Dear shareholders,

Overview

Net income for the first quarter was $636 million or $0.23 per share. Funds from operations (FFO) totalled $703 million or $0.69 per share. Operating results in most of our businesses were ahead of last year.

Fundraising during the last twelve months was particularly strong. We closed $25 billion of private fund commitments across our latest round of flagship funds, including the final close for our $9 billion global real estate fund, as well as major interim closings of just shy of $12 billion for our infrastructure fund and $3.5 billion for our private equity fund. In aggregate, $15 billion of private fund commitments have been closed since the start of 2016. This is the largest amount of private fund capital that we have ever closed for a series of funds, and resulted in total assets under management (AUM) increasing to $240 billion.

With the continued growth in AUM, our asset management results grew both quarter over quarter and sequentially. Total annualized fees plus carry increased to almost $2 billion, and our run rate of annual fees to over $1.2 billion. With recent fundraising, this should continue to grow in the coming years. In respect of our investments, FFO in our property business grew 32% as new leases and projects came on-line, our infrastructure operations performed well, and water levels recovered, leading to improved generation in our power operations.

Market Environment

The S&P 500 advanced to over 2,000, most sub-indexes are near their highs, 70% of Americans’ homes are valued near their 2006 peaks (with the average home price increasing upwards of 30% in the past five years); corporations have record earnings, record amounts of cash, and the lowest amounts of liabilities in history; and U.S. banks are the best capitalized they have ever been.

In the context of the above, one would think that people would be content. On the contrary, most generally feel stressed. As a result, volatility is very high and the social media effect on people’s psyches amid the barrage of news – from the commodities pricing collapse, currency movements, Brexit, a China slowdown, and technology changes – is greater than ever.

Today, the tenets of value investing are even more important than ever as the 24-hour news cycle constantly affects stocks. In the face of this, we continue to analyze our investments by running 10 to 20 year discounted cash flow models based on using the best information we have about our expectations of the future. Over the longer term, this enables us to have a grounding in our analysis rather than reacting to the latest positive or negative news.

Most importantly, real assets generate long-term streams of cash flow which respond to supply and demand. Over time these assets must generate a cash return that justifies replacement value, or supply will ultimately contract. We consistently find that by sticking to real assets and by trying to acquire assets at less than replacement cost, the odds favour us being able to achieve our return targets over the longer term.

Fundraising

There has been a great deal of discussion related to capital withdrawals from sovereign wealth funds, but as can happen from time to time, the real story can get obscured by the headlines. Contrary to some reports, sovereign fund assets actually increased in the quarter to approximately $6.5 trillion at quarter end. While the pace of increase was slower than recent years, the funds are so large today that merely compounding current capital at 5% adds over $300 billion annually without regard to inflows or outflows. As a result, while there are some exceptions, we do not see sovereign funds slowing their investments in real assets any time soon. Furthermore, the above excludes the many trillions of capital for real assets in pension funds and insurance plans, and these plans are also looking for returns in real assets to supplement bonds’ anemic returns.

The closing of $15 billion of commitments to our private funds sets us up with a total of $25 billion of dry powder and balance sheet liquidity, the largest amount of investable capital across our strategies that we have ever had. We will continue to put this money to work alongside our approximately $70 billion of discretionary equity capital to generate returns. We received nearly 300 commitments from institutional and sovereign fund partners to our three flagship funds to date, with the expectation of 50 or more before the final closes. The average commitment size was approximately $70 million with the largest ones over $500 million and some less than $25 million.

Our capital is raised throughout the world, and we continued to see strong support from U.S. and Canadian corporate and state pension plans. Our Middle Eastern fund partners continue to support us with major commitments, and we are seeing very meaningful increases from Asia in every fund we have raised.

We believe the largest increases in fundraising over the next 10 years will be from Asia for a few reasons: the attractiveness of our areas of investment; their current lack of investments outside Asia; our brand recognition with them; and our growing presence in the region. Our offices in Singapore, Hong Kong, Seoul, Tokyo, and Shanghai will continue to be important to this effort and we plan to build out these operations. Longer term we believe upwards of one third of our capital will come from Asia, up from approximately 10% today.

To be successful with Relentless Incrementalism, one has to be in multiple businesses in multiple locations, as human nature doesn’t allow most businesses to stand still. These two things allow us to be patient, have staying power, and be extremely disciplined. In addition, Relentless Incrementalism offers a form of “dollar-cost averaging,” both with capital invested and with intimate knowledge of a business.

We follow the above, both when entering new countries and adjacent businesses to those we are already invested in. Most often we have been introduced to a new country or new business by having a small exposure through an acquisition, and have learned about the market or business with relatively little risk. One of two things usually occurs: either we find good people and continue to build out the business over time, or we decide that the business is not for us and we exit.

As an example, we acquired a district heating and cooling business in downtown Toronto (we provide outsourced heating and cooling services to property owners). Once we learned the business, we decided we could grow it by providing best-in-class services across many cities. Since then we have acquired systems in Chicago, Seattle, New Orleans, Houston, Las Vegas and Windsor, and we hope many more. Today, these operations contribute significantly to our infrastructure business.

As a further example, we decided over 10 years ago that we should have an operation in India. When we first went there, capital was flowing in with reckless abandon. None of the valuations made sense to us, given the risks. Between 2003 to 2008, we built up our resources there and completed some small transactions, risking very little capital. We took that time to learn the market. In 2008, the markets cracked and India became a value market. After the changes in the capital markets in 2013, we began to invest in India across most of our businesses and we continue to grow each incrementally. Our investments have all done well to date and this gives us the confidence that we will successfully be able to build this business.

Performance Across Our Platforms

Asset Management

Our asset management franchise continues to expand as clients allocate larger amounts of capital to real asset strategies, and our reputation and market presence increases. The closing of $15 billion of new fund capital commitments during the first four months of 2016 increased total assets under management to $240 billion and fee bearing capital to approximately $114 billion at the date of this letter. This compares with $104 billion at March 31, 2016 and $99 billion at the end of 2015.

Fee related earnings year over year increased by 71% to $185 million, reflecting fees earned from the additional capital managed for our clients. Our overall annual fee run rate is now $1.2 billion and including annualized carry increased to nearly $2 billion.

We are close to completing fundraising for our latest series of flagship private funds. We have raised $25 billion, ahead of our $20 billion target, benefitting from strong investor demand. In addition to these, we have several other funds focused on specific opportunities we see in certain sectors and regions.

We recently completed the fundraising for our follow-on global opportunistic real estate fund. We held a first close of $4 billion in June 2015 and final close in April 2016. Total capital commitments were $9 billion, exceeding our original $7 billion target, and double the size of the predecessor fund. We committed $2.3 billion to the fund through our listed real estate partnership (BPY) which enables us to participate in the fund’s returns.

We experienced strong client demand during fundraising, with over half of the client commitments generated by current clients and the other half from new investors to our real estate fund. We are also well advanced in deploying the fund’s capital and have already announced or completed acquisitions for over 50% of the fund’s commitments in assets across the U.S., Europe and Brazil.

We also recently closed on $11.8 billion of commitments to our follow-on flagship infrastructure fund in April, representing our largest single fundraising close to date.

Our three listed partnerships in property, renewable power and infrastructure are all performing well, and each announced increases in their cash distribution targets earlier this year, reflecting continued growth in their underlying FFO. The launch of Brookfield Business Partners (BBP) is expected to be completed in the second quarter of 2016 and will establish our fourth listed entity.

Brookfield Property Group

Our property group generated FFO of $450 million, of which our share was $373 million, up 32% from last year. Our results benefitted from incremental income from recently signed leases in the office property portfolio, strong performance from our core retail business, and new investments we made last year.

Real estate fundamentals in the majority of our core office markets remain strong. New York and London continue to lead the way, although overall activity has slowed, in part reflecting uncertainty over both the U.S. election and the UK Brexit referendum. Commodity-based markets continue to be on pause, but our property portfolios in those cities are well leased and represent the best product. Government markets are stable with continued healthy private investment demand.

Our core retail portfolio has continued its strong performance and positive momentum. Class A U.S. malls are experiencing stable occupancy, increasing traffic, same-store sales growth of 3% to 5%, and fewer tenant bankruptcies than a year ago. Brick-and-mortar and e- retailers alike are seeking the appropriate balance between physical stores and online retail. In our view, high-quality malls will continue to serve as the centrepiece of all retail. Redevelopment initiatives are the current hallmark of our mall growth program as asset acquisitions are rare or otherwise near full value for premier mall product.

Globally, private demand for real estate investment backed by a strong sponsor has not abated, either at the asset or fund level. Fulfilling this demand, during the quarter we sold an office property in Vancouver and a retail centre in Sydney, both at premiums to our IFRS carrying values.

Recent growth initiatives in the property business include the acquisition of a 108-property self-storage portfolio in the U.S. for approximately $1 billion. We believe there are significant follow- on investment and consolidation opportunities in this sector. We also continue to build out our multifamily business through asset acquisitions and new development. We acquired land parcels zoned for multifamily developments in a number of markets across the U.S. and continue to build out our projects in London. We made smaller add- on investments to augment our existing office portfolios in Boston, London and Sydney, and entered into a 50/50 joint venture on a 768,000 square foot office development in Washington, D.C., concurrently securing a 70% anchor lease.

Brookfield Renewable Group

Our renewable power business generated FFO of $141 million, of which our share was $ 68 million. Water inflows in North America were well above the long-term average and rebounded strongly in Brazil. Our wind portfolio also enjoyed solid performance and we ended the period with our reservoirs well positioned for future quarters.

Despite power prices in most major markets near cyclical lows, which have affected our cash flows from uncontracted power, we continue to secure long-term contracts for electricity and capacity at attractive rates that are significantly above levels seen a few years ago. As an example, we entered into a 10-year agreement to supply a leading global technology company with 100% renewable wind energy to power their international headquarters in Dublin as well as a data center under construction.

In North America, generation levels were above average due to strong hydrology across most of our plants. In Europe, we had another quarter of wind production at or above average levels, demonstrating very consistent performance from these assets. In Brazil, water conditions improved leading to increased generation and higher reservoir levels. Prices, however, were down significantly in the quarter as a result of both improved water conditions and weaker demand for power, although we remain confident that they will increase significantly in the coming years.

As mentioned, during the quarter we acquired Isagen, a 3,000 megawatt operating portfolio in Colombia. This extremely high-quality renewable power portfolio includes six operating hydro plants, including the country’s largest generation facility and its largest reservoir by volume. We also completed the acquisition of two hydro facilities in Pennsylvania, which closed subsequent to quarter end, as well as two small hydro plants in Brazil, representing $1 billion of aggregate capital deployed.

We continue to advance the development and construction of several renewable power projects across our portfolio, including 72 megawatts of hydro in Brazil, 80 megawatts of wind in Ireland and Scotland and a 55 megawatt biomass expansion in Brazil. All of the projects remain on budget and are poised to contribute to our future results.

Brookfield Infrastructure Group

Our infrastructure group generated FFO of $242 million, of which our share was $71 million, up 25% from last year. This reflected contributions from our communications infrastructure business recently added in France, and an increased stake in a major U.S. pipeline. We are in the process of both deleveraging and operationally restructuring this pipeline with a part reversal of the flow of natural gas to the Gulf Coast for LNG exports.

FFO increased by 11% on a ‘same-store’ constant currency basis, fueled by new in- place connections and the first contribution from 200,000 newly installed smart meters, which monitor home energy use in real time. These were introduced in February at our UK regulated distribution business and we believe will offer significant long-term growth potential.

If the Asciano transaction proceeds as expected, we will deploy approximately $3 billion of total capital including equity of approximately $900 million from our flagship private and public infrastructure funds and $400 million through institutional co-investment partners.

Our capacity to deploy capital into attractive opportunities in the infrastructure sector remains strong. In this regard, we are actively evaluating investment opportunities in all our markets. The highest levels of activity are in North and South America, where the energy sector and emerging markets are capital constrained, primarily due to lower commodity prices.

In Brazil, we are also moving forward with plans to build 3,000 kilometres of electrical transmission networks over the next five years, and we hope to build this operation into a major transmission business during a time when few others have capital to make these investments.

Brookfield Private Equity Group

Our private equity operations generated total FFO of $61 million. Our building products operations have shown continued strong performance, primarily from higher OSB prices compared to this time last year. Our U.S. land and housing development operations continue to show measured improvement, while in Canada strong results in the east were offset by weakness in Alberta due to the oil and gas effects.

Our housing development business in Brazil is beginning to launch new projects on a selective basis after curtailing its activity on two years of market weakness. We are seeing several opportunities to acquire projects from developers in need of capital and continue to be optimistic on the long-term prospects for this business, having now consolidated and re-launched the business.

We continue to make progress in business services with a record backlog in our construction group and our first international contracts within our facilities management business. We remain actively focused on growing each of these businesses. Our industrial operations had mixed results, with severe commodity weakness impacting both our Canadian oil and gas businesses and global graphite electrode operations. That said, we are proactively taking costs out of these businesses and believe that as a result, they will generate even more meaningful cash flow contributions when commodity markets recover.

During the quarter we took advantage of the weaker commodity markets by investing over $250 million in high-yield debt of a number of high- quality businesses at valuations that appear unduly depressed. We believe these investments will likely enable us to participate in recapitalizations of these businesses. Alternatively, should markets and sentiment recover quickly, we will earn a handsome return over a short period of time.

We are working to launch Brookfield Business Partners (BBP) as our fourth flagship listed partnership in the second quarter. We believe that great opportunities lie ahead for BBP, particularly in light of today’s economic environment. We continue to focus on value opportunities across the globe, and the launch of BBP will further enhance our access to investment opportunities and capital.

Closing

We remain committed to being a world-class alternative asset manager, and investing capital for you and our investment partners in high-quality, simple to understand assets which earn a solid cash return on equity, while emphasizing downside protection for the capital employed.

The primary objective of the company continues to be generating increased cash flows on a per share basis, and as a result, higher intrinsic value per share over the longer term.

And, while I personally sign this letter, I respectfully do on behalf of all of the members of the Brookfield team, who collectively generate the results for you. Please do not hesitate to contact any of us, should you have suggestions, questions, comments, or ideas you wish to share with us.

J. Bruce Flatt

Chief Executive Officer

May 13, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL RESULTS

Our Management’s Discussion and Analysis (“MD&A”) is provided to enable a reader to assess our results of operations and financial condition for the interim period ended March 31, 2016. This MD&A should be read in conjunction with our 2015 Annual Report. Unless the context indicates otherwise, references in this report to the “Corporation” refer to Brookfield Asset Management Inc., and references to “Brookfield,” “us,” “we,” “our” or “the company” refer to the Corporation and its direct and indirect subsidiaries and consolidated entities. The company’s consolidated financial statements are in U.S. dollars, and are prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board.

We are incorporated in Ontario, Canada and qualify as an eligible Canadian issuer under the Multijurisdictional Disclosure System and as a “foreign private issuer” as such term is defined in Rule 405 under the U.S. Securities Act of 1933, as amended, and Rule 3b-4 under the U.S. Securities Exchange Act of 1934, as amended. As a result, we comply with U.S. continuous reporting requirements by filing our Canadian disclosure documents with the SEC; our annual report is filed under Form 40-F and we furnish our quarterly interim reports under Form 6-K.

We provide additional information on our basis of presentation of financial information contained in the MD&A and key financial measures on pages 36 to 38 of our December 31, 2015 Annual Report.

STATEMENT REGARDING FORWARD-LOOKING STATEMENTS AND USE OF NON-IFRS MEASURES

This Report to Shareholders contains “forward-looking information” within the meaning of Canadian provincial securities laws and “forward-looking statements” within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended, Section 21E of the U.S. Securities Exchange Act of 1934, as amended, “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995 and in any applicable Canadian securities regulations. We may provide such information and make such statements in the Report, in other filings with Canadian regulators or the U.S. Securities and Exchange Commission or in other communications. See “Cautionary Statement Regarding Forward-Looking Statements and Information” on page 46.

We disclose a number of financial measures in this Report that are calculated and presented using methodologies other than in accordance with IFRS. We utilize these measures in managing the business, including performance measurement, capital allocation and valuation purposes and believe that providing these performance measures on a supplemental basis to our IFRS results is helpful to investors in assessing the overall performance of our businesses. These financial measures should not be considered as a substitute for similar financial measures calculated in accordance with IFRS. We caution readers that these non-IFRS financial measures may differ from the calculations disclosed by other businesses, and as a result, may not be comparable to similar measures presented by others. Reconciliations of these non-IFRS financial measures to the most directly comparable financial measures calculated and presented in accordance with IFRS, where applicable, are included within this MD&A.

Information contained in or otherwise accessible through the websites mentioned does not form part of this Report. All references in this Report to websites are inactive textual references and are not incorporated by reference.

PART 1 – OVERVIEW AND OUTLOOK

OUR BUSINESS

Brookfield is a global alternative asset manager with $240 billion in assets under management. For more than 100 years we have owned and operated assets on behalf of shareholders and clients with a focus on property, renewable power, infrastructure and private equity.

We manage a wide range of investment funds and other entities that enable institutional and retail clients to invest in these assets. We earn asset management income including base management fees, carried interests and other forms of performance income for doing so. As at March 31, 2016, our listed partnerships, managed funds and public securities portfolios represented $104 billion of invested and committed fee bearing capital. This capital includes public partnerships that are listed on major stock exchanges; private institutional partnerships that are available to accredited investors, typically pension funds, endowments and other institutional investors; and also portfolios of managed listed securities through a series of segregated accounts and mutual funds.

We align our interests with clients by investing alongside them and have over $29 billion of capital invested in our listed partnerships, private funds and directly held investments and businesses, based on our IFRS carrying values.

Our business model is simple: (i) raise pools of capital from our clients and ourselves that target attractive investment strategies, (ii) utilize our global reach to identify and acquire high quality assets at favourable valuations, (iii) finance them on a long-term basis, (iv) enhance the cash flows and values of these assets through our operating business groups to earn reliable, attractive long-term total returns, and (v) realize capital from asset sales or refinancings when opportunities arise for reinvestment or distribution to our clients.

Organization Structure

Our operations are organized into five business groups. Our property, renewable power, infrastructure and private equity business groups are responsible for operating the assets owned by our various funds and investee companies. The equity capital invested in these assets is provided by a series of listed partnerships and private funds which are managed by us and are funded with capital from our clients and ourselves. A fifth group operates our public markets business, which manages portfolios of listed securities on behalf of clients.

Our balance sheet capital is invested primarily in our three flagship listed partnerships, Brookfield Property Partners L.P. (“BPY” or “Brookfield Property Partners”); Brookfield Renewable Partners L.P. (“BEP” or “Brookfield Renewable Partners”); and Brookfield Infrastructure Partners L.P. (“BIP” or “Brookfield Infrastructure Partners”). These publicly traded, large capitalization partnerships are the primary vehicles through which we invest our capital in our property, renewable power and infrastructure segments. As well as owning assets directly, these partnerships serve as the cornerstone investors in our private funds, alongside capital committed by institutional investors. This approach enables us to attract a broad range of public and private investment capital and the ability to match our various investment strategies with the most appropriate form of capital.

We are in the process of forming a listed issuer called Brookfield Business Partners L.P. (“BBP” or “Brookfield Business Partners”). BBP will be the primary vehicle through which we will own and operate the majority of the industrial and services businesses of our private equity business group, which are included within in our private equity operating segment. We intend to distribute a 22% interest in BBP to shareholders with Brookfield retaining a 78% interest; we anticipate completing the spin-off of BBP in the second quarter of 2016.

months of the year. With consumer prices (CPI) rising by 0.5% in March, inflation remains well below the Bank of England’s 2% target and interest rate hikes are not expected to occur until inflation is moving firmly towards their goal. A strong currency over the past few years has hampered the export sector and incentivized imports, causing the UK’s current account deficit to widen to -7% of GDP. In this context, further depreciation of the pound is needed to help resolve the imbalances within the economy. This depreciation could materialize this summer if a ‘Brexit’ is voted for by the UK population. An exit from the European Union would likely cause significant short-term uncertainty and stress across various sectors of the economy, resulting in slower growth.

Eurozone

Eurozone real GDP continues to grow at a pace of 1.5%, driven by household consumption and investment. Germany, France and Italy continue to expand at a modest 1.0% to 1.5% rate, while Spain and Ireland are leading the region at 3.3% and 5.6%, respectively. Eurozone unemployment remains elevated at 10.2%, which is keeping wage growth and spending from accelerating. It is also contributing, along with low oil prices, to very weak inflation, which at 0.0% remains on the precipice of deflation. In order to drive inflation back to target levels, the European Central Bank has committed to further monetary stimulus, including rate cuts deeper into negative territory and an expanded corporate-bond buying program. Low inflation makes high debt- to-GDP levels harder to deal with, which is a concern for countries like Italy, where growth is weak and persistent government deficits are pushing debt higher. The volatile political environment represents an additional area of risk, as the bloc continues to face a number of difficult issues, including the migrant crisis and a potential ‘Brexit’ this summer.

Brazil

Brazil’s real GDP contracted 6.0% in the first quarter as consumption and investment declined. The corruption scandal continues to weigh heavily on investment, which is already reeling from the impact of high interest rates and low commodity prices. The investigations have created a liquidity crisis at major construction companies, which has led several to file for bankruptcy and stalled their projects. Positively, the weaker currency is providing a competitive boost to exports, which grew 12.6% year over year. Exports have been supported by growing volumes of several key commodities, where revenues in local currency terms are at record highs despite the fall in USD prices. High interest and inflation rates pushed up the government’s debt service costs, as over 65% of Brazil’s sovereign bonds are either floating-rate or inflation-linked. This widened the budget deficit to 10.8% of GDP. Persistently high inflation has constrained the central bank from lowering interest rates, but now many of the one-time increases in regulated prices from 2015 have begun to ease, and inflation declined from 10.7% to 9.4% between January and March. Falling inflation will give the central bank room to lower interest rates, which should initiate a virtuous cycle and create the foundation for a recovery as government finances improve (due to lower interest expenses) and credit growth stimulates the economy. Political uncertainty remains a key risk as the impeachment proceedings against President Rousseff move forward. However, the likelihood of a pro-market reform candidate winning the next elections is rising as Brazil’s growing middle-class demands change.

China

China reported real GDP growth of 6.7% in the first quarter, slightly below the 2015 pace of 6.9% but within the government’s target range. After a slow start to the year in January and February, key indicators including industrial production, fixed asset investment and exports recovered in March. The recent boost may be related to government stimulus that was announced early this year, as the government continues to promote the dual goals of strong growth and economic re-balancing towards a consumption-driven economy. Headline retail sales grew by 10.5% and consumer confidence ticked up in the first quarter after falling to a two-year low in December. Despite positive headline growth numbers, overcapacity continues to be a major challenge for the industrial sector, and indicators like steel demand, residential construction, and power consumption remain weak. The transition from an investment-driven economy to a consumption-driven economy will take years to complete and there will be volatility along the way, but it is an essential step to placing the country on a sustainable long-term path.

Australia

Australia real GDP grew by an estimated 2.6% in the first quarter after growing by 2.5% in 2015. The combination of strong household and government spending, along with rising export volumes are driving solid growth. Partially offsetting this strength is major weakness in resource investment, which declined by over 20% in 2015 and is expected to decline further in 2016 as commodity prices are, in most cases, too low to incentivize new projects. While export volumes have risen, Australia’s terms of trade has deteriorated due to the decline in prices of its major commodity exports, which has led to a widening of the current account deficit. However, the recent rally in iron ore and metallurgical coal prices will likely provide some relief in the first half of 2016. With inflation remaining below target and the Australian dollar rallying against the USD in the first quarter, the Reserve Bank of Australia may cut interest rates, especially if domestic demand softens. The housing market appears to have (at least temporarily) plateaued, as the upward momentum in new construction, prices, and mortgage approvals have all paused. This follows a step-up in the government’s enforcement of Australia’s foreign investor rules.

Foreign Currency Translation

The most significant currency exchange rates that impact our business are shown in the following table:

As at March 31, 2016, our IFRS net equity of $21.9 billion was invested in the following currencies: United States dollars – 47%; British pounds – 15%; Brazilian reais – 12%; Australian dollars – 13%; Canadian dollars – 6%; and other currencies – 7%. From time to time, we utilize financial contracts to adjust these exposures.

Currency exchange rates relative to the U.S. dollar at the end of the first quarter of 2016 were higher than December 31, 2015 for most of our significant non-U.S. dollar investments. As a result of these rate variations, the U.S. dollar equivalent of assets and liabilities from our subsidiaries or investments in these regions were higher in 2016 than 2015, all other things being equal. Average currency exchange rates on the other hand, were lower than the 2015 period, which reduced the U.S dollar equivalent of revenues, expenses and equity accounted earnings from our non-U.S. operations on a comparative basis.

FINANCIAL PERFORMANCE

Overview

Net income for the three months ended March 31, 2016 was $636 million, representing a decrease of $802 million from the prior year quarter. The contribution from operational improvements across our businesses, new investments and completed developments, and higher generation levels in our renewable power operations, was more than offset by a $969 million decrease in consolidated and equity accounted fair value changes; we recognized a decrease of $761 million through consolidated entities and a further $208 million through equity accounted investments.

Net income on a per share basis was $0.23, as compared to $0.73 in the prior year. This decrease is the result of factors noted above.

Statement of Operations

Revenues and Gross Margin

The following table presents consolidated revenues and gross margin, which we have disaggregated into our operating segments, in order to facilitate a review of variances between 2016 and 2015. Gross margin is calculated as revenue less direct costs, which exclude depreciation and fair value changes and corporate costs. Acquisitions, dispositions, changes in the basis of presentation such as between consolidation, equity accounting as well as foreign currency fluctuations following changes in control can impact revenues and direct costs concurrently; accordingly analysis of revenues less direct costs (ie., gross margin) on a segmented basis facilitates analysis by presenting the net impact of these items.

Our share of General Growth Properties Inc.’s (“General Growth Properties” or “GGP”) equity accounted income declined as a 4.4% increase in same-store rental income was offset by our share of a $61 million mark-to-market loss recorded by GGP in respect of outstanding warrants. Our share of GGP’s net income before the impact of warrants increased by $14 million due to increased occupancy and lease rates.

In February 2015, we increased our ownership interest in Canary Wharf from 22% to 50% and commenced equity accounting for our investment. The $73 million decrease in equity accounted income is due to $88 million of unrealized losses on interest rate swap contracts held by Canary Wharf and $23 million of fair value losses on Canary’s investment properties, as a result of a 1% increase in stamp duty decreasing the value of the portfolio. Excluding these fair value changes, equity accounted earnings increased by $38 million, representing a full quarter of results being included in current quarter.

Equity accounted income from other property operations decreased by $37 million in 2016 compared to the same period in 2015, as our share of fair value gains at this portfolio was $43 million higher in the prior year, specifically in our equity accounted U.S. office portfolios.

Infrastructure equity accounted income decreased by $11 million as the contribution from our communications infrastructure investment, which was acquired at the end of the first quarter of 2015, was offset by the strengthening U.S. dollar which reduced the translated values of results from non-U.S. operations relative to the Brazilian real, Chilean peso and euro during the period.

The increase in equity accounted income from private equity investments is primarily from earnings on our Western Australian oil and gas business, which was acquired in June 2015.

Interest Expense

The following table presents interest expense organized by the balance sheet classification of the associated liability:

Interest expense on property-specific mortgages increased by $60 million over the prior year reflecting $105 million of interest costs on additional borrowings associated with acquisitions across our portfolio, particularly in our property and renewable power operations. This was partially offset by a reduction in the translated amount of interest expense due to the lower currency exchange rates on our non-U.S. borrowings and reduced interest due to debt pay downs in our Brazilian residential business. The majority of our borrowings are fixed rate long-term financing. Accordingly, changes in interest rates are typically limited to the impact of refinancing borrowings at current rates or changes in the level of debt as a result of acquisitions and dispositions. Borrowings are generally denominated in the same currencies as the assets they finance and therefore the overall increase in the value of the U.S. dollar during the period resulted in a decrease in the translated value of the interest expense on non-U.S. dollar denominated borrowings.

Fair Value Changes

The following table disaggregates fair value changes into major components to facilitate analysis:

Investment Property Appraisal Gains

Our investment properties are recorded at fair value, generally determined using discounted cash flow analysis or, in limited circumstances, direct capitalization methodology. External appraisals and comparable market transactions, when available, are used to support our valuations.

Income Taxes

Income tax expense increased by $1 million to $202 million in the first quarter of 2016. Deferred taxes totalled $170 million (2015 – $167 million) whereas current taxes totalled $32 million (2015 – $34 million). Although net income declined between the 2015 and 2016 quarters, income tax expense was virtually unchanged as our effective tax rate increased from 12% to 24% as described in the following table.

The most significant change in our quarterly effective tax rate was the impact of changes in the amounts of taxable income earned in international operations. As a global company, we operate in countries with different tax rates, most of which vary from our domestic statutory rate and we also benefit from tax incentives introduced in various countries to encourage economic activity. Differences in global tax rates gave rise to a 1% increase in our effective tax rate compared to a 9% reduction in 2015. The difference will vary from period to period depending on the relative proportion of income in each country. In particular, fair value changes are subject to lower capital gains rates in certain jurisdictions and as we recorded a higher level of fair value changes in 2015, our overall effective tax rate was lower.

As an asset manager, many of our operations and the associated net income occur within partially owned “flow through” entities such as partnerships, and any tax liability is incurred by the investors as opposed to the entity. As a result, while our consolidated net income includes income attributable to non-controlling ownership interest in these entities, our consolidated tax provision includes only our proportionate share of the tax provision of these entities. In other words, we are consolidating all of the net income, but only our share of their tax provision. This gave rise to a 8% and 5% reduction in the effective tax rate relative to the statutory tax rate in 2016 and 2015, respectively.

Other Comprehensive Income

Foreign Currency Translation

We record the impact of changes in foreign currencies on the carrying value of our net investments in non-U.S. operations in other comprehensive income. Changes in the value of currency contracts that qualify as hedges are included in foreign currency translation.

The following table disaggregates the impact of foreign currency translation on our business by the most significant non-U.S. currencies:

Currency hedges include financial contracts that we utilize to manage foreign currency exposures as well as foreign currency debt which we have elected as a hedge. We typically do not hedge our Brazilian real equity, due to the high cost associated with these contracts, which produced the majority of our foreign currency translation gain in 2016 and loss in 2015.

Property, Plant and Equipment

The following table presents the major components of the period-over-period variances for our property, plant and equipment (“PP&E”), disaggregated by operating business group for analysis purposes:

We record PP&E in our renewable power, infrastructure, and hospitality properties within our property operations using the revaluation method, which results in these assets being fair valued at the end of each fiscal year, however depreciated quarterly. PP&E within our private equity and other operations is carried at amortized cost.

Acquisitions and additions include $4.9 billion within our renewable power operations to acquire a 3,032 megawatts (“MW”) hydroelectric portfolio in Colombia and a 51 MW hydroelectric portfolio in Brazil.

Property, plant and equipment also increased by $1.5 billion from year end due to positive foreign currency revaluation on non-U.S. assets.

Equity Accounted Investments

The following table presents the major components of the period-over-period variances for our equity accounted investments, disaggregated by operating business group for analysis purposes:

Our largest equity accounted investments are within our property operations and include a 29% interest in GGP with a carrying value of $7.2 billion at March 31, 2016.

Equity accounted investments decreased by $599 million during the quarter due to equity accounted investments that were sold or reclassified to held for sale, including a portfolio of hospitality assets in Germany and two industrial assets in the U.S., as we intend to sell interests in these investments in the next 12 months. This was partially offset by positive foreign currency revaluation during the quarter which added $301 million to equity accounted investments.

Certain of our investee entities, including GGP and Canary Wharf, carry their assets at fair value, in which case we record our

proportionate share of any fair value adjustments. Changes in the carrying values of equity accounted investments typically relate to the purchase or sale of shares and our share of their comprehensive income, including fair value changes, and are reduced by our share of any dividends or other distributions.

Financial Assets

Financial assets increased by $1.1 billion compared to December 31, 2015. We acquired a number of investments in distressed debt securities, common shares, and credit investments within our infrastructure, renewable power and private equity operations during the quarter, which increased financial assets by $480 million in aggregate after reflecting sales in the period. We also recorded a $169 million increase in the valuation of our GGP warrants due to an increase in the share price of GGP.

Goodwill

Goodwill increased by $972 million during the quarter, mainly due to $808 million of goodwill allocated on the acquisition of a portfolio of hydroelectric facilities in Colombia.

Borrowings and Other Non-Current Financial Liabilities

Assets and liabilities are disaggregated into current and long-term components in Note 6 of our consolidated financial statements.

The increase in property-specific borrowings of $4.7 billion during the first quarter of 2016 is due primarily to debt assumed on acquisitions within our property and renewable power operations and $1.0 billion of draws on credit facilities secured by private fund commitments. These facilities will be repaid by calling private fund capital in the short term. Borrowings are generally denominated in the same currencies as the assets they finance and therefore the overall decrease in the value of the U.S. dollar during the period resulted in our non-U.S. dollar denominated borrowings increasing in value.

Subsidiary borrowings increased by $1.4 billion due draws on subsidiary credit facilities to fund acquisitions and development projects and the impact of foreign exchange on non-U.S. dollar borrowings.

Equity

Equity consists of the following components:

Common equity increased by $314 million to $21.9 billion at March 31, 2016. Net income and other comprehensive income attributable to shareholders for the first quarter of 2016 totalled $648 million. We distributed $158 million to shareholders as common and preferred share dividends and paid $94 million to repurchase 3.3 million Class A shares, of which $56 million was to fund long-term compensation plans.

Non-controlling interests increased by $ 3.9 billion. Net issuances of equity to non-controlling interest were $2.9 billion and included $2.5 billion of equity associated with the acquisition of a portfolio of Colombian hydroelectric facilities. Comprehensive income attributable to non-controlling interests added an additional $1.2 billion, which was partially offset by distributions totalling $441 million.

We provide a more detailed discussion of our capitalization in Part 4 of the MD&A.

SUMMARY OF QUARTERLY RESULTS

Our condensed statement of operations for the eight most recent quarters are as follows:

Summary of Quarterly Results

In the past two years the quarterly variances in revenues are due primarily to acquisitions and dispositions. Variances in net income to shareholders relate primarily to the timing and amount of fair value changes and deferred tax provisions recognized, as well as seasonality and cyclical influences in certain businesses. Changes in ownership have resulted in the consolidation and deconsolidation of revenues from some of our assets, particularly in our property business. Other factors include the impact of foreign currency on non-U.S. revenues.

Our property operations typically generate consistent results on a quarterly basis due to the long-term nature of contractual lease arrangements subject to the intermittent recognition of disposition and lease termination gains, resulting in relatively consistent amounts of revenue on a quarterly basis. Our retail properties typically experience seasonally higher retail sales during the fourth quarter, and our resort hotels tend to experience higher revenues and costs as a result of increased visits during the first quarter. We fair value our property assets on a quarterly basis which results in variations in net income based on changes in the value of our property portfolio.

Renewable power hydroelectric operations are seasonal in nature. Generation tends to be higher during rainy season and spring thaws; however this is mitigated to an extent by prices, which tend not to be as strong as they are the summer and winter seasons due to the more moderate weather conditions and reductions in demand for electricity. Water and wind conditions may also vary from year to year. Our infrastructure operations are generally stable in nature as a result of long-term sales contracts with our clients, certain of which guarantee minimum volumes. Over the last two years we have been deploying more capital within these portfolios into businesses that benefit from increasing volumes, to complement our investments in rate-regulated assets, which may lead to more volatility but also, we believe, to growth in revenues and net income.

Our private equity and residential development operations are seasonal in nature and a large portion is correlated with the ongoing U.S. housing recovery and, to a lesser extent, economic conditions in Brazil. Results in these businesses are typically higher in the third and fourth quarters compared to the first half of the year, as weather conditions are more favourable in the latter half of the year which tends to increase construction activity levels.

The following table shows fair value changes and income taxes for the last eight quarters, as well as their combined impact on net income:

Over the last eight completed quarters, the following factors caused variations in revenues and net income to shareholders on a quarterly basis:

In the fourth quarter of 2015 we included $594 million of fair value gains related to increased appraisals at our office properties. Our revenues also reflected completion of significant projects in our construction services business and home closings in our residential development business.

In the third quarter of 2015 we acquired a large UK resort operator and U.S. multifamily portfolio in our institutional private fund which increased revenues by $146 million and $214 million, respectively, in the third and fourth quarters of 2015.

In the second quarter of 2015 we recognized a $464 million deferred income tax recovery as our office property operations reorganized its interest in certain subsidiaries that resulted in a change in the tax rate applicable to those entities with a resulting benefit of $314 million attributable to shareholders.

In the first quarter of 2015 we recorded a higher level of fair value changes from our consolidated investment properties, particularly office properties in Manhattan and Sydney, where strong market conditions and leasing activities increased expected future cash flows, leading to increased appraisal values. In addition, we recognized $270 million of gains on the acquisition of control of two businesses, of which $132 million was attributable to shareholders.

Net income in the fourth quarter of 2014 included $1.3 billion in fair value gains, primarily from increased appraised values of our investment properties, of which $762 million was attributable to shareholders.

In the second and third quarters of 2014 we also recognized a higher level of fair value changes from our property investments, particularly on consolidated office properties and on our investment in Canary Wharf.

CORPORATE DIVIDENDS

The dividends paid by Brookfield on outstanding securities during the first three months of 2016 and the same period in 2015 and 2014 are summarized in the following table. Dividends to the Class A and B shares have been adjusted to reflect a three-for-two stock split on May 12, 2015.