YEARS ENDED DECEMBER 31 (UNITS)	2005		2004		2003		2005		2004		2003
United States
California		1,040		1,357		1,023		2,103		1,415		1,044
Washington, D.C. area		614		523		505		1,065		864		745
Other		—		—		—		—		468		448
Canada
Ontario		391		339		318		391		339		318
Alberta		556		496		479		3,173		2,433		2,191
Brazil
Rio de Janeiro and São Paulo		528		606		406		528		606		406
		3,129		3,321		2,731		7,260		6,125		5,152

1 Including lots associated with home sales

Brookfield Asset Management   |    2005 Annual Report      19

Opportunity Investments

We established a dedicated team in 2003 to invest in commercial properties other than core office. 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.

	Assets Under		Invested Capital										Operating Cash Flow
AS AT AND FOR THE YEARS ENDED DECEMBER 31	Management		Total				Net						Total				Net
MILLIONS	2005		2005		2004		2005			2004			2005		2004		2005			2004
Commercial properties	$	468	$	468	$	83	$	458		$	83		$	19	$	3	$	19		$	3
Property specific mortgages / interest								(311	)		(11	)						(6	)		(1	)
Net investment / operating cash flow	$	468	$	468	$	83	$	147		$	72		$	19	$	3	$	13		$	2

Assets now exceed $500 million due to acquisitions in early 2006, and include office portfolios in Washington, Toronto and Indianapolis, and a 3.3 million square foot industrial, showroom and commercial portfolio located across the United States. The scale of our operating platform in the property sector increases the pipeline of investments for these operations and enables us to participate in a broad range of opportunities.

Opportunity investments tend to be more dynamic and typically have strong early stage value enhancement potential. Accordingly, financing tends to be shorter term in nature to enhance flexibility, and leverage for the portfolio as a whole tends to vary between 70% and 80% of loan to value.

Retail Properties

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	2005		2005		2004		2005			2004			2005		2004		2005			2004
Retail properties	$	270	$	270	$	271	$	270		$	271		$	25	$	23	$	25		$	23
Borrowings / interest								(84	)		(114	)						(5	)		(10	)
Net investment / operating cash flow	$	270	$	270	$	271	$	186		$	157		$	25	$	23	$	20		$	13

The portfolio consists of three shopping centres and associated office space totalling 1.6 million square feet of net leasable area, located in Rio de Janeiro and São Paulo, and includes the one million square foot Rio Sul Centre, which is one of Brazil’s premier shopping centres.

Development Properties

The composition of our development properties at December 31, 2005 and 2004, together with associated cash flows, was as follows:

		Invested Capital								Operating Cash Flow
AS AT AND FOR THE YEARS ENDED DECEMBER 31	Potential	Total				Net				Total				Net
MILLIONS	Developments	2005		2004		2005		2004		2005		2004		2005		2004
Core office properties	15.4 million sq. ft.	$	296	$	449	$	296	$	449
Residential lots
United States1	23,000 lots		—		—		—		—
Canada	32,000 lots		225		185		225		185
Brazil	5.5 million sq. ft.		157		154		157		154
Rural development
Brazil	177,000 acres		50		39		50		39
Canada2	32,000 acres		—		—		—		—
	209,000 acres
		$	728	$	827	$	728	$	827	$	5	$	1	$	5	$	1

1	Book values included in United States residential, see page 18
2	Book values included as higher and better use land in western North American timber operations, see page 25

20      Brookfield Asset Management   |   2005 Annual Report

Development properties consist predominantly of core office property development sites, density rights and related infrastructure; residential lots owned and under operation; and rural land held pending development into income producing properties or for sale to other users. We expect to enhance the value of these assets through the attainment of building entitlements and conversion into cash flow generating real estate.

The total book value of development properties, including those reflected in other business units, was relatively unchanged during 2005. Our Three World Financial Center and Hudson’s Bay Centre core office properties reached the operational stage during the year and were transferred to our core office portfolio. This decrease was offset by the acquisition of the remaining 50% interest in the Bay-Adelaide Centre in Toronto as well as rural development land acquired in connection with the purchase of North American timberlands. This land will be developed into higher and better use, including residential properties.

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 of the 15.4 million square feet of commercial density when the risk-adjusted returns are adequate and significant pre-leasing has been achieved. Development projects include our Penn Station development in midtown New York, which recently received increased permitting for 2.5 million square feet of office density. The Bay-Adelaide Centre development property, now 100%-owned, is located in Toronto’s downtown financial district and zoned for up to 2.5 million square feet of office and residential use. 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 similar rights to develop 500,000 square feet of office space at Bankers Hall in Calgary. At Canary Wharf in London, we own our proportionate share of development density which totals approximately 6 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 have elected to increase our use of options to control lots for future years in our most active markets in order to reduce risk. To that end, we have acquired options on approximately 17,000 lots in our U.S. markets in return for providing planning and development expertise to obtain the required entitlements. In Brazil, we own rights to build residential and office condominium space of a further 9.0 million square feet, to be developed over the next 15 years in São Paulo, and a further 4.0 million square feet of condominium density in Rio de Janeiro which will be built over the next 10 years.

Rural Development Properties

We acquired 65,000 acres of additional rural land in Mato Grosso State and now own 177,000 acres of prime rural development land in the States of São Paulo, Minas Gerais and Mato Grosso in Brazil. These properties are being used to harvest 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 two years we completed leases with an average term of 20 years on approximately 35,000 acres to operators of large sugar cane processing facilities and expect to earn growing annual cash flows significantly in excess of those previously received. The leases have floor payments plus participations on a combination of sugar and ethanol prices.

We also hold 32,000 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.

Brookfield Asset Management   |    2005 Annual Report      21

Power Generating Operations

Our power generating operations are predominantly hydroelectric facilities located on river systems in North America. As at December 31, 2005, we owned and managed approximately 130 power generating stations with a combined generating capacity of 3,400 megawatts. All 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, with the exception of two natural gas-fired facilities. 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. Our facilities produced nearly 11,000 gigawatt hours of electricity in 2005, more than double our annual generation of five years ago.

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	2005		2004		2005		2005		2004		2005			2004			2005		2004		2005			2004
	(MW)
Hydroelectric generation
Ontario		847		847	$	944	$	944	$	914	$	944		$	914		$	83	$	82
Quebec		277		266		374		374		359		374			359			54		47
British Columbia		127		127		131		131		127		131			127			13		11
New England		201		174		259		259		262		259			262			38		32
New York		730		674		889		889		839		889			839			123		17
Louisiana		192		192		497		497		243		497			243			112		26
Brazil		205		102		220		220		60		220			60			30		14
Total hydroelectric generation		2,579		2,382		3,314		3,314		2,804		3,314			2,804			453		229
Other operations		815		240		254		254		147		254			147			16		39
Total power generation		3,394		2,622		3,568		3,568		2,951		3,568			2,951			469		268	$	469		$	268
Other assets, net						1,184		1,184		599		693			503							—			—
Property specific and subsidiary debt / interest												(2,839	)		(2,084	)						(215	)		(78	)
Minority interests of others in net assets												(225	)		(194	)						(24	)		(21	)
Net investment / operating cash flow		3,394		2,622	$	4,752	$	4,752	$	3,550	$	1,197		$	1,176		$	469	$	268	$	230		$	169

Operating cash flow from our power generating assets increased to $469 million in 2005, compared with $268 million in 2004, due to expanded capacity and higher prices, offset by lower hydrology. After deducting interest expense and distributions to owners of partial interests in our business, these operations generated $230 million of cash flow on net invested capital of $1.2 billion, representing a 19% return. The book value of invested capital was largely unchanged as the acquisition of power facilities during the year was funded largely by long-term property specific debt financing. Property specific debt totalled $2.3 billion at year end and corporate unsecured debt issued by our power generating operations totalled $0.5 billion.

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)	2005			2004
Prior year’s net operating cash flow	$	268		$	154
Hydrology variations within existing capacity		(23	)		27
Variations in prices and operational improvements		11			53
Capacity additions		129			34
Louisiana HydroElectric Power		84			—
Current year’s net operating cash flow	$	469		$	268

22      Brookfield Asset Management   |   2005 Annual Report

Acquisitions and selective development of additional capacity added $129 million of cash flow during 2005. The most significant step in this regard was the acquisition of our New York operations in late 2004, which contributed meaningfully during 2005. The additional facilities furthered the diversification of our watersheds, thereby reducing hydrology risk, and position us as an important participant in the Ontario, New York and New England electricity markets.

The continued increase in fossil fuel prices has led to an increase in power prices as most of the price setting capacity in our operating regions is primarily natural gas. This increases our revenues and our operating margins as hydroelectric generation requires minimal fuel costs. To date, the impact of price increases has been somewhat muted by our policy of forward selling a significant amount of our production, but we expect to benefit from higher prices as these contracts expire. The total benefit from price and operational improvements in 2005 was $11 million and more details on this are set out on pages 24 and 25.

Generation increased to 10,930 gigawatt hours during the year, from the 8,796 gigawatt hours generated in 2004. The increase of 2,134 gigawatt hours is comprised of approximately 3,000 gigawatt hours of generation from facilities acquired during the past two years, partially offset by a reduction in generation of 900 gigawatt hours on facilities owned throughout those two years due to below average hydrology in Quebec and Ontario following above average water flows in 2004. As a result, cash flows were $23 million lower during 2005 on a relative basis. Water conditions have improved substantially in recent months and, as a result, our facilities are currently operating at approximately 15% above average generation levels. The following table summarizes generation over the past two years:

	2005							2004
	Long-term		Actual					Long-term		Actual
YEARS ENDED DECEMBER 31 (GIGAWATT HOURS)	Average		Production		Variance			Average		Production		Variance
Existing capacity
Ontario		3,262		2,562		(700	)		3,262		3,190		(72	)
Quebec		1,639		1,475		(164	)		1,639		1,661		22
New England		1,010		1,172		162			1,010		953		(57	)
Other		732		716		(16	)		667		725		58
		6,643		5,925		(718	)		6,578		6,529		(49	)
Louisiana		903		813		(90	)		903		1,099		196
		7,546		6,738		(808	)		7,481		7,628		147
Acquisitions — during 2005		885		751		(134	)		—		—		—
Acquisitions — during 2004		3,268		3,441		173			1,261		1,168		(93	)
Total		11,699		10,930		(769	)		8,742		8,796		54

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

	2005								2004
	Actual		Realized		Operating		Operating		Actual		Realized		Operating		Operating
YEARS ENDED DECEMBER 31 (GWH AND $ MILLIONS)	Production		Revenues		Costs		Cash Flows		Production		Revenues		Costs		Cash Flows
Ontario		1,764	$	118	$	35	$	83		2,311	$	127	$	45	$	82
Quebec		1,475		75		21		54		1,661		71		24		47
New England		1,275		63		25		38		1,056		51		19		32
New York		3,089		195		72		123		687		39		22		17
Other		2,217		195		40		155		2,201		55		4		51
Total		9,820	$	646	$	193	$	453		7,916	$	343	$	114	$	229
Per MWh			$	66	$	20	$	46			$	43	$	14	$	29

Brookfield Asset Management   |    2005 Annual Report      23

Realized prices, which include ancillary revenues and the impact of peak hour pricing in addition to contracted prices, increased to $66 per megawatt hour due to improved pricing and the acquisition of facilities in higher price regions. Generating costs per megawatt hour increased due to acquisitions of facilities with higher cost structures.

Portfolio Activity

We added 12 stations during 2005 with capacity of 736 megawatts that are capable of generating 885 gigawatt hours of annual production. The acquired stations are located in northeastern United States and Brazil and have been integrated into our current operations in these regions. The total acquisition cost was approximately $300 million and, together with the consolidation of our operations in Louisiana, resulted in a $700 million increase in the book value of our power generating assets to $3.6 billion from $2.9 billion at the end of 2004. We raised approximately $700 million of additional financing to fund acquisitions and establish 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 before taking into account any power contract arrangements, which may enable significantly higher loan-to-value ratios to be achieved. At December 31, 2005, the average term of this debt was 11 years and the average interest rate was 7.9%.

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, including the development of wind power facilities in northern Ontario during 2006.

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 minimal fuel costs.

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 70% of our projected 2006 revenue is 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 45% of projected 2006 revenue, 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.

24      Brookfield Asset Management   |   2005 Annual Report

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	2006		2007		2008		2009		2010
Generation (GWh)
Contracted
Power sales agreements		5,589		5,783		5,712		4,428		4,412
Financial contracts		3,684		2,886		497		293		287
Uncontracted		2,600		3,417		5,877		6,911		6,933
		11,873		12,086		12,086		11,632		11,632
Contracted generation
Revenue ($millions)		597		583		446		375		375
Price ($/MWh)		64		67		72		80		80

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. The recontracting of this power at market rates should result in increased revenues based on current electricity prices and the assumption that fossil fuels, particularly natural gas, continue to sell at higher prices than historical norms.

Timber and Infrastructure

We own and manage timber and infrastructure 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		2005		2005		2004		2005			2004			2005		2004		2005			2004
Timber
Western North America
Timberlands		635,000	$	801	$	801	$	—	$	801		$	—		$	27	$	—
Higher and better use lands		32,000		113		113		—		113			—			—		—
Eastern North America		311,000		48		48		50		48			50			8		7
Brazil		140,000		39		39		37		39			37			5		4
		1,118,000		1,001		1,001		87		1,001			87			40		11
Electrical transmission				130		130		97		130			97			24		15
Other assets, net				82		82		31		17			(6	)		—		—
				1,213		1,213		215		1,148			178			64		26	$	64		$	26
Project specific financing and other borrowings										(547	)		(87	)						(19	)		(5	)
Minority interests of others in net assets										(255	)		—							(7	)		—
Net investment / operating cash flow			$	1,213	$	1,213	$	215	$	346		$	91		$	64	$	26	$	38		$	21

We have significantly expanded our timberland operations with the formation of the Island Timberland Fund in 2005 and the Acadian Timber Income Fund early in 2006, which acquired the eastern North America timberlands that were previously 100% owned by us. Our goals are to continue to prudently invest additional capital in our timber operations when opportunities are available, and to further expand our transmission operations to serve the needs of the underserviced electrical infrastructure sector in our geographic markets.

Brookfield Asset Management   |    2005 Annual Report      25

Timberland Operations

Western North America

We established the Island Timberlands Fund in 2005 with the purchase of 635,000 acres of high quality private timberlands on the west coast of Canada. We own 50% of the fund with the balance owned by institutional investors. The acquisition was funded in part by a $410 million 19-year average 6% term financing, completed during the year.

Timber operations performed in line with expectations and the prospects for 2006 are promising. Demand for high quality timber exported to the U.S. and Japan remains strong, although this continues to be offset somewhat by weak Canadian sales.

Eastern North America

We have owned and managed timberlands in Maine and New Brunswick for a number of years, both directly and through Fraser Papers. In early 2006, we established the Acadian Timber Income 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 27% interest, is managed by our timber management group and recently completed a C$85 million initial public offering.

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.

Electrical Transmission

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 the year we invested $50 million of capital to upgrade our system, thereby increasing its rate base. We are actively pursuing the further expansion of these operations in our current geographic areas of operation.

Specialty Funds

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

We typically invest between 25% and 50% of the capital committed to our specialty funds, with institutional investors committing the balance. We earn fees for managing the activities on behalf of our co-investors, which include base administration fees, performance fees to the extent returns exceed predetermined thresholds, and we often earn transaction fees for specific activities. We also earn base management and performance fees in many of our public securities operations. We typically do not own interests in the funds being managed in 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.

26      Brookfield Asset Management   |   2005 Annual Report

The following table shows the assets currently under management and the invested capital at December 31, 2005 and 2004, together with the associated operating cash flows:

	Assets Under		Invested Capital								Operating Cash Flow
AS AT AND FOR THE YEARS ENDED DECEMBER 31	Management1		Total				Net				Total				Net
MILLIONS	2005		2005		2004		2005		2004		2005		2004		2005		2004
Bridge Lending	$	900	$	268	$	698	$	268	$	698	$	31	$	25
Real Estate Finance		627		149		103		149		103		14		11
Restructuring		400		82		96		82		96		9		12
Public securities		18,000		—		—		—		—		—		—
Net investment / operating cash flow	$	19,927	$	499	$	897	$	499	$	897	$	54	$	48	$	54	$	48

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

Operating cash flows, which represent the investment returns from our capital deployed in these activities, totalled $54 million in 2005, an increase of 13% over 2004, which was in turn higher than 2003. In addition, these operations generated net fee income of $26 million in 2005, which is included in Fees Earned. The contribution from fees is similar to the same period in 2004 but up significantly from 2003, as a result of acquisitions and a higher level of activity. Higher investment income reflects higher average levels of interest bearing securities and loans held during the year.

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 portfolio declined from $698 million to $268 million during the year. Loans to Atlas Cold Storage and Uniboard, the two largest positions at the end of 2004, were repaid in full towards the end of 2005, as both these companies executed their business plans as contemplated. We continued to be active in 2005, reviewing many financing opportunities and issuing funding commitments totalling $900 million to 11 clients. Our portfolio at year end was comprised of 15 loans, and the largest single exposure at that date was $42 million. The portfolio has an average term of nine months excluding extension privileges and an average yield of approximately 10%. We do not employ any direct financial leverage, although loans may be structured with senior and junior tranches, and may be 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 2004.

Real Estate Finance

Our real estate finance operations were established in 2002 to finance the ownership of real estate properties on a basis 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.

	Assets Under		Invested Capital												Operating Cash Flow
AS AT AND FOR THE YEARS ENDED DECEMBER 31	Management1		Total						Net						Total						Net
MILLIONS	2005		2005			2004			2005			2004			2005			2004			2005			2004
Real estate finance investments	$	600	$	366		$	228		$	366		$	228		$	36		$	33		$	36		$	33
Less: Co-investor interests				(244	)		(152	)		(244	)		(152	)		(24	)		(22	)		(24	)		(22	)
		600		122			76			122			76			12			11			12			11
Directly held		27		27			27			27			27			2			—			2			—
Net investment / cash flow	$	627	$	149		$	103		$	149		$	103		$	14		$	11		$	14		$	11

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

Brookfield Asset Management   |    2005 Annual Report      27

During 2005, we acquired 35 loan positions with an aggregate investment of $436 million. The portfolio continues to perform in line with expectations. We also entered into an agreement to sell our interests in Criimi Mae, a U.S. public mortgage REIT, which closed in the first quarter of 2006.

We maintain credit facilities that provide financing for these investments on a non-recourse basis and we have also established two collateralized debt obligation facilities. These facilities represent $700 million of low cost debt funding for a seven-year term to finance the acquisition of mortgage loan securities within the collateralized debt obligation funds. 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 leverage of approximately 70% at year end.

Restructuring

Tricap was launched in 2002 to invest long-term capital for ourselves and other investors in companies facing financial or operational difficulties in industries which have tangible assets and cash flows, and in particular where we have expertise resulting from prior operating experience. Tricap benefits from our 20 year record of restructuring companies experiencing financial and operational difficulties. We currently have less than $100 million invested; however we expect the amount of capital invested to increase during 2006 as a result of current initiatives. Operating cash flow declined slightly during the year relative to 2004, which included realization gains.

Major initiatives during the year included the restructuring of Western Forest Products, a western Canadian forest products company in which Tricap owns an 18% interest. Western continued to rationalize its operations, including the shutdown of a pulp mill and agreed to merge with Cascadia Forest Products, another Vancouver Island lumber company that we acquired in connection with the purchase of timberlands from Weyerhaeuser in early 2005.

We continue to work with wholly owned Concert Industries, a leading manufacturer of air woven consumer tissue products, and in early 2006 Tricap sold its interests in Vicwest, a steel fabrication company, for a substantial gain. Tricap also facilitated the restructuring of Stelco, one of the two major Canadian integrated steel companies, that is expected to be completed in early 2006.

Public Securities

We manage a number of publicly listed and private portfolios of securities on behalf of institutions and retail investors with a particular emphasis on fixed income real estate securities. We also manage a number of structured products developed for retail and institutional investors.

While included separately in this report, fee revenues increased to $20 million in 2005, partly due to the acquisition of a New York-based asset manager. In addition, during 2005 we launched a private mortgage REIT in the United States raising $435 million of equity capital; a mortgage-backed offering in Canada that raised C$78 million; and two retail product offerings under the names of Brascan SoundVest Rising Distribution Split Trust and Brascan SoundVest Focused Business Trust, that invest in income trust securities.

We earn base management fees that vary from fund to fund depending on the mandate, and earn performance fees in respect of certain funds based on investment returns.

28      Brookfield Asset Management   |   2005 Annual Report

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. Within our areas of expertise, we continue to seek 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	Shares		Interest			2005		2005		2004		2005			2004			2005			2004			2005			2004
Forest products
Norbord Inc.	North America / UK		33.8		23	%	$	199	$	199	$	177	$	(12	)	$	(18	)	$	62		$	19		$	37		$	19
Fraser Papers Inc.	North America		13.4		46	%		197		197		204		197			204			—			—			—			—
Privately held	North America				100	%		428		428		174		285			122			(35	)		(1	)		(41	)		(1	)
Business services
Insurance	Various				80-100	%		2,028		2,028		1,172		495			345			27			32			20			28
Banco Brascan, S.A.	Rio de Janeiro				51	%		69		69		59		69			59			6			4			6			4
Privately held	Various				100	%		304		304		299		133			172			32			17			20			11
Publicly listed	Canada				—			84		84		107		49			77			—			4			(2	)		3
Mining and metals
Coal lands	Alberta				100	%		77		77		70		77			70			4			4			4			4
Falconbridge	Various				—			—		—		1,344		—			1,344			24			45			24			45
Net investment / operating cash flows							$	3,386	$	3,386	$	3,606	$	1,293		$	2,375		$	120		$	124		$	68		$	113

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 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 37% and own a net beneficial interest in approximately 23% or 34 million shares of Norbord Inc. (“Norbord”). Our net investment had a market value of approximately $360 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			2005		2005		2004		2005			2004			2005		2004		2005			2004
Common shares owned		53.8			37	%	$	199	$	199	$	177	$	199		$	177		$	62	$	19	$	62		$	19
Exchangeable debenture		(20.0	)		(14	%)		—		—		—		(211	)		(195	)						(25	)		—
Net investment / operating cash flows		33.8			23	%	$	199	$	199	$	177	$	(12	)	$	(18	)	$	62	$	19	$	37		$	19

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 $62 million of dividends to our cash flow during the current year resulting in a net contribution of $37 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.

Brookfield Asset Management   |    2005 Annual Report      29

Fraser Papers Inc.

We own approximately 13 million common shares of Fraser Papers, which we received on the distribution of this business from Norbord during 2004. These shares represent a 46% 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.

Privately Held

We own two private forest products companies that we acquired in connection with the purchase of core timberland and power generation operations. Cascadia is a coastal British Columbia lumber producer that operates five sawmills and two remanufacturing facilities, together with crown rights for 3.6 million cubic metres of annual timber harvesting. We acquired these operations from Weyerhaeuser in connection with the purchase of private timberlands by our timber fund. We recently reached agreement to merge Cascadia with Western Forest Products, which is 18%-owned by our restructuring fund.

Katahdin Paper owns a 280,000 ton per year directory paper mill and a 185,000 ton per year super-calender fine paper mill. These operations, located in Maine, were acquired out of bankruptcy in April 2003. Katahdin faced a difficult operating environment during 2005, which resulted in $30 million of operating and restructuring charges, but we believe its results will improve in 2006.

Business Services

Insurance Operations

Our insurance operations are conducted through 80%-owned Imagine Insurance, a specialty reinsurance business which operates internationally, and Hermitage Insurance, a property and casualty insurer which operates principally in the northeast United States. We manage the securities portfolios of these companies, which total $1.8 billion and consist primarily of highly rated government and corporate bonds, through our public securities operations. Imagine is rated A (strong) and A- (excellent) by Fitch and AM Best, respectively and Hermitage is rated B++ (very good) by AM Best. These operations continued to generate attractive returns despite larger than expected underwriting losses during 2005. 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 own a 51% 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 9% by management. Banco Brascan advises, lends to and provides asset management services to domestic and foreign companies in Brazil.

Other Privately Held

Privately held business service investments include a joint venture with the Accor Group of France which owns and manages the Accor Group hotel brands in Brazil, including Novotel, Sofitel, Ibis and Formula One, and a voucher services business in Brazil, which provides paper and electronic vouchers to corporations which utilize them in their compensation programs for employees and for the purchase of motor fuel and other purposes.

Other Publicly Listed

Publicly listed business service investments include controlling interests in NBS Technologies Inc. and MediSolution Ltd. NBS provides secure identification solutions, financial transaction services and operates a commerce gateway that facilitates electronic payment processing. MediSolution develops and manages medical human resources management software and systems for the health industry, primarily in Canada.

30      Brookfield Asset Management   |   2005 Annual Report

Mining and Metals

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 12 million tonnes of coal annually. Royalties from this production generate $4 million of operating cash flow and provide a stable source of income as they are free of crown royalties and require no holdings costs. In addition, we own a 3.5% net profit interest in 75 million tonnes of proven reserves, and 25 million tonnes of potential reserves of high quality metallurgical coal in British Columbia.

Falconbridge

We monetized our investment in Falconbridge during 2005 for proceeds of $2.7 billion and an after tax gain of $1.1 billion. Operating cash flow during the past two years from this investment consisted of dividend receipts.

Cash and Financial Assets

Although we generate substantial amounts of cash flow within our operations, we generally carry modest cash balances and instead utilize excess cash to repay contractual revolving credit lines and invest in shorter term financial assets which generate higher returns while still providing a source of liquidity to fund investment initiatives. The market value of our financial assets approximates their realizable value. 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	2005		2005		2004		2005			2004			2005		2004		2005			2004
Financial assets
Government bonds	$	59	$	59	$	42	$	59		$	42
Corporate bonds — Xstrata convertible		375		375		—		375			—
— Other		247		247		338		247			338
Asset backed securities		69		69		—		69			—
High yield bonds		220		220		150		220			150
Preferred shares — Falconbridge		570		570		—		570			—
— Other		107		107		92		107			92
Common shares		494		494		224		494			224
Total financial assets		2,141		2,141		846		2,141			846		$	188	$	126	$	188		$	126
Cash and cash equivalents		417		417		139		417			139			5		2		5			2
Deposit and other liabilities								(428	)		(339	)						(9	)		(4	)
Net investment / operating cash flow	$	2,558	$	2,558	$	985	$	2,130		$	646		$	193	$	128	$	184		$	124

Invested capital increased substantially during the year due to the receipt of proceeds from the sale of Falconbridge. The increase in operating cash flow reflects the higher level of invested assets.

We invest surplus liquidity in a range of securities ranging from government securities to common shares. The composition of the portfolios varies depending on our assessment of risk adjusted returns and liquidity requirements. Our investing activities, which utilize the knowledge and experience gained from our operating activities, rely on careful due diligence and a value based investment philosophy. We tend to invest our Financial Assets in more senior instruments to maximize liquidity and capital preservation. From time to time, however, we take positions in equity and high yield securities in our areas of industry expertise which we believe to be under-valued. In the same regard, we will also sell short securities that we believe to be over valued or to protect the value of existing positions, although in such circumstances our position is typically partially hedged to contain downside risk.

Deposit and other liabilities include broker deposit liabilities associated with our securities portfolio and borrowed securities sold short with a value of $182 million at December 31, 2005.

Brookfield Asset Management   |    2005 Annual Report      31

Other Assets and Disposition Gains

Other Assets

The following is a summary of other assets:

	Invested Capital				Operating Cash Flow
YEARS ENDED DECEMBER 31 (MILLIONS)	2005		2004		2005		2004
Accounts receivable	$	605	$	538
Restricted cash		367		29
Goodwill and intangible assets		160		177
Prepaid and other assets		659		208
	$	1,791	$	952	$	—	$	—

Other assets include working capital balances employed in our business that are not directly attributable to specific operating units. These include accounts receivable in respect of contracted revenues owing but not yet collected, dividend, interest and fees owing to the company and the straight-lining of long-term contracted revenues in accordance with accounting guidelines. 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.

Property and Disposition Gains

The following table sets out property and disposition gains over the past three years. While these events are opportunistic and difficult to predict, the dynamic nature of our asset base should generate varying levels of disposition gains in the future.

YEARS ENDED DECEMBER 31 (MILLIONS)	2005		2004		2003
Property and disposition gains	$	49	$	123	$	157

During 2005, we earned disposition gains of $49 million, including the sale of our Royal LePage Commercial advisory business to Cushman & Wakefield, and the sale of a small tin mining operation in Brazil.

During 2004, we earned a $63 million gain on the partial monetization of our investment in Norbord and lease termination income of $60 million from the cancellation of an existing lease and replacement with a new 20-year 460,000 square foot lease at One World Financial Center. Disposition gains during 2003 included $100 million related to the sale of a 49% interest in 245 Park Avenue and a $57 million gain on the sale of an investment in a gold-copper mining company in western Canada.

32      Brookfield Asset Management   |   2005 Annual Report

CAPITAL RESOURCES AND LIQUIDITY

The following sections describe our capitalization and liquidity profile. 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.

Capitalization

We maintain a strong and flexible capitalization structure that 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.

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.

Credit Profile

The credit ratings for the company at December 31, 2005, and at the time of the printing of this report were as follows:

	DBRS	S&P		Moody’s
Commercial paper	R-1(low)	A-1(low)			—
Term debt	A(low)		A–	Baa3
Preferred shares	Pfd-2(low)	P2(mid)			—

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.

The following outlines our targeted debt to capitalization levels:

	Objective	2005			2004			2003
Debt to capitalization
Corporate borrowings and subsidiary obligations	20% to 30%		20	%		22	%		20	%

Our deconsolidated capitalization, which totalled $11.4 billion at year end, includes corporate debt, subsidiary obligations, capital securities and preferred equity, as well as our common equity. These obligations are typically unsecured and have minimal covenants and operating requirements. The following table details our deconsolidated liabilities and shareholders’ interests at the end of 2005 and 2004 and the related cash costs:

Brookfield Asset Management   |   2005 Annual Report      33

AS AT AND FOR THE YEARS ENDED DECEMBER 31	Cost of Capital1						Book Value				Operating Cash Flow2
MILLIONS	2005			2004			2005		2004			2005		2004
Corporate borrowings		7	%		6	%	$	1,620	$	1,675	$	119	$	103
Subsidiary obligations 3		10	%		10	%		605		664		69		61
Other liabilities		7	%		6	%		1,386		1,097		103		92
Capital securities		6	%		6	%		1,598		1,548		90		79
Non-controlling interest in net assets		22	%		22	%		1,199		1,274		243		250
Preferred equity		6	%		6	%		515		590		35		24
Common equity		21	%		18	%		4,514		3,277		873		602
		16	%		16	%		5,029		3,867		908		626
		9.5	%		9.5	%	$	11,437	$	10,125	$	1,532	$	1,211

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 obligations of subsidiaries that are guaranteed by the Corporation

The principal components of our capitalization were relatively unchanged at the end of 2005 as compared with 2004, with the exception of the book value of our common equity which increased to $4.5 billion from $3.3 billion. The increase in common equity was due to the substantial net income recorded during the year, offset in part by dividends and share repurchases. We have been locking in longer term fixed rates and closing out floating rate swap positions since 2003. This resulted in a modest increase in our cost of capital during recent years, but should protect our returns over the longer term. Our financial obligations are almost entirely comprised of long-term fixed rate debt and equity securities.

Our consolidated capitalization, which includes obligations and equity interests held by others in entities that are consolidated in our statutory financial statements, totalled $26.1 billion as detailed on page 45. This includes long-term property specific debt which is secured by operating assets, typically core office properties and power generating stations, with no recourse to Brookfield as well as debt of subsidiaries which also has no recourse to Brookfield.

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:

AS AT AND FOR THE YEARS ENDED DECEMBER 31	Cost of Capital1						Book Value				Operating Cash Flow2
MILLIONS	2005			2004			2005		2004		2005		2004
Commercial paper and bank borrowings		4	%		3	%	$	—	$	249	$	8	$	5
Publicly traded term debt		7	%		5	%		1,574		1,413		110		90
Privately held term debt 3		6	%		8	%		46		13		1		8
		7	%		6	%	$	1,620	$	1,675	$	119	$	103

1	As a percentage of average book value of debt
2	Interest expense
3	$43 million is secured by our coal assets

We issued C$300 million ($259 million) of 30-year debt during the year at an interest rate of 5.95% to capitalize on historically low interest rates and strong market liquidity. On December 31, 2004, we assumed C$375 million ($323 million) of public term debt previously issued by a subsidiary upon the amalgamation of our funds management business. As a result of these events, our average corporate term debt levels were higher than 2004, giving rise to higher carrying charges. During the year, we repaid all of our commercial paper following the sale of our investment in Falconbridge, and redeemed C$125 million ($108 million) of term debt on maturity.

34       Brookfield Asset Management   |   2005 Annual Report

The average interest rate on our term debt was 7% during 2005, compared with 6% during 2004, and the average term was 12 years (2004 – 9 years).

The Corporation has approximately $900 million of committed corporate credit facilities which are utilized principally as back-up credit lines to support commercial paper issuance. At December 31, 2005, none of these facilities were drawn, although approximately $95 million of the facilities were utilized (2004 – $31 million) for letters of credit issued principally on behalf of our power operations to support power sale contracts.

Principal repayments on corporate borrowings due over the next five years and thereafter are as follows:

YEARS ENDED DECEMBER 31 (MILLIONS)	2006			2007			2008			2009			2010			Beyond			Total
Commercial paper and bank borrowings	$	—		$	—		$	—		$	—		$	—		$	—		$	—
Publicly traded term debt		108			108			300			—			200			858			1,574
Privately held term debt		2			—			—			—			—			44			46
Total	$	110		$	108		$	300		$	—		$	200		$	902		$	1,620
Percentage of total		7	%		7	%		18	%		—	%		12	%		56	%		100	%

Subsidiary Obligations

Subsidiary obligations include retractable preferred shares issued by corporate subsidiaries as well as financial obligations that are guaranteed by the Corporation as set forth in the following table:

AS AT AND FOR THE YEARS ENDED DECEMBER 31	Cost of Capital1						Book Value				Operating Cash Flow2
MILLIONS	2005			2004			2005		2004		2005		2004
Retractable preferred shares		7	%		7	%	$	172	$	271	$	17	$	15
Subsidiary debt		11	%		11	%		433		393		52		46
		10	%		10	%	$	605	$	664	$	69	$	61

1	As a percentage of average book value
2	Interest expense

The retractable preferred shares are to be redeemed no later than 2007 and earlier if requested by the holders. We redeemed C$125 million of these shares during 2005. The company does not typically guarantee the debts of subsidiaries, with the principal exception being a guarantee of subsidiary debt originally issued in 1990 that was assumed by the Corporation upon amalgamating with the original guarantor. The increase in the carrying amount during 2005 reflects accrued interest and advances that will be repaid on maturity of the underlying debt in 2015.

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 our common shares and, as a result of new accounting guidelines, are no longer classified as equity in our financial statements. The following table summarizes capital securities issued by the company:

AS AT AND FOR THE YEARS ENDED DECEMBER 31	Cost of Capital1						Book Value				Operating Cash Flow2
MILLIONS	2005			2004			2005		2004		2005		2004
Corporate preferred shares and preferred securities		6	%		6	%	$	669	$	647	$	41	$	40
Subsidiary preferred shares		6	%		6	%		929		901		49		39
		6	%		6	%	$	1,598	$	1,548	$	90	$	79

1	As a percentage of average book value
2	Interest expense

Brookfield Asset Management   |   2005 Annual Report      35

The increase in distributions paid on subsidiary preferred shares relates to additional securities issued during 2004. Distributions paid on these securities are recorded as interest expense, even though the legal form for all but two of the issues are dividends. Principal repayments due on capital securities are as follows:

	2006		2011			2016			2021
YEARS ENDED DECEMBER 31 (MILLIONS)	to 2010		to 2015			to 2020			to 2025			Beyond			Total
Corporate preferred shares and preferred securities	$	—	$	303			$151		$	—		$	215		$	669
Subsidiary preferred shares		—		800			129			—			—			929
Total	$	—	$	1,103			$280		$	—		$	215		$	1,598
Percentage of total		—		69	%		18	%		—	%		13	%		100	%

The average distribution yield on the capital securities at December 31, 2005 was 6% (2004 – 6%) and the average term was 13 years (2004 – 14 years). We did not issue or redeem any capital securities during the year and changes in the book value are due to the impact of currency fluctuations on capital securities denominated in Canadian dollars.

Non-Controlling Interests in Net Assets

Non-controlling interests in net assets consist principally of the 49% equity ownership in Brookfield Properties Corporation held by shareholders other than us, as well as preferred share obligations issued by subsidiary companies that are consolidated in our segmented basis of presentation.

AS AT AND FOR THE YEARS ENDED DECEMBER 31	Cost of Capital1						Book Value				Operating Cash Flow2
MILLIONS	2005			2004			2005		2004		2005		2004
Brookfield Properties common shares		23	%		23	%	$	999	$	1,024	$	230	$	235
Subsidiary preferred shares		6	%		6	%		200		250		13		15
		22	%		22	%	$	1,199	$	1,274	$	243	$	250

1	As a percentage of average book value
2	Dividends

The book value of common equity interests in Brookfield Properties declined during 2005 as a result of common shares repurchased by Brookfield Properties. Preferred share interests declined due to redemptions.

Other Liabilities and Operating Costs

	Invested Capital									Operating Cash Flow
AS AT AND FOR THE YEARS ENDED DECEMBER 31	Total				Net					Total				Net
MILLIONS	2005		2004		2005			2004		2005		2004		2005		2004
Accounts payable	$	2,037	$	1,365	$	1,001		$	516
Insurance liabilities		1,433		767		—			—
Deferred tax liability / (asset)		14		—		(51	)		—
Other liabilities		1,077		587		436			581
Asset management										$	184	$	126	$	—	$	—
Other operating costs											103		83		92		82
Cash taxes											162		86		11		10
	$	4,561	$	2,719	$	1,386		$	1,097	$	449	$	295	$	103	$	92

Accounts payable and other liabilities increased during the year 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. Insurance liabilities include claims and deposit liabilities within our insurance operations. These liabilities increased during the year due to the expansion of these operations which resulted in a corresponding increase in the securities held within these operations. Other liabilities includes $211 million representing the debentures exchangeable into 20 million Norbord common shares.

36       Brookfield Asset Management   |   2005 Annual Report

Asset management expenses, which reflect direct attributable costs, increased from $126 million in 2004 to $184 million in 2005, consistent with the expansion of our business. We are continuing to build out our platform and expect to earn higher margins in the future. Other operating costs are those which are not directly attributable to specific business units and have increased in line with the overall level of business activity.

Cash taxes relate principally to the taxable income generated within our U.S. home building 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 Capital1						Book Value				Operating Cash Flow2
MILLIONS	2005			2004			2005		2004		2005		2004
Preferred equity		6	%		6	%	$	515	$	590	$	35	$	24

1	As a percentage of average book value
2	2 Dividends

On December 31, 2004, we issued $237 million of perpetual preferred shares in exchange for preferred shares issued previously by our funds management subsidiary. This, together with the impact of the higher Canadian dollar on preferred share dividends, resulted in an increase in distributions during 2005. We also redeemed $75 million of floating rate preferred shares during the year.

Common Equity

On a diluted basis, Brookfield had 270.2 million common shares outstanding at year end, a decrease of 1.5 million shares from December 31, 2004. During 2005, we repurchased 4.0 million common shares under issuer bids at an average price of $40.63 per share and issued 2.7 million options at an average price of $38.28 per share. During 2004, 0.8 million common shares and equivalents were repurchased at a price of $23.35 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 Limited, 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 45 million Class A shares representing an approximate 17% equity interest in the company. Further details on Partners Limited can be found in the company’s management information circular.

Liquidity

We strive to maintain sufficient financial liquidity at all times in order to participate in attractive investment opportunities as they arise, as well as 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 31, 34 and 35 of this report and represent aggregate liquidity of $3.6 billion as at December 31, 2005.

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.

Brookfield Asset Management   |   2005 Annual Report      37

The following table summarizes our free cash flow on a consolidated basis:

YEARS ENDED DECEMBER 31 (MILLIONS)	2005			2004			2003
Cash flow from operations	$	908		$	626		$	590
Disbursements
Brookfield’s share of sustaining capital investments		(55	)		(55	)		(45	)
Preferred share dividends		(35	)		(24	)		(24	)
Free cash flow before the following		818			547			521
Cash flow retained in operations, net of minority share of dividends and sustaining capital investments
Brookfield Properties		120			175			156
Brookfield Homes		103			83			61
Consolidated free cash flow	$	1,041		$	805		$	738

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. The Corporation has guaranteed $434 million of subsidiary debt previously guaranteed by a company with which the Corporation amalgamated. The Corporation has also guaranteed obligations under power purchase agreements which amounted to $19 million at year end. Certain of these obligations, together with $229 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. We also provide normal course commitments, none of which are material at the current time.

The company may be contingently liable with respect to regulatory proceedings, litigation and claims that arise in the normal course of business. The company does not believe it has any material exposure in this regard and has provided for any expected claims in its accounts. In addition, the company 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.

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 and Fraser Papers 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.

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 15 to our Consolidated Financial Statements and discussed on page 41 under Financial Risk Management.

BUSINESS ENVIRONMENT AND RISKS

Brookfield’s financial results are impacted by: the performance of each of our operations and various external factors influencing the specific sectors and geographic locations in which we operate; 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 the material factors and the potential impact these factors may have on the company’s business operations. A more detailed discussion of the business environment and risks is contained in our Annual Information Form which is posted on our web site.

38       Brookfield Asset Management   |   2005 Annual Report

Property Operations

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.

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 2006 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 with an average term of 10 years. 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.

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.

Residential Properties

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

Nonetheless, the residential home building and land development industry is cyclical and may be significantly affected by changes in general and local economic conditions such as consumer confidence, job stability, availability of financing for home buyers and higher interest rates due to their impact on home buyers’ decisions. These conditions can affect the outlook of consumers and, in particular, the price and volume of home purchases. Furthermore, we are subject to risks related to the availability and cost of materials and labour, supply and cost of building lots, and adverse weather conditions that can cause delays in construction schedules and cost overruns.

In particular, interest rates in North America have supported robust housing sales. Should a substantial interest rate increase occur, potentially resulting in reduced consumer demand for residential property, both income and the intrinsic value of our land holdings could be negatively affected. On a book value basis, as our historical cost is well below intrinsic values, it would be remote that writedowns would occur.

Brookfield Asset Management   |   2005 Annual Report      39

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 long-term 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.

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 slow down 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, forward sales of electricity, and the regulated revenues we earn from our transmission and distribution business. Continued growth in pricing is dependent on favourable economic and supply conditions and the renewal of contracts on favourable terms.

Our power operations are typically financed with long-term debt. A prolonged decline in operating income due to unusually poor hydrology or extremely low pricing could impact our ability to meet our obligations to mortgagees and could result in losses as a result of the mortgagee’s right of foreclosure or sale.

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.

Lastly, electricity prices in North America are affected by fossil fuel prices, particularly natural gas. A sustained downward movement in fossil fuel prices could have an adverse impact on future cash flows and asset values.

Timerlands, Infrastructure and Specialty Funds Operations

Our specialty funds operations are focussed on the ownership and management of assets, the majority of which are long life physical assets, as well as debt and similar obligations, 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 our assets, which could negatively impact their ability to satisfy their obligations to us on a timely basis. This could reduce 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.

Timberlands, transmission and distribution operations are subject to various forms of regulatory oversight that can impact operating policies and, as a result, profitability. We address this risk by endeavouring to operate well within prescribed requirements and by maintaining a full understanding of the regulatory environment.

We finance many of our fund investments with debt capital, typically on a matched basis reflecting maturity and interest rate profiles. Nonetheless, a contraction of available credit could result in an increase in financing costs which would impact our profitability or cause us to dispose of assets sooner than otherwise planned and thereby reduce returns or result in a loss of capital. This risk is mitigated through the structuring of our financing arrangements and by maintaining adequate liquidity to refinance obligations if necessary.

40       Brookfield Asset Management   |   2005 Annual Report

Financial Risk Management

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.

Our intent is to maintain a hedged position with respect to the carrying value of net assets denominated in currencies other than the U.S. dollar. Accordingly, fluctuations in the value of the U.S. dollar relative to other currencies have a negligible impact on the company’s net financial position. The company receives certain cash flows that are denominated in Canadian dollars that are not hedged. The estimated impact of a C$0.01 change in the Canada/U.S. exchange rate is a corresponding change in operating cash flow of less than $0.02 per share.

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. 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.

As at December 31, 2005, our net floating rate liability position was $0.8 billion. As a result, a 100 basis point increase in interest rates would decrease operating cash flow by $8 million, or $0.03 per share. Our fixed-rate obligations at year end include a notional amount of $1.2 billion (2004 – $1.6 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 $12 million before tax or $0.05 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.

As at December 31, 2005, we held credit default swaps with an aggregate notional amount of $797 million, with a maximum exposure to any particular issuer of less than $50 million. We are entitled to receive payment in the event of predetermined credit events for $775 million of the notional amount, which protects us in the event of a deteriorating credit spread environment, and are required to make payment in respect of $22 million of the notional amount. We also held equity derivatives with a notional amount of $604 million as at December 31, 2005. Approximately one-half of the notional amount entitles us to purchase Brookfield common shares in order to hedge long-term compensation arrangements and the balance represents common equity positions established in connection with our capital markets investment activities. The replacement values of these instruments are reflected in our year end consolidated financial statements.

Execution of Strategy

Our strategy for building shareholder value is to develop or acquire 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 capital invested and 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. We conduct post-investment reviews on capital allocation decisions to assess the results against anticipated returns.

Brookfield Asset Management   |   2005 Annual Report      41

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.

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.

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. We mitigate this risk by exercising patience and by maintaining a relatively low level of administrative overhead.

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 policies that emphasize a constructive management culture, will enable us to continue to develop productive relationships with institutional investors.

The conduct of our business and the execution of our growth strategy rely heavily on teamwork. We believe that co-operation among our operations and our team-oriented management structure are essential to responding promptly to opportunities and challenges as they arise. There is, however, no certainty that the ability to retain, or the appointment of, new senior executives will always be successfully executed.

OUTLOOK

We are optimistic as we review the outlook for our operations in 2006 and believe we are well positioned for growth.

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. Our strong tenant lease profile and low vacancies give us a high level of confidence that we can achieve our operating targets in 2006.

Residential markets remain exceptionally strong in our core markets. Despite recent signs that sales growth is slowing, we expect another strong year in these operations based on sales in hand and regional conditions.

Our power operations benefitted from higher prices during 2005 and, although water flows were lower than 2004, current storage levels are consistent with long-term averages. As a result, we expect cash flows during 2006 to increase compared to 2005 should the current pricing environment continue and should water flows be consistent with long-term averages.

We continue to build our specialized funds and our timberlands and infrastructure operations by committing additional resources and launching new funds. During 2006, we are concentrating on investing the capital committed. This should positively impact our results in 2006.

The investment market continues to be competitive and acquisition prices have increased due in large part to the availability and the low cost of 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.

Needless to say, there are many factors that could impact our performance in 2006, both positively and negatively. 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 market fluctuations, for example, through the use of long-term revenue contracts and long-term financings. It is this measured approach to business that provides us with confidence that we will meet our 2006 performance objectives with respect to cash flow growth and value creation.

42       Brookfield Asset Management   |   2005 Annual Report

CONSOLIDATED FINANCIAL ANALYSIS

The discussion and analysis of our operating results and financial condition in the foregoing sections of this report is organized principally on a segmented basis, which is consistent with how we manage our business. As previously discussed, this segmented basis differs from our Consolidated Financial Statements which begin on page 59. The purpose of this section is to provide an analysis and discussion of our financial position and operating results as they are presented in our Consolidated Financial Statements, and to provide a reconciliation between our Consolidated Financial Statements and the segmented basis utilized in the preceding sections which provide a more detailed review.

To do this, we have provided a summary of our consolidated financial statements for the past two years and a review of the significant components and variances from a consolidated perspective. Pages 52 and 53 contain a reconciliation between the consolidated balance sheets and consolidated statements of operations to our segmented results. This is intended to assist the reader to cross reference the more detailed discussion in the Operations Review.

Consolidated Balance Sheet

Total assets at book value increased to $26.1 billion as at December 31, 2005 from $20.0 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 $3.5 billion increase in property, plant and equipment, as well as the sale of a major investment. The higher Canadian dollar increased the carrying value of the assets which we own and operate in Canada. Property specific mortgages, which finance our income producing physical assets without recourse to the Corporation, increased by $2.7 billion, and common equity increased by $1.3 billion due largely to net income recorded during 2005.

Consolidated Assets

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

AS AT DECEMBER 31	Book Value
MILLIONS	2005		2004
Assets
Cash and cash equivalents	$	951	$	404
Financial assets		2,171		1,220
Investments		595		1,944
Accounts receivable and other		4,148		1,551
Operating assets
Property, plant and equipment		15,776		12,231
Securities		2,069		1,757
Loans and notes receivable		348		900
	$	26,058	$	20,007

Cash and Cash Equivalents and Financial Assets

Cash and cash equivalents and financial assets, which consist of securities and other financial assets that are not actively deployed in our operations, increased to $3.1 billion on a consolidated basis at December 31, 2005, compared to an aggregate balance of $1.6 billion at the end of 2004. The increase over prior years is due principally to the $2.7 billion proceeds received on the sale of Falconbridge.

Investments

Investments represent equity accounted interests in partially owned companies including Norbord, Fraser Papers and, until 2005, Falconbridge. The sale of Falconbridge during the year accounts for the decline in Investments from $1.9 billion to $0.6 billion.

Brookfield Asset Management   |   2005 Annual Report      43

Accounts Receivable and Other

Accounts receivable and other increased to $4.2 billion from $1.6 billion at the end of 2004. The following table is a summary of consolidated accounts receivable and other assets.

AS AT DECEMBER 31	Book Value
MILLIONS	2005		2004
Accounts receivable	$	1,709	$	1,187
Prepaid expenses and other assets		1,541		263
Restricted cash		651		29
Inventory		247		16
Future income tax assets		—		56
	$	4,148	$	1,551

The increase in 2005 is due to the expansion of our operating platform, and includes the consolidated working capital balances of the 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 in accordance with accounting guidelines, including $470 million in respect of our Louisiana power generating operations which were consolidated during 2005. 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.

Property, Plant and Equipment

Property, plant and equipment increased by $3.5 billion during 2005, due to acquisitions of core office properties, timberlands and power generating facilities. The following table is a summary of property, plant and equipment for the past two years:

AS AT DECEMBER 31	Book Value
MILLIONS	2005		2004
Property
Commercial properties	$	8,688	$	7,089
Residential properties		1,205		818
Development properties		942		950
Property services		39		51
		10,874		8,908
Power generation		3,568		2,951
Timberlands and infrastructure		1,018		184
Other plant and equipment		316		188
	$	15,776	$	12,231

Commercial property assets include core office, opportunity and retail properties. The net book value of these assets increased during 2005 with the acquisition of 20 Canada Square, located in the Canary Wharf Estate in London, U.K., and a Canadian office portfolio consisting of 24 high quality office properties and one development property in which we acquired a 25% interest, with two institutions owning the balance. More details on these operations are located on pages 15 through 18 of this report. Residential property assets increased due to the continued build-out of inventory, particularly in the United States market. More detail on our residential operations is included on pages 18 and 19.

Power generation facilities increased with the continued expansion of our operating platform and the consolidation of our Louisiana operations. During 2005, we acquired and built 14 stations with a total capacity of 772 megawatts for an aggregate investment of $300 million. We invested approximately $1 billion in additional hydroelectric facilities during 2004 including 72 power plants in New York State. More detail on our power generating operations is included on pages 22 through 25.

44     Brookfield Asset Management   |   2005 Annual Report

The increase in timberlands represents the acquisition of 635,000 acres of high quality private timberlands on the west coast of Canada as detailed on page 26.

Securities

Securities include $1.6 billion (2004 – $0.9 billion) of largely fixed income securities held through our insurance operations, which are described under Investments on page 30, as well as our $267 million (2004 – $450 million) common share investment in Canary Wharf Group, which is included in our core office property operations. We expanded our insurance operations during the year which gave rise to the increase in Securities, as well as an increase in Other Liabilities. The decrease in the carrying values for our Canary Wharf investment is due to dividends received during 2005.

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 was lower at the end of 2005 due to repayments and syndications of loan positions during 2005.

Consolidated Capitalization

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, power assets acquired during the year and the consolidation of Louisiana HydroElectric, the financing associated with the acquisition of our west coast timberland assets, as well as financings associated with our property acquisition in the United Kingdom and the continued expansion of our opportunity property investments.

Accounts payable increased as a result of the assumption of working capital balances on the acquisition of additional operating assets as well as the overall growth in the level of business activity, particularly within our insurance operations. Common equity increased due to the net income generated over the past two years, offset in part by dividends paid and shares repurchased.

The following table details our consolidated capitalization at the end of 2005 and 2004 and the related cash costs:

AS AT AND FOR THE YEARS ENDED DECEMBER 31	Cost of Capital1						Book Value				Operating Cash Flow2
MILLIONS	2005			2004			2005		2004		2005		2004
Non-recourse borrowings
Property specific mortgages		7	%		6	%	$	8,756	$	6,045	$	519	$	321
Subsidiary borrowings		5	%		5	%		2,510		2,373		153		105
Corporate borrowings		7	%		6	%		1,620		1,675		119		103
Accounts payable and other liabilities		7	%		7	%		4,561		2,719		449		295
Capital securities		6	%		6	%		1,598		1,548		90		79
Non-controlling interest in net assets		22	%		22	%		1,984		1,780		386		360
Shareholders’ equity
Preferred equity		6	%		6	%		515		590		35		24
Common equity		20	%		18	%		4,514		3,277		873		602
		9.5	%		9.5	%	$	26,058	$	20,007	$	2,624	$	1,889

1	Based on operating cash flows as a percentage of average book value
2	Interest expense in the case of borrowings. Attributable operating cash fl ows in the case of shareholders’ interests, including cash distributions, and current taxes and operating expenses in the case of accounts payable and other liabilities

Our overall weighted average cash cost of capital, using a 20% return objective for our common equity, is 9.5%, unchanged from 2004. 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   |   2005 Annual Report     45

Property Specific Mortgages

Where appropriate, we finance our operating assets with long-term, non-recourse borrowings such as property specific mortgages which do not have recourse to the Corporation or our operating entities.

The composition of Brookfield’s consolidated borrowings which have recourse only to the specific assets being financed is as follows:

			Cost of
AS AT AND FOR THE YEARS ENDED DECEMBER 31	Average		Capital1			Book Value				Operating Cash Flow2
MILLIONS	Term		2005			2005		2004		2005		2004
Commercial properties		11		7	%	$	5,881	$	4,534	$	312	$	261
Power generation		10		8	%		2,365		1,411		191		57
Timberlands and infrastructure		19		6	%		510		100		16		3
		11		7	%	$	8,756	$	6,045	$	519	$	321

1	Based on operating cash flows as a percentage of average book value
2	Interest expense

These borrowings leverage common shareholders’ equity with long-term lower risk financing, which is largely fixed rate, with an average consolidated maturity of 11 years and a weighted average interest rate of 7%.

Commercial property borrowings consist primarily of mortgage debt on properties held within our core property and opportunity investment operations, which are described in more detail on pages 16 and 17 and page 20. Power generation borrowings consist of financings secured by specific power facilities and include $630 million of debt secured by our Louisiana facilities that were consolidated with effect from the beginning of 2005. Timber and infrastructure debt includes $410 million of long-term debt issued from the Island Timberland Fund, formed in 2005, which is secured by the timberlands and has an average maturity of 19 years and a blended interest rate of 6.0%, as well as $100 million secured by electricity transmission and distribution facilities.

Principal repayments on property specific mortgages due over the next five years and thereafter are as follows:

YEARS ENDED DECEMBER 31 (MILLIONS)	2006			2007			2008			2009			2010			Beyond			Total
Commercial properties	$	284		$	674		$	358		$	841		$	343		$	3,381		$	5,881
Power generation		30			29			27			83			12			2,184			2,365
Timberlands and infrastructure		—			—			—			—			—			510			510
Total	$	314		$	703		$	385		$	924		$	355		$	6,075		$	8,756
Percentage of total		3	%		8	%		5	%		11	%		4	%		69	%		100	%

Other Debt of Subsidiaries

These borrowings are largely corporate debt, issued by way of corporate bonds, bank credit facilities and other types of debt and financial obligations of subsidiaries. The composition of these borrowings on a consolidated basis is as follows:

			Cost of
AS AT AND FOR THE YEARS ENDED DECEMBER 31	Average		Capital1			Book Value				Operating Cash Flow2
MILLIONS	Term		2005			2005		2004		2005		2004
Residential properties		2		5	%	$	1,137	$	814	$	21	$	14
Power generation		4		6	%		474		617		24		23
Timberlands and infrastructure		6		5	%		37		37		3		1
International operations and other		7		6	%		862		905		105		67
		3		5	%	$	2,510	$	2,373	$	153	$	105

1	Based on operating cash flows as a percentage of average book value
2	Interest expense

46     Brookfield Asset Management   |    2005 Annual Report

Residential property debt consists primarily of construction financing which is 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. Power generation debt consists of C$450 million, 4.6% public notes which mature in 2009 and C$100 million floating rate public notes which mature in 2006. The notes are rated BBB by S&P and BBB(high) by DBRS.

Other subsidiary debt includes C$200 million of retractable preferred shares that will be repaid no later than 2011 and pay dividends at a rate of 6.1%, as well as debt obligations of various operating companies that are included on a deconsolidated basis as Investments in our segmented analysis. A portion of the outstanding debt of our international operations is denominated in their domestic currencies and is utilized to hedge their operating assets against local currency fluctuations, the most significant of which is the Brazilian real. The Corporation does not typically guarantee the debts of subsidiaries with the exception of $434 million included in other subsidiary debt.

Principal repayments on other debt of subsidiaries due over the next five years and thereafter are as follows:

YEARS ENDED DECEMBER 31 (MILLIONS)	2006			2007			2008			2009			2010			Beyond			Total
Residential properties	$	701		$	384		$	41		$	9		$	2		$	—		$	1,137
Power generation		86			—			—			388			—			—			474
Timberlands and infrastructure		2			—			1			1			2			31			37
International operations and other		192			11			47			6			—			606			862
Total	$	981		$	395		$	89		$	404		$	4		$	637		$	2,510
Percentage of total		39	%		16	%		4	%		16	%		—	%		25	%		100	%

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 the Corporation and its subsidiaries.

Interests of others in our operations at December 31, 2005 and 2004 on a fully consolidated basis were as follows:

	Number of
AS AT AND FOR THE YEARS ENDED DECEMBER 31	Shares		Book Value				Operating Cash Flow1
MILLIONS	2005		2005		2004		2005		2004
Participating interests
Property
Brookfield Properties Corporation		115.0	$	999	$	1,024	$	221	$	238
Brookfield Homes Corporation		13.2		128		122		108		84
Retail and other				69		80		1		—
Power generation
Great Lakes Hydro Income Fund				180		194		16		21
Louisiana HydroElectric				45		—		6		—
Timberlands				255		—		7		—
Other				133		110		14		2
				1,809		1.530		373		345
Non-participating interests				175		250		13		15
			$	1,984	$	1,780	$	386	$	360

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

The majority of our core office and residential property operations are conducted through Brookfield Properties Corporation and Brookfield Homes Corporation, respectively, in which shareholders other than the company own approximate 50% and 48% common share interests, respectively. Power generating interests represent the 50% interest of unitholders in the Great Lakes Hydro Income Fund, through which we own some of our power generating operations, and a 25% residual equity interest held by others in our Louisiana operations. Institutional partners provided $255 million of capital towards the formation of our Island Timberland Fund.

Brookfield Asset Management   |   2005 Annual Report     47

The book values of these interests vary each year, and typically increase with the excess of net income over normal cash distributions and decrease with share repurchases and special dividends. During 2005, our U.S. core office and residential operations repurchased common equity held by non-controlling interests for $132 million and $75 million, respectively, resulting in a decrease in the book value of these interests. Operating cash flow distributed to other non-controlling shareholders in the form of cash dividends totalled $109 million in 2005 compared with $73 million in 2004. The undistributed cash flows attributable to non-controlling shareholders are retained in the respective operating businesses and are available to expand their operations, reduce indebtedness or repurchase equity.

Consolidated Statement of Income

The following table summarizes our consolidated statement of net income:

YEARS ENDED DECEMBER 31 (MILLIONS)	2005			2004
Net operating income	$	2,355		$	1,825
Interest expenses		(881	)		(608	)
Operating and current taxes		(449	)		(295	)
Non-controlling interests in the foregoing		(386	)		(360	)
		639			562
Other items, net of non-controlling interests		1,023			(7	)
Net income	$	1,662		$	555

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 disposition gains. These items are described for each business unit in the Operations Review beginning on page 14. The following table reconciles total operating cash flow in the segmented basis of presentation presented on page 11 and net operating income:

YEARS ENDED DECEMBER 31 (MILLIONS)	Business Unit	2005			2004
Total operating cash flow		$	2,624		$	1,889
Less dividends received:
Canary Wharf Group	Core office		(183	)		—
Falconbridge and Norbord	Investments		(86	)		(64	)
Net operating income		$	2,355		$	1,825

Interest Expenses

The following table summarizes interest expense during each of the past two years:

YEARS ENDED DECEMBER 31 (MILLIONS)	2005		2004
Corporate borrowings	$	119	$	103
Property specific mortgages		519		321
Subsidiary borrowings		153		105
Capital securities		90		79
	$	881	$	608

Further details for the individual components are provided in the Operations Review and Consolidated Capitalization sections.

Operations and Current Taxes

These items include expenses allocated to our asset management activities and other operating costs that are not attributed to specific business units. Current taxes relate principally to our U.S. home building operations. These items are summarized in the following table:

48       Brookfield Asset Management  |   2005 Annual Report

YEARS ENDED DECEMBER 31 (MILLIONS)	2005		2004
Asset management expenses	$	184	$	126
Other operating costs		103		83
Current income taxes		162		86
	$	449	$	295

These items are discussed further in the Operations Review beginning on page 14.

Non-controlling Interests

The interest of non-controlling parties in the foregoing items aggregated $386 million on a consolidated basis during 2005, compared with $360 million on a similar basis during 2004. The increase was due primarily to the overall increase in operating cash flows produced by our partially owned home building operations, offset by a decrease in lease termination gains recorded by our partially owned core property operations. The composition of non-controlling interests is detailed in the table on page 47.

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 12.

YEARS ENDED DECEMBER 31 (MILLIONS)	2005			2004
Equity accounted income from investments	$	219		$	332
Gains on disposition of Falconbridge		1,350			—
Depreciation and amortization		(374	)		(251	)
Future income taxes and other provisions		(324	)		(260	)
Non-controlling interests in the foregoing items		152			172
	$	1,023		$	(7	)

Equity accounted income reflects our share of the net income recorded by Falconbridge, Norbord and Fraser Papers. The decline relative to 2004 is due to the monetization of our interest in Falconbridge during 2005 and a lower ownership interest in Norbord. In addition, Norbord realized prices in 2005 that, while very favourable, were lower compared to 2004 during which time prices were particularly strong.

Depreciation and amortization prior to non-controlling interests increased to $374 million from $251 million during 2004. The increase is due to the acquisition of additional property, power and timber assets during 2004 and 2005, as well as the inclusion of depreciation on the Louisiana power facilities that were consolidated during 2005.

Future income taxes and other provisions increased to $324 million from $260 million, before taking into account non-controlling interests, and are summarized in the following table:

YEARS ENDED DECEMBER 31 (MILLIONS)	2005			2004
Future income taxes	$	285		$	151
Revaluation gains and losses
Interest rate contracts		16			—
Norbord exchangeable debentures		10			(6	)
Intangible assets		33			—
Foreign exchange on capital securities		—			113
Tax effect of revaluation gains and losses		(20	)		2
	$	324		$	260

Brookfield Asset Management  |  2005 Annual Report     49

Our future income tax provision was significantly higher than in the comparable period, due principally to the inclusion of an accounting tax provision of $251 million associated with the Falconbridge disposition gain. 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, 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. Nonetheless, we record non-cash tax provisions as required under GAAP, which, in addition to the Falconbridge gain, also reflects any changes in the carrying value of our tax shield during the period, and tax provisions in respect of the non-cash equity earnings recorded on our investments in Falconbridge and Norbord. The tax provision for 2004 reflects the impact of property and disposition gains during that period.

Revaluation gains and losses 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 charge of $16 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.

Provisions also include a revaluation charge of $10 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. In the second quarter we charged off intangible assets totalling $33 million that would otherwise have been expensed over time as depreciation and amortization, and in the prior year, provisions included the impact of foreign currency revaluation of capital securities that were reclassified as liabilities (See Changes in Accounting Policies beginning on page 56).

Consolidated Statement 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 62:

YEARS ENDED DECEMBER 31 (MILLIONS)	2005			2004
Operating activities	$	830		$	872
Financing activities		1,013			1,731
Investing activities		(1,296	)		(2,581	)
Increase in cash and cash equivalents	$	547		$	22

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)	2005			2004
Cash flow from operating activities	$	830		$	872
Less:     Net change in working capital balances and other		(105	)		(198	)
Norbord special dividend		—			(48	)
Add:      Dividends received from Canary Wharf Group		183			—
Operating cash flow	$	908		$	626

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 consider the dividends to form part of our operating cash flow. The Norbord special dividend was not included in operating cash flow during 2004 because a major portion of our investment was monetized during the same quarter, giving rise to a $63 million gain, which was included in operating cash flow, whereas there were no such monetizations during 2005.

50     Brookfield Asset Management  |  2005 Annual Report

Financing Activities

Financing activities generated $1.0 billion of cash during 2005 compared with $1.7 billion during 2004. Approximately $1 billion of property specific financings were arranged in each year to fund new property, power and timber assets acquired during each year, as well as increased financings on existing assets to better reflect current values and cash flows.

During 2005, institutional partners invested $263 million in our Island Timberland Fund. We utilized cash resources to repurchase $162 million (2004 – $19 million) of common shares and our subsidiaries repurchased an additional $187 million (2004 – $33 million) of common equity.

During 2004, subsidiaries issued $500 million (2005 – $101 million) of unsecured debt, net of repayments, including C$500 million of term debt issued by our power generating operations. We also issued $264 million of preferred shares from our core office property subsidiary. Our U.S. home building group distributed $280 million by way of a special dividend, which represented an outflow of $140 million to shareholders other than Brookfield.

We retained $265 million (2004 – $242 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 $190 million (2004 – $160 million).

Investing Activities

We invested net capital of $1.3 billion on a consolidated basis during 2005 compared with $2.6 billion during 2004.

Net investment in property assets totalled $1.0 billion during 2005, compared with $341 million during 2004. The current year’s investment principally represents our share of the Canadian core office portfolio, offset by proceeds from the sale of a small property in Denver. During 2004, we acquired three properties in Washington, D.C.

We continued to expand our power generating operations during 2005 with the purchase of several hydroelectric facilities in North America and Brazil and a pump storage facility in New Hampshire. During 2004, we acquired a large portfolio of hydroelectric generating facilities in New York for approximately $900 million.

The net investment in securities during 2004 included a net increase in securities of $0.3 billion and loan advances net of repayment totalling $1.0 billion, largely through our bridge lending operations.

Proceeds from the disposition of Investments totalled $1.3 billion during 2005, net of acquisitions. We received $2.7 billion of proceeds from the sale of our investment in Falconbridge, of which $1.4 billion was received in cash and is reflected as proceeds from investing activities The balance in the form of preferred shares and exchangeable debentures is reflected as Investments in Financial Assets.

The dividends received from Canary Wharf Group during 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. The dividends, which are the first received since we acquired this investment, represent a 20% yield when measured over the life of our investment.

Brookfield Asset Management  |  2005 Annual Report     51

Reconciliation of Segmented Disclosure to Consolidated Financial Statements

The following tables present a reconciliation of our segmented disclosure, which forms the basis of presentation for much of the discussion and analysis in this annual report, to our consolidated financial statements which are prepared and audited in accordance with GAAP:

Balance Sheet

	AS AT DECEMBER 31, 2005
											Cash and
					Timber and		Specialty				Financial		Other
MILLIONS	Property		Power		Infrastructure		Funds		Investments		Assets		Assets		Capitalization			Consolidated
Assets
Operating assets
Property, plant and equipment
Property	$	10,722	$	—	$	113	$	—	$	—	$	—	$	39	$	—		$	10,874
Power generation		—		3,568		—		—		—		—		—		—			3,568
Timberlands and infrastructure		—		—		1,018		—		—		—		—		—			1,018
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		23		—		143		417		—		—			951
Financial assets		—		187		—		—		—		1,984		—		—			2,171
Investments		—		—		—		122		473		—		—		—			595
Accounts receivable and other		617		882		59		2		836		—		1,752		—			4,148
Total assets	$	11,859	$	4,752	$	1,213	$	499	$	3,386	$	2,558	$	1,791	$	—		$	26,058
Liabilities and shareholders’ equity
Corporate borrowings	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	1,620		$	1,620
Property specific financing		5,881		2,365		510		—		—		—		—		—			8,756
Other debt of subsidiaries		1,138		474		37		—		110		146		—		605			2,510
Accounts payable and other liabilities		463		491		65		—		1,874		282		—		1,386			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		4,181		1,197		346		499		1,293		2,130		1,791		(6,923	)		4,514
Total liabilities and shareholders’ equity	$	11,859	$	4,752	$	1,213	$	499	$	3,386	$	2,558	$	1,791	$	—		$	26,058

Results from Operations

	YEAR ENDED DECEMBER 31, 2005
	Asset													Investment
	Management						Timber and		Specialty					Income
MILLIONS	Services		Property		Power		Infrastructure		Funds		Investments			and Gains		Capitalization			Consolidated
Fees earned	$	282	$	—	$	—	$	—	$	—	$	—		$	—	$	—		$	282
Revenues less direct operating costs
Property		—		1,210		—		—		—		—			—		—			1,210
Power generation		—		—		469		—		—		—			—		—			469
Timberlands and infrastructure		—		—		—		64		—		—			—		—			64
Specialty funds		—		—		—		—		54		—			—		—			54
Investment and other income		—		—		—		—		—		34			193		—			227
Disposition gains		—		—		—		—		—		—			49		—			49
		282		1,210		469		64		54		34			242		—			2,355
Expenses
Interest		—		332		215		19		—		28			9		278			881
Current income taxes		—		141		—		—		—		10			—		11			162
Asset management		184		—		—		—		—		—			—		—			184
Other operating costs		—		—		2		—		—		9			—		92			103
Non-controlling interests		—		109		22		7		—		5			—		243			386
Net income before the following		98		628		230		38		54		(18	)		233		(624	)		639
Dividends from Falconbridge		—		—		—		—		—		24			—		—			24
Dividends from Norbord		—		—		—		—		—		62			—		—			62
Dividends from Canary Wharf		—		183		—		—		—		—			—		—			183
Cash flow from operations		98		811		230		38		54		68			233		(624	)		908
Preferred share dividends		—		—		—		—		—		—			—		35			35
Cash flow to common shareholders	$	98	$	811	$	230	$	38	$	54	$	68		$	233	$	(659	)	$	873

52     Brookfield Asset Management  |  2005 Annual Report

     Balance Sheet

	AS AT DECEMBER 31, 2004
												Cash and
						Timber and		Specialty				Financial		Other
MILLIONS	Property		Power			Infrastructure		Funds		Investments		Assets		Assets		Capitalization			Consolidated
Assets
Operating assets
Property, plant and equipment
Property	$	8,856	$	—		$	—	$	—	$	—	$	—	$	52	$	—		$	8,908
Power generation		—		2,951			—		—		—		—		—		—			2,951
Timberlands and infrastructure		—		—			184		—		—		—		—		—			184
Other plant and equipment		—		—			—		—		188		—		—		—			188
Securities		464		—			—		106		939		248		—		—			1,757
Loans and notes receivable		—		58			—		715		64		63		—		—			900
Cash and cash equivalents		75		83			6		—		101		139		—		—			404
Financial assets		109		560			—		—		16		535		—		—			1,220
Investments		—		—			—		76		1,868		—		—		—			1,944
Accounts receivable and other		298		(102	)		25		—		430		—		900		—			1,551
Total assets	$	9,802	$	3,550		$	215	$	897	$	3,606	$	985	$	952	$	—		$	20,007
Liabilities and shareholders’ equity
Corporate borrowings	$	—	$	—		$	—	$	—	$	—	$	—	$	—	$	1,675		$	1,675
Property specific financing		4,534		1,463			48		—		—		—		—		—			6,045
Other debt of subsidiaries		826		621			39		—		223		—		—		664			2,373
Accounts payable and other liabilities		252		96			37		—		898		339		—		1,097			2,719
Capital securities		—		—			—		—		—		—		—		1,548			1,548
Non-controlling interests in net assets		202		194			—		—		110		—		—		1,274			1,780
Preferred equity		—		—			—		—		—		—		—		590			590
Common equity / net invested capital		3,988		1,176			91		897		2,375		646		952		(6,848	)		3,277
Total liabilities and shareholders’ equity	$	9,802	$	3,550		$	215	$	897	$	3,606	$	985	$	952	$	—		$	20,007

Results from Operations

	YEAR ENDED DECEMBER 31, 2004
	Asset												Investment
	Management						Timber and		Specialty				Income
MILLIONS	Services		Property		Power		Infrastructure		Funds		Investments		and Gains		Capitalization			Consolidated
Fees earned	$	199	$	—	$	—	$	—	$	—	$	—	$	—	$	—		$	199
Revenues less direct operating costs
Property		—		973		—		—		—		—		—		—			973
Power generation		—		—		268		—		—		—		—		—			268
Timberlands and infrastructure		—		—		—		26		—		—		—		—			26
Specialty funds		—		—		—		—		48		—		—		—			48
Investment and other income		—		—		—		—		—		60		128		—			188
Disposition gains		—		—		—		—		—		—		123		—			123
		199		973		268		26		48		60		251		—			1,825
Expenses
Interest		—		274		78		5		—		4		4		243			608
Current income taxes		—		75		—		—		—		1		—		10			86
Asset management		126		—		—		—		—		—		—		—			126
Other operating costs		—		—		—		—		—		1		—		82			83
Non-controlling interests		—		84		21		—		—		5		—		250			360
Net income before the following		73		540		169		21		48		49		247		(585	)		562
Dividends from Falconbridge		—		—		—		—		—		45		—		—			45
Dividends from Norbord		—		—		—		—		—		19		—		—			19
Cash flow from operations	$	73	$	540	$	169	$	21	$	48	$	113	$	247	$	(585	)	$	626
Preferred share dividends		—		—		—		—		—		—		—		24			24
Cash flow to common shareholders	$	73	$	540	$	169	$	21	$	48	$	113	$	247	$	(609	)	$	602

Brookfield Asset Management  |  2005 Annual Report     53

SUPPLEMENTAL INFORMATION

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

Quarterly Results

The 2005 and 2004 results by quarter are as follows:

	2005												20041
MILLIONS	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
Total revenues	$	1,740		$	1,368		$	1,174		$	974		$	1,299		$	994		$	838		$	768
Fees earned		106			70			58			48			54			45			43			57
Revenues less direct operating costs
Property		461			270			257			222			335			231			214			193
Power generation		128			92			115			134			64			64			67			73
Timberlands and infrastructure		15			19			20			10			10			7			5			4
Specialty funds		11			17			13			13			20			11			7			10
Investment and other income		8			67			77			75			10			48			69			61
Disposition gains		—			28			21			—			—			63			60			—
		729			563			561			502			493			469			465			398
Expenses
Interest		229			218			235			199			154			154			153			147
Current income taxes		88			28			30			16			46			16			16			8
Asset management		52			51			43			38			35			30			30			31
Other operating costs		35			21			20			27			30			22			13			18
Non-controlling interest in net income before the following		151			74			78			83			112			74			100			74
Net income before the following		174			171			155			139			116			173			153			120
Equity accounted income from investments		9			34			73			103			62			79			95			96
Gains on disposition of Falconbridge		—			785			565			—			—			—			—			—
Depreciation and amortization		(103	)		(102	)		(92	)		(77	)		(79	)		(60	)		(56	)		(56	)
Future income taxes and other provisions		5			(180	)		(121	)		(28	)		(67	)		(107	)		(42	)		(44	)
Non-controlling interests in the foregoing items		66			28			30			28			55			48			40			29
Net income	$	151		$	736		$	610		$	165		$	87		$	133		$	190		$	145

1 2004 results have been revised to reflect adoption of new accounting standards which require capital securities to be presented as liabilities and distributions as interest expense, as well as any associated foreign currency revaluation and to conform to current presentation

The 2005 and 2004 cash flow from operations by quarter are as follows:

	2005								20041
MILLIONS	Q4		Q3		Q2		Q1		Q4		Q3		Q2		Q1
Net income before the following	$	174	$	171	$	155	$	139	$	116	$	173	$	153	$	120
Dividends from Falconbridge		—		—		12		12		12		11		11		11
Dividends from Norbord		5		5		48		4		5		4		5		5
Dividends from Canary Wharf		73		110		—		—		—		—		—		—
Cash flow from operations and gains		252		286		215		155		133		188		169		136
Preferred share dividends		10		8		9		8		7		6		6		5
Cash flow to common shareholders	$	242	$	278	$	206	$	147	$	126	$	182	$	163	$	131
Common equity – book value	$	4,514	$	4,586	$	3,872	$	3,411	$	3,277	$	3,229	$	3,079	$	2,981
Common shares outstanding		257.6		261.1		260.2		259.5		258.7		258.0		258.0		257.7
Per common share
Cash flow from operations	$	0.91	$	1.04	$	0.78	$	0.55	$	0.49	$	0.70	$	0.64	$	0.49
Net income		0.54		2.73		2.26		0.59		0.29		0.49		0.71		0.53
Dividends		0.15		0.15		0.15		0.14		0.14		0.14		0.14		0.13
Book value		17.72		17.74		15.07		13.37		12.76		12.54		11.96		11.62
Market trading price (NYSE)		50.33		46.60		38.16		37.75		36.01		30.20		28.24		26.84
Market trading price (TSX) – C$		58.61		54.14		46.80		45.70		43.15		38.13		37.42		34.87

1 2004 results have been revised to reflect adoption of new accounting standards which require capital securities to be presented as liabilities and distributions as interest expense, as well as any associated foreign currency revaluation and to conform to current presentation

54     Brookfield Asset Management  |  2005 Annual Report

For the three months ended December 31, 2005, cash flow from operations and gains totalled $252 million ($0.91 per share) compared with $133 million ($0.49 per share) in 2004. The 2005 fourth quarter cash flows include a $73 million dividend received on our investment in Canary Wharf. Net income from the three months ended December 31, 2005 totalled $151 million ($0.54 per share) compared with $87 million ($0.29 per share) in 2004. This increase was largely due to improved margins in our residential home building business, as well as the investment of additional capital in our power generation operations. This was partially offset by a reduction in our equity accounted income as a result of the sale of our investment in Falconbridge during the year.

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.

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		$	8,756	$	314	$	2,012	$	1,306	$	5,124
Other debt of subsidiaries			2,510		981		888		207		434
Corporate borrowings			1,620		110		408		200		902
Capital securities			1,598		—		—		172		1,426
Lease obligations			8		1		3		2		2
Commitments			737		737		—		—		—
Interest expense1
Long-term debt			7,008		195		1,859		961		3,993
Capital securities			1,387		89		267		169		862
Interest rate swaps			117		13		39		26		39

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 $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 $81 million is included as liabilities in the consolidated balance sheet and the balance treated as contingent obligations.

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, other than the company tendered 48 million common shares of Falconbridge into an issuer bid in exchange for $950 million of Falconbridge preferred shares.

Brookfield Asset Management  |  2005 Annual Report     55

Corporate Dividends

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

	Distribution per Security
	2005		2004		2003
Class A Common Shares	$	0.59	$	0.55	$	0.49
Class A Preferred Shares
Series 11		—		0.30		0.54
Series 2		0.63		0.54		0.59
Series 32		2,012.46		1,744.04		2,112.47
Series 4 + Series 7		0.63		0.54		0.59
Series 8		0.74		0.56		0.81
Series 9		1.16		1.08		1.01
Series 10		1.19		1.11		1.03
Series 11		1.14		1.06		0.98
Series 12		1.12		1.04		0.83
Series 13		0.63		—		—
Series 14		2.25		—		—
Series 15		0.65		—		—
Preferred Securities
Due 2050		1.73		1.61		1.49
Due 2051		1.71		1.60		1.48

1	Redeemed July 30, 2004
2	Redeemed November 8, 2005

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 38 and in the section entitled Financial Risk Management beginning on page 41. 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, 2005, 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”).

56     Brookfield Asset Management  |  2005 Annual Report

Consolidation of variable interest entities, AcG 15

Effective January 1, 2005, the company adopted CICA Accounting Guideline (“AcG”) 15, “Consolidation of Variable Interest Entities” without restatement of prior periods. AcG 15 provides guidance for applying the principles in handbook section 1590, “Subsidiaries,” to those entities (defined as Variable Interest Entities (“VIEs”)), in which either the equity at risk is not sufficient to permit that entity to finance its activities without additional subordinated financial support from other parties, or equity investors lack voting control, an obligation to absorb expected losses, or the right to share expected residual returns. AcG 15 requires consolidation of VIEs by the primary beneficiary, which is defined as the party which has exposure to the majority of a VIEs expected losses and/or expected residual returns. There was no impact on common equity as a result of implementing the new guidelines.

As a result of AcG 15, the company commenced consolidating the accounts of Louisiana HydroElectric, in which the company holds a 75% residual equity interest. The following table shows the consolidated balances related to Louisiana HydroElectric as at December 31, 2005 and 2004.

	Book Value
	December 31		December 31, 2004
MILLIONS	2005		If Consolidated		Actual
Assets
Cash and financial assets	$	3	$	52	$	—
Accounts receivables and other		545		608		—
Property, plant and equipment		458		474		244
		1,006		1,134		244
Liabilities
Property specific mortgages		684		636		—
Accounts payable and other liabilities		43		210		—
Non-controlling interests of others in assets		37		44		—
Net assets	$	242	$	244	$	244

	Year Ended
	December 31			December 31, 2004
MILLIONS	2005			If Consolidated			Actual
Revenue less direct operating expenses
Power generation	$	112		$	135		$	26
Expenses
Property specific mortgages		95			88			—
Non-controlling interests in net income before the following		6			12			—
		11			35			26
Depreciation, amortization and non-cash taxes		(18	)		(13	)		—
Non-controlling interests in the foregoing items		5			4			—
Net income (loss)	$	(2	)	$	26		$	26

Liabilities and Equity, CICA Handbook Section 3860

Effective January 1, 2005, the company adopted the amendment to CICA Handbook Section 3860, “Financial Instruments: Disclosure and Presentation” with retroactive restatement of prior periods. The amendment requires certain obligations that must or could be settled with a variable number of the issuer’s own equity instruments to be presented as a liability. Accordingly, certain of the company’s preferred shares and securities that were previously included in equity were reclassified as liabilities under the caption “Capital Securities,” and the dividends paid on these preferred shares were reclassified as interest expense. As a result of the reclassification, preferred equity shares have been translated into U.S. dollars at period-end rates whereas they were previously translated at historical rates of exchange and the resultant impact of changes in the foreign exchange rates have been recorded in income on a retroactive basis. Similar reclassifications were adopted for the preferred equity securities issued by the company’s subsidiaries. The retroactive adoption of this amendment resulted in a cumulative adjustment to opening retained earnings at

Brookfield Asset Management  |  2005 Annual Report     57

January 1, 2004 of $110 million representing the sum of the capital securities issue costs, net of amortization, and the cumulative impact to that date of changes in the U.S. dollar equivalent of Canadian denominated capital securities. Net income attributable to common shares for the year ended December 31, 2004 was reduced by $93 million reflecting the foregoing items.

Asset Retirement Obligations, CICA Handbook Section 3110

Obligations associated with the retirement of tangible long-lived assets are recorded as liabilities when those obligations are incurred, with the amount of the liabilities initially measured at fair value. These obligations are capitalized to the book value of the related long-lived assets and are depreciated over the useful life of the related asset.

Hedging Relationship, AcG 13

AcG 13 requires the discontinuance of hedge accounting for hedging relationships previously established that do not meet the criteria at the date it is first applied. AcG 13 does not change the method of accounting for derivatives in hedging relationships, but EIC 128, “Accounting for Trading, Speculative or Non-Hedging Derivative Financial Instruments,” effective when AcG 13 is adopted, requires fair value accounting for derivatives that do not qualify for hedge accounting.

Impairment of Long-lived Assets, CICA Handbook Section 3063

Section 3063 provides that an impairment loss be recognized when the carrying value of an asset exceeds the total undiscounted cash flows expected from its use and eventual disposition. The impairment recognized is measured as the amount by which the carrying value exceeds its fair value.

Additional Share Data

Issued and Outstanding Common Shares

During 2005 and 2004, the number of issued and outstanding common shares changed as follows:

YEARS ENDED DECEMBER 31 (MILLIONS)	2005			2004
Outstanding at beginning of year		258.7			256.1
Issued (repurchased)
Dividend reinvestment plan		—			0.1
Management share option plan		1.6			0.4
Conversion of debentures and minority interests		1.3			2.9
Issuer bid purchases		(4.0	)		(0.8	)
Outstanding at end of year		257.6			258.7
Unexercised options		12.6			12.2
Reserved for conversion of subordinated notes		—			0.8
Total diluted common shares		270.2			271.7

Basic and Diluted Earnings Per Share

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

YEARS ENDED DECEMBER 31 (MILLIONS)	2005			2004
Net income	$	1,662		$	555
Convertible note interest		—			(1	)
Preferred share dividends		(35	)		(24	)
Net income available for common shareholders	$	1,627		$	530
Weighted average		260			258
Dilutive effect of the conversion of notes and options using treasury stock method		6			6
Common shares and common share equivalents		266			264

58     Brookfield Asset Management  |  2005 Annual Report