Edgar Filing: Fortress Investment Group LLC

10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2015

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-33294

Fortress Investment Group LLC

(Exact name of registrant as specified in its charter)



Delaware		20-5837959
(State or other jurisdiction of incorporation		(I.R.S. Employer Identification No.)
or organization)



1345 Avenue of the Americas, New York, NY		10105
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (212) 798-6100

Securities registered pursuant to Section 12 (b) of the Act:



Title of each class:		Name of exchange on which registered:
Class A shares		New York Stock Exchange (NYSE)

Securities registered pursuant to Section 12 (g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

x Yes o No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

o Yes x No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

x Yes No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer x		Accelerated filer o
Non-accelerated filer o		Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

The aggregate market value of the Class A shares held by non-affiliates as of June 30, 2015 (computed based on the closing price on such date as reported on the NYSE) was $1.5 billion.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date.

Class A shares: 221,183,518 outstanding as of February 19, 2016.

Class B shares: 169,514,478 outstanding as of February 19, 2016.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement for the registrant’s 2016 annual meeting, to be filed within 120 days after the close of the registrant’s fiscal year, are incorporated by reference into Part III of this Annual Report on Form 10-K.

FORTRESS INVESTMENT GROUP LLC

FORM 10-K

INDEX



			PAGE
	PART I
Item 1.	Business		1
Item 1A.	Risk Factors		13
Item 1B.	Unresolved Staff Comments		45
Item 2.	Properties		45
Item 3.	Legal Proceedings		45
Item 4.	Mine Safety Disclosures		45
	PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		46
Item 6.	Selected Financial Data		47
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		49
	Overview and Understanding the Asset Management Business		49
	Market Considerations		55
	Assets Under Management		58
	Performance of Our Funds		61
	Results of Operations		65
	Liquidity and Capital Resources		85
	Critical Accounting Policies		94
	Contractual Obligations		101
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		102
Item 8.	Financial Statements and Supplementary Data		106
	Report of Independent Registered Public Accounting Firm		107
	Report of Independent Registered Public Accounting Firm or Internal Control over Financial Reporting		108
	Consolidated Balance Sheets as of December 31, 2015 and December 31, 2014		109
	Consolidated Statements of Operations for the years ended December 31, 2015, 2014 and 2013		110
	Consolidated Statements of Comprehensive Income for the years ended December 31, 2015, 2014 and 2013		111
	Consolidated Statements of Changes in Equity for the years ended December 31, 2015, 2014 and 2013		112
	Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013		115
	Notes to Consolidated Financial Statements		117
	Note 1	Organization and Basis of Presentation	117
	Note 2	Summary of Significant Accounting Policies	122
	Note 3	Management Agreements and Fortress Funds	126
	Note 4	Investments and Fair Value	138
	Note 5	Debt Obligations	150
	Note 6	Income Taxes and Tax Related Payments	152
	Note 7	Related Party Transactions and Interests in Consolidated Subsidiaries	157
	Note 8	Equity-Based and Other Compensation	161
	Note 9	Earnings Per Share and Distributions	165
	Note 10	Commitments and Contingencies	170
	Note 11	Segment Reporting	172
	Note 12	Subsequent Events	179
	Note 13	Quarterly Financial Information (Unaudited)	179
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		180
Item 9A.	Controls and Procedures		180
Item 9B.	Other Information		181



PART III
Item 10.	Directors, Executive Officers and Corporate Governance	182
Item 11.	Executive Compensation	182
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	182
Item 13.	Certain Relationships and Related Transactions, and Director Independence	183
Item 14.	Principal Accounting Fees and Services	183
PART IV
Item 15.	Exhibits, Financial Statement Schedules	184
	Signatures	187

Set forth below is information about certain terms used in this Annual Report on Form 10-K:

‘‘Management Fee Paying Assets Under Management,” or “AUM,” refers to the management fee paying assets we manage or co-manage, including, as applicable, capital we have the right to call from our investors pursuant to their capital commitments to various funds. In addition, AUM includes management fee paying assets managed by autonomous businesses in which we retain a minority interest under our affiliated manager platform. Our AUM equals the sum of:

(i)

the capital commitments or invested capital (or net asset value, "NAV," if lower) of our private equity funds, private permanent capital vehicle through May 2015 and credit PE funds, depending on which measure management fees are being calculated upon at a given point in time, which in connection with private equity funds raised after March 2006 includes the mark-to-market value of public securities held within the funds,


(ii)	the contributed capital or book equity (as defined) of our publicly traded permanent capital vehicles,


(iii)	the NAV of our hedge funds, including the Value Recovery Funds which pay fees based on realizations;


(iv)	the NAV or fair value of our managed accounts, to the extent management fees are charged; and


(v)	AUM related to affiliated managers and co-managed funds.

For each of the above, the amounts exclude assets under management for which we charge either no or nominal fees, generally related to our investments in our funds as well as investments in our funds by our principals, directors and employees.

Our calculation of AUM may differ from the calculations of other asset managers and, as a result, this measure may not be comparable to similar measures presented by other asset managers. Our definition of AUM is not based on any definition of assets under management contained in our operating agreement or in any of our Fortress Fund management agreements. Finally, our calculation of AUM differs from the manner in which our affiliates registered with the United States Securities and Exchange Commission report “Regulatory Assets Under Management” on Form ADV and Form PF in various ways. Significantly, Regulatory Assets Under Management, unlike Management Fee Paying Assets Under Management, is not reduced by liabilities or indebtedness associated with assets under management and it includes assets under management and uncalled capital for which Fortress receives no compensation.

“Fortress,” “we,” “us,” “our,” the “company” and the “public company” refer, collectively, to Fortress Investment Group LLC and its subsidiaries, including the Fortress Operating Group (as defined below) and all of its subsidiaries.

“Fortress Funds” and “our funds” refers to the private investment funds, permanent capital vehicles and related managed accounts that we manage or co-manage. The Drawbridge Special Opportunities Fund is our flagship credit hedge fund.

“Fortress Operating Group” or “FOG” refers to the limited partnerships and their subsidiaries through which we conduct our business and hold our investments. The public company controls the Fortress Operating Group through wholly owned subsidiaries that serve as the general partner of each FOG entity.

Economic interests in each FOG entity are represented by Class A common units and Class B common units. Class A common units are (indirectly) owned by the public company, and Class B common units are owned by the principals (defined below) and, from time to time, a former senior employee who owned securities convertible into Class B common units.

The number of outstanding Class A common units equals the number of outstanding Class A shares of the public company. The number of outstanding Class B common units equals the number of outstanding Class B shares of the public company.

“Fortress Operating Group units” or “FOGUs” is the term we use to refer to the aggregate of one limited partner interest (either a Class A common unit or a Class B common unit, as applicable) in each FOG entity. One FOGU together with one Class B share is convertible into one Class A share. A surrendered Class B common unit automatically converts into a Class A common unit.

“principals” or “Principals” refers to Peter Briger, Wesley Edens and Randal Nardone, collectively, as well as Michael Novogratz until his retirement in January 2016. The principals control the public company through their ownership of the public company’s Class B shares (together with, from time to time, a former senior employee who owned securities convertible into Class B shares). The Class B shares and the Class A shares are each entitled to one vote per share, and the number of Class B shares outstanding represents a majority of the aggregate number of Class B shares and Class A shares outstanding. The Class B shares do not represent an economic interest in the public company and therefore are not entitled to any dividends. The principals own their economic interest in the public company primarily through their direct ownership of FOGUs.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements under Part I, Item 1, “Business,” Part I, Item 1A, “Risk Factors,” Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” and elsewhere in this Annual Report on Form 10-K may contain forward-looking statements which reflect our current views with respect to, among other things, future events and financial performance. Readers can identify these forward-looking statements by the use of forward-looking words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of those words or other comparable words. Any forward-looking statements contained in this report are based upon the historical performance of us and our subsidiaries and on our current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. Such forward-looking statements are subject to various risks and uncertainties and assumptions relating to our operations, financial results, financial condition, business prospects, growth strategy and liquidity. If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, our actual results may vary materially from those indicated in these statements. Accordingly, you should not place undue reliance on any forward-looking statements. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this report. We do not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

SPECIAL NOTE REGARDING EXHIBITS

In reviewing the agreements included as exhibits to this Annual Report on Form 10‑K, please remember they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about the Company or the other parties to the agreements. The agreements contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:


•	should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;


•	have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;


•	may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and


•	were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about the Company may be found elsewhere in this Annual Report on Form 10-K and the Company’s other public filings, which are available without charge through the SEC’s website at http://www.sec.gov. See “Business — Where Readers Can Find Additional Information.”

The Company acknowledges that, notwithstanding the inclusion of the foregoing cautionary statements, it is responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this report not misleading.

PART I

Item 1. Business.

Fortress Investment Group LLC (NYSE listed under the symbol “FIG”) is a leading, highly diversified global investment management firm with approximately $70.5 billion in AUM as of December 31, 2015. Fortress applies its deep experience and specialized expertise across a range of investment strategies - private equity, credit, liquid markets and traditional fixed income - on behalf of our over 1,700 institutional clients and private investors worldwide. We earn management fees based on the amount of capital we manage, incentive income based on the performance of our alternative investment funds, and investment income (loss) from our investments in our funds.

Fortress was founded in 1998 as an asset-based investment management firm with a fundamental philosophy premised on alignment of interests with the investors in our funds. Our managed funds primarily employ absolute return strategies — we strive to have positive returns regardless of the performance of the markets. Investment performance is our cornerstone — as an investment manager, we earn more if our investors earn more. In keeping with our fundamental philosophy, Fortress invests capital in each of its alternative investment businesses. As of December 31, 2015, Fortress's investments in and commitments to our funds were $1.2 billion, consisting of the net asset value of Fortress's investments in the Fortress Funds of $1.1 billion, and unfunded commitments to private equity funds and credit PE funds of $0.1 billion.

As of December 31, 2015, we had 1,172 asset management employees, including approximately 285 investment professionals, at our headquarters in New York and our affiliate offices around the globe. Additionally, we had 1,868 employees at the senior living properties that we manage on behalf of New Senior Investment Group Inc. ("New Senior") and a third party (whose compensation expense is reimbursed to us by the owners of the facilities).

We plan to grow our fee paying assets under management and will continue to seek to generate superior risk-adjusted investment returns in our funds over the long term. We are guided by the following key objectives and values:


•	introducing new investment products, while remaining focused on, and continuing to grow, our existing lines of business;


•	maintaining our disciplined investment process and intensive asset management; and


•	adhering to the highest standards of professionalism and integrity.

Recent Developments


•	In February 2016, we announced the commencement of a modified "Dutch auction" self-tender offer to repurchase up to $100.0 million in cash of our Class A shares, at a price per share within the range of $4.25 to $4.75, less applicable withholding taxes and without interest.


•	Fortress's board of directors declared a base quarterly dividend of $0.08 per share for the fourth quarter of 2015.

•

In the fourth quarter of 2015, we closed the Fortress Macro Funds and related managed accounts. Michael Novogratz, a principal, officer and director of Fortress retired effective January 2016. In November 2015, we purchased from Mr. Novogratz 56.8 million Fortress Operating Group units and corresponding Class B shares at $4.50 per share, or an aggregate purchase price of $255.7 million. In connection with this purchase, we paid $100.0 million of cash in November 2015 and issued a $155.7 million promissory note, of which one-half of the principal amount matures in November 2016 and the remainder in November 2017.

•

In January 2016, we entered into a new $275.0 million senior unsecured revolving credit facility with a $15.0 million letter of credit subfacility and repaid our existing $150.0 million senior secured revolving credit facility. After giving effect to the initial extensions of credit thereunder of $75.0 million, and a subsequent borrowing of $100.0 million in February 2016, approximately $97.3 million was available to be drawn. The new revolving credit facility matures in January 2021.


•	During 2015, we raised $9.0 billion of new third-party capital and launched three new funds. As of December 31, 2015, we had $7.5 billion of capital commitments from investors to our funds that will be included in AUM if called, of which $4.6 billion is in newer vintage funds and is available for general investment purposes.


•	Subsequent to December 31, 2015, we paid $66.9 million to Fund III representing prior net incentive income distributions received ($45.1 million net of employee amounts). Following such payment, no remaining clawback exists for Fund III.

Key Performance Indicators

As mentioned above, we earn management fees, incentive income, and investment income (loss). From these earnings we pay compensation and other expenses, as well as taxes, to arrive at our net operating performance.

Net Income and Distributable Earnings

Our net income reflects our operating performance pursuant to generally accepted accounting principles (“GAAP”). We also use pre-tax distributable earnings, which is a non-GAAP measure, as a measure of our operating performance and to report segment results. For more information on these performance measures, please refer to Part II, Item 8 “Financial Statements and Supplementary Data.” Pre-tax distributable earnings is specifically addressed in “Note 11 — Segment Reporting” within those financial statements.

Assets Under Management

Our management fees are typically earned as a percentage of the amount of capital we manage, which is referred to as management fee paying assets under management, or AUM. For more information on our AUM, please refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Assets Under Management.” For more information on our management fee rates, please refer to Part II, Item 8 “Financial Statements and Supplementary Data — Note 3 — Management Agreements and Fortress Funds.”

Fund Performance

Our incentive income is typically earned as a percentage of the profits of our alternative investment funds. In certain cases, we earn incentive income only if a fund’s investments meet specified performance thresholds. We therefore monitor our funds’ proximity to such performance thresholds. For more information on our funds’ performance, please refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Performance of our Funds.” For more information on our funds’ incentive income terms and their proximity to their various performance thresholds, please refer to Part II, Item 8 “Financial Statements and Supplementary Data — Note 3 — Management Agreements and Fortress Funds.” For more information on embedded incentive income, which has not yet been distributed to us by our funds, and the portion thereof that has not yet been recognized in distributable earnings, please refer to Part II, Item 8 "Financial Statements and Supplementary Data — Note 11 — Segment Reporting — Embedded Incentive Income."

Investment Performance

The investment income (loss) from our investments in the Fortress Funds is recorded currently (i.e., whether or not realized) in net income (loss), generally based on the net asset values of the funds in which we have invested. For segment reporting purposes, investment income (loss) is included in the segment that the investment relates to and is recorded only when income (loss) from a fund investment becomes realized or realizable, as applicable. Therefore, for segment reporting purposes, investment income (loss) does not reflect unrealized gains or losses embedded in certain of our investments. For more information on the investment income (loss) included in net income (loss), please refer to Part II, Item 8 “Financial Statements and Supplementary Data — Note 4 — Investments and Fair Value.” For more information on the unrealized gains (losses) currently embedded in our investments in the Fortress Funds for segment reporting purposes, please refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Segment Analysis — Embedded Gains/Losses.”

Our Current Businesses

Our current offering of alternative investment products includes private equity funds and permanent capital vehicles, credit funds and liquid hedge funds. In addition, we offer traditional investment products. Private equity funds generally require fund investors to commit capital over a period of time, do not allow redemptions of capital and make long term, relatively illiquid investments. Hedge funds allow periodic contributions and redemptions of capital by investors and make relatively shorter-term, more liquid investments. Our credit funds share certain of the characteristics of both private equity and hedge funds. The permanent capital vehicles business consists of publicly traded companies and a senior living property management business. See Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations — Understanding the Asset Management Business." We refer to these investment products, collectively, as the Fortress Funds. As of December 31, 2015, we managed the following businesses:

Private Equity — a business that manages approximately $15.8 billion of AUM comprised of two business segments: (i) general buyout and sector-specific funds focused on control-oriented investments in cash flow generating assets and asset-based businesses in North America and Western Europe; and (ii) permanent capital vehicles, which includes publicly traded companies that are externally managed by Fortress pursuant to management agreements and a senior living property management business. The publicly traded companies invest in a wide variety of real estate related assets, including securities, loans, real estate properties and mortgage servicing related assets, media assets, senior living properties and transportation and infrastructure assets. All of the capital of Worldwide Transportation and Infrastructure Investors ("WWTAI"), formerly a private fund managed by Fortress, was contributed to Fortress Transportation and Infrastructure Investors LLC ("FTAI") which completed its initial public offering in May 2015.

Credit Funds — a business that manages approximately $18.1 billion of AUM comprised of two business segments: (i) credit hedge funds, which make highly diversified investments in direct lending, corporate debt and securities, portfolios and orphaned assets, real estate and structured finance on a global basis and throughout the capital structure, with a value orientation, as well as non-Fortress originated funds for which Fortress has been retained as manager or co-manager as part of an advisory business; and (ii) credit private equity (“PE”) funds which are comprised of a family of “credit opportunities” funds focused on investing in distressed and undervalued assets, a family of ‘‘long dated value’’ funds focused on investing in undervalued assets with limited current cash flows and long investment horizons, a family of “real assets” funds focused on investing in tangible and intangible assets in four principal categories (real estate, capital assets, natural resources and intellectual property), a family of Asia funds, including Japan real estate funds and an Asian investor based global opportunities fund, and a family of real estate opportunities funds, as well as certain sector-specific funds with narrower investment mandates tailored for the applicable sector.

Liquid Hedge Funds — a business that manages approximately $5.4 billion of AUM, including $4.5 billion of AUM relating to Graticule Asset Management Asia ("Graticule") on the affiliated manager platform ("Affiliated Managers") as a result of the Fortress Asia Macro Funds and related managed accounts transition on January 5, 2015. Fortress also receives fees for providing infrastructure services (technology, back office, and related services) to Graticule. During the second quarter of 2015, Graticule notified Fortress of its intention to terminate the infrastructure services agreement effective at the end of May 2016. Fortress will continue to earn fees for providing services to Graticule through the effective date of the termination. In addition, this segment includes an endowment style fund, which invests in Fortress Funds, funds managed by external managers, and direct investments; a fund that primarily focuses on an international "event driven" investment strategy, particularly in Europe, Asia-Pacific and Latin America; and a fund that seeks to generate returns by executing a positively convex investment strategy.

In the fourth quarter of 2015, Fortress closed the Fortress Macro Funds and related managed accounts. Michael Novogratz, a principal, officer and director of Fortress retired effective January 2016. In November 2015, Fortress purchased from Mr. Novogratz 56.8 million Fortress Operating Group units and corresponding Class B shares at $4.50 per share, or an aggregate purchase price of $255.7 million. In connection with this purchase, Fortress paid $100.0 million of cash in November 2015 and issued a $155.7 million promissory note, of which one half of the principal amount matures in November 2016 and the remainder in November 2017.

Logan Circle — our traditional asset management business, which has approximately $31.2 billion of AUM, provides institutional clients actively managed investment solutions across a broad spectrum of fixed income strategies. Logan Circle's core fixed income products cover the breadth of the maturity and risk spectrums, including short, intermediate and long duration, core/core plus, investment grade credit, high yield and emerging market debt.

Principal Sources of Revenue

The following table provides our management fees and incentive income, on a segment reporting basis, from each of our core businesses for the previous three fiscal years (in thousands):



	2015		2014		2013
Private Equity
Funds
Management Fees	$	115,627	$	136,110	$	134,176
Incentive Income	691		2,854		13,211

Permanent Capital Vehicles
Management Fees	96,263		69,360		61,200
Incentive Income	105,603		65,448		18,101

Credit Funds
Hedge Funds
Management Fees	134,054		113,825		101,890
Incentive Income	84,588		121,768		190,846
PE Funds
Management Fees	117,740		96,715		95,925
Incentive Income	244,308		254,461		120,137

Liquid Hedge Funds
Management Fees	64,208		137,908		110,622
Incentive Income	912		16,067		150,700

Logan Circle
Management Fees	53,995		46,996		35,833
Incentive Income	211		106		—

Certain of our segments are comprised of, and dependent on the performance of, a limited number of Fortress Funds. Each of these funds is material to the results of operations of its segment and the loss of any of these funds would have a material adverse impact on the segment. Moreover, the revenues we earned from certain funds individually exceeded 10% of our total revenues for each of the periods presented. For additional information regarding our segments, the information presented above, our total assets and our distributable earnings (as defined below), please see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Segment Analysis” and Part II, Item 8, “Financial Statements and Supplementary Data.”

In January 2015, the Fortress Asia Macro Funds and related managed accounts were transferred to Graticule as part of our Affiliated Managers. Total management fees for the Fortress Asia Macro Funds and related managed accounts were $58.0 million and $26.3 million for the years ended December 31, 2014 and 2013, respectively. Total incentive income for the Fortress Asia Macro Funds and related managed accounts were $9.1 million and $45.5 million for the years ended December 31, 2014 and 2013, respectively.

In the fourth quarter of 2015, we closed the Fortress Macro Funds and related managed accounts. The Fortress Macro Funds and related managed accounts had average fee paying AUM of $2.5 billion, $3.5 billion and $3.4 billion for the years ended December 31, 2015, 2014 and 2013, respectively. Total management fees for the Fortress Macro Funds and related managed accounts were $34.7 million, $63.3 million and $63.8 million for the years ended December 31, 2015, 2014 and 2013, respectively. Total incentive income for the Fortress Macro Funds and related managed accounts was less than $0.1 million, $3.8 million and $104.6 million for the years ended December 31, 2015, 2014 and 2013, respectively.

Private Equity Funds

Fortress Investment Funds

Our private equity business is comprised of (i) a series of diversified funds referred to as the “Fortress Investment Funds” and organized to make control-oriented investments in cash flow generating, asset-based businesses in North America and Western Europe and (ii) various sector focused funds organized to invest in specific opportunities in sectors where Fortress has proven expertise. Sector focused funds include the MSR Opportunities Funds and the Italian NPL Opportunities Fund. Investors in our

private equity funds contractually commit capital at the outset of a fund, which is then drawn down as investment opportunities become available, generally over a two to three year investment period. Proceeds are returned to investors as investments are realized, generally over eight to ten years. Management fees between 1.0% and 1.5% are generally charged on committed or invested capital (or NAV, if lower). We also generally earn between 10% and 20% of the profits on each realized investment in a fund - our incentive income - subject to the fund's achieving a minimum return as a whole, that is, taking into account all gains and losses on all investments in the fund.

Permanent Capital Vehicles

The permanent capital vehicles business is comprised of the following entities: (i) Newcastle Investment Corp. (“Newcastle”), New Residential Investment Corp. (“New Residential”), Eurocastle Investment Limited ("Eurocastle"), New Media Investment Group Inc. ("New Media"), New Senior and FTAI, which are publicly traded companies that are externally managed by us pursuant to management agreements (collectively referred to as the “publicly traded permanent capital vehicles”) and (ii) FHC Property Management LLC (together with its subsidiaries, referred to as “Blue Harbor”), a senior living property management business. The publicly traded permanent capital vehicles invest in a wide variety of real estate related assets, including securities, loans, real estate properties, senior living properties and mortgage servicing related assets, media assets and golf assets, and in transportation and infrastructure assets. Pursuant to our management agreements, we earn management fees from each publicly traded permanent capital vehicle equal to 0.75% - 1.50% of the company's contributed capital or book equity (as defined in such agreements). In addition, we generally earn incentive income equal to 25% of operating results in excess of specified returns to the shareholders. In addition to these fees, we also receive, for services provided, options in connection with each of their common stock offerings.

Fortress's senior living property management subsidiary, Blue Harbor, has agreements to manage 26 senior living properties, including 24 which are owned by New Senior and two which are owned by third parties. Fortress receives management fees of between 5.0% and 7.0% of revenues (as defined in the agreements).

Credit Funds

Credit Hedge Funds

Our credit hedge funds are designed to exploit pricing anomalies that exist between the public and private finance markets. These investment opportunities are often found outside the traditional broker-dealer mediated channels in which investments that are efficiently priced and intermediated by large financial institutions are typically presented to the private investment fund community. We have developed a proprietary network comprised of internal and external resources to source transactions for the funds.

The funds are able to invest in a wide array of financial instruments, ranging from direct lending, corporate debt and securities, portfolios and orphaned assets, real estate and structured finance on a global basis and throughout the capital structure with a value orientation. All of these investments are based on fundamental bottom up analysis and are typically event driven. The funds' diverse and situation-specific investments require significant infrastructure and asset management experience to fully realize value. We have developed a substantial asset management infrastructure with expertise in managing the funds' investments in order to be able to maximize the net present value of investments on a monthly basis. In addition to the funds noted below, Fortress has been retained as a manager or co-manager of certain non-Fortress originated funds as part of an advisory business that forms part of the credit hedge funds business.

Drawbridge Special Opportunities Funds

The Drawbridge Special Opportunities Funds form the core of our credit hedge fund investing strategy. The funds opportunistically acquire a diversified portfolio of investments primarily throughout the United States, Western Europe and the Pacific region. The funds' investment program incorporates complementary investment strategies, focusing on direct lending, corporate debt and securities, portfolios and orphaned assets, real estate and structured finance. The majority of the funds’ investments are relatively illiquid, and the funds generally make investments that are expected to liquidate or be realized within a five year period.

Management fees are charged based on the AUM of the Drawbridge Special Opportunities Funds at a rate generally equal to 2.0% annually. We generally earn incentive income of 20% of the fund's profits, payable annually, and subject to achieving cumulative positive returns since the prior incentive income payment. Investors in the Drawbridge Special Opportunities Funds may redeem annually on December 31. Because of the illiquid nature of the funds' investments, rather than paying out redemption requests immediately, the fund may elect to pay out redeeming investors as and when the particular investments held by the fund at the time of redemption are realized.

Worden Funds

The Worden Funds invest in a diversified portfolio of undervalued and distressed investments primarily in North America and Western Europe, but also in Australia, Asia and elsewhere on an opportunistic basis. These funds seek to achieve their investment objectives primarily through investments in loans and asset-based investments, including portfolios of consumer and commercial receivables and asset-backed financial instruments of undervalued or financially troubled companies. Management fees of 1.75% to 2.0% are generally charged based on the AUM of the Worden Funds. We earn incentive income of 20% of the funds’ profits, payable annually, subject to achieving cumulative positive returns since the prior incentive income payment.

Japan Income Fund

The Japan Income Fund invests in a diversified portfolio consisting primarily of long-term, stable, income-generating assets in Japan. The fund primarily targets investments in real estate subject to long-term leases, capital assets and renewable energy projects. The fund is structured as an open ended fund with periodic subscription and redemption rights. A management fee rate of 1.0% is charged on the AUM of the Japan Income Fund, as well as acquisition and disposition fees. We earn incentive income of 20% on the fund's distributions in excess of a 4% dividend yield.

Credit PE Funds

Our credit PE funds are primarily comprised of families of funds as described below, as well as certain sector-specific funds with narrower investment mandates tailored for the applicable sector. They generally have management fee rates between 1.0% and 1.5% and generate incentive income of between 10% and 20% of a fund’s profits subject to the fund achieving a minimum return as a whole.

Credit Opportunities Funds

The Fortress Credit Opportunities Funds make opportunistic credit-related investments. Their investment objective is to generate significant current income and long-term capital appreciation through investments in a range of distressed and undervalued credit investments, including but not limited to residential loans and securities, commercial mortgage loans and securities, opportunistic corporate loans and securities, and other consumer or commercial assets and asset-backed securities.

Long Dated Value Funds

The Long Dated Value family of funds focus on making investments with long dated cash flows that may be undervalued because of the lack of current cash flows or because the investment is encumbered by a long term lease or financing. We believe that these investments provide the potential for significant capital appreciation over the long term. The Long Dated Value Funds have an investment life of 25 years, reflecting the funds' longer-term investment profiles. In addition, incentive income is distributed to us after all of a fund's invested capital has been returned, rather than as each investment is realized.

Real Assets Funds

The Real Assets Funds seek to generate superior risk adjusted returns by opportunistically investing in tangible and intangible assets with the potential to achieve significant value generally within a three-to-ten year time horizon. The investment program of these funds focuses on direct investments in four principal investment categories: real estate, capital assets, natural resources and intellectual property. The investments are located primarily in North America and Western Europe.

Asia Funds

The Fortress Japan Opportunity Funds seek to take advantage of the significant distressed opportunities that had emerged in Japan similar to those witnessed after the 1997 Asian financial crisis. The funds primarily invest in certain Japanese real estate-related performing, sub-performing and non-performing loans, securities and similar instruments. In addition, the Fortress Global Opportunities (Yen) Fund makes opportunistic investments in distressed and undervalued credits for investors that wish to invest in a Yen denominated fund. This fund invests primarily in North America and Western Europe, but may also invest in Australia, Asia and elsewhere on an opportunistic basis.

Real Estate Opportunities Funds

The Real Estate Opportunities Funds primarily make opportunistic commercial real estate investments. The investment objective of the funds is to generate superior risk adjusted returns by opportunistically investing in commercial real estate and real estate-related (collectively, "CRE") assets, equity investments, loans, securities, and other investments that we believe have the potential to achieve significant total returns generally within a three-to-seven year time horizon. The funds intend to make value-oriented investments throughout the capital structure of CRE assets.

Liquid Hedge Funds

Overview

Our liquid hedge funds include a fund that primarily focuses on an international "event driven" investment strategy, particularly in Europe, Asia-Pacific and Latin America; an endowment style fund, which invests in Fortress Funds, funds managed by external managers and direct investments; a fund that seeks to generate returns by executing a positively convex investment strategy; and Affiliated Managers.

Fortress Centaurus Global Funds

The Fortress Centaurus Global Funds employ a multi-strategy, equity biased event driven strategy, which generally focuses on soft and hard catalyst situations in liquid securities across the capital structure in the core markets of Europe, Asia-Pacific and Latin America. The management fee rate for these funds range from 1.0% to 1.75% and we earn incentive income of 20% of their profits, subject to achieving cumulative positive returns since the prior incentive income payment.

Fortress Partners Funds

The Fortress Partners Funds invest with a broad mandate, similar to endowment portfolios of large universities. Investments are made both in Fortress Funds and in funds managed by other managers, and in direct investments that are sourced either by Fortress personnel or by third parties with whom we have relationships. Our endowment strategy funds are designed to blend our direct bottom up investing style with third party managers to create excellent risk adjusted returns with an emphasis on capital preservation. Management fee rates for these funds range from 1.0% to 1.5% and we earn incentive income generally equal to 20% of the profits from direct investments only, subject to achieving cumulative positive returns since the prior incentive income payment.

Convex Asia Funds

The Convex Asia Funds’ principal investment objective is to generate a superior total return on its capital over multi-year market cycles by executing a positively convex investment strategy in the Asia-Pacific fixed income, commodities, currency, credit and equity markets, and their related derivatives or similar markets globally that are thematically related to the Asia-Pacific region. The management fee rate for these funds range from 1.25% to 1.5% and we earn incentive income of 18% of their profits, subject to achieving cumulative positive returns since the prior incentive income payment.

Fortress Macro Funds

In the fourth quarter of 2015, Fortress closed the Fortress Macro Funds and related managed accounts.

Affiliated Managers

Affiliated Managers consist of a non-controlling economic interest in autonomous asset management businesses under a fee-for-services model for infrastructure services. In January 2015, the Fortress Asia Macro Funds and related managed accounts transitioned to Graticule under Affiliated Managers. Fortress retained a perpetual minority interest amounting to 30% of earnings in 2015 and 2016 and declining to approximately 27% of earnings thereafter. Fortress also receives fees for providing infrastructure services (technology, back office and related services) to Graticule. During the second quarter of 2015, Graticule notified Fortress of its intention to terminate the infrastructure services agreement effective at the end of May 2016. Fortress will continue to earn fees through the effective date of termination.

Logan Circle

Logan Circle primarily provides traditional separate account investment management services to institutional clients, including corporate entities, pension plans, mutual funds, private funds, and foundations, as well as public and government entities. Logan Circle also provides investment advisory services to private funds that are sponsored or managed by Logan Circle or its affiliates. Management fee rates average 0.16% of AUM and may be tiered based on the amount of AUM of the account.

Competition

The investment management industry is intensely competitive, and we expect the competition may intensify in the future. We face competition in the pursuit of outside investors for our investment funds, acquiring investments in attractive portfolio companies, divesting our investments and other investment opportunities. Competition is based on a number of factors, including: investment performance; investor perception of investment managers' drive, focus and alignment of interest; terms of investment, including the level of fees and expenses charged for services; our actual or perceived financial condition, liquidity and stability; the quality and mix of services provided to, and the duration of relationships with, investors; and our business reputation. Depending on the investment, we expect to face competition primarily from other investment management firms, private equity funds, hedge funds, other financial institutions, sovereign wealth funds, corporate buyers and other parties. Many of our competitors are substantially larger and may have greater financial and technical resources than we possess. Several of these competitors have recently raised, or are expected to raise, significant amounts of capital and many of them have similar investment objectives to us, which may create additional competition for investment opportunities. Some of these competitors may also have a lower cost of capital and access to funding sources that are not available to us, which may create competitive disadvantages for us with respect to investment opportunities. Some of these competitors may have higher risk tolerances, make different risk assessments or have lower return thresholds, which could allow them to consider a wider variety of investments, bid more aggressively than we bid for investments that we want to make or accept legal or regulatory limitations or risks we would be unable or unwilling to accept. Corporate buyers may be able to achieve synergistic cost savings with regard to an investment that may provide them with a competitive advantage relative to us when bidding for an investment. Moreover, an increase in the allocation of capital to alternative investment strategies by institutional and individual investors could lead to a reduction in the size and duration of pricing inefficiencies that many of our investment funds seek to exploit. Alternatively, a decrease in the allocation of capital to alternative investments strategies could intensify competition for that capital and lead to fee reductions and redemptions, as well as difficulty in raising new capital. Lastly, the market for qualified investment professionals is intensely competitive. Our ability to continue to compete effectively will also depend upon our ability to attract, retain and motivate our employees.

Regulatory and Compliance Matters

Our operations are subject to regulation and supervision in a number of jurisdictions. The level of regulation and supervision to which we are subject varies from jurisdiction to jurisdiction and is based on the type of business activity involved. The regulatory and legal requirements that apply to our activities are subject to change from time to time and may become more restrictive. The United States Securities and Exchange Commission ("SEC"), Commodity Futures Trading Commission ("CFTC") and various other regulatory and self-regulatory organizations have in recent years increased their regulatory activities, including regulation, examination and enforcement in respect of asset management firms and other financial institutions. Our businesses have operated for many years within a legal framework that requires our being able to monitor and comply with a broad range of legal and regulatory developments that affect our activities. Rigorous legal and compliance analysis of our businesses and investments is important to our culture. We strive to maintain a culture of compliance through the use of policies and procedures, such as codes of conduct, compliance systems, communication of compliance guidance and employee education and training. Employees in our legal and compliance departments monitor our compliance with all of the regulatory requirements to which we are subject and manage our compliance policies and procedures. Our compliance policies and procedures address a variety of regulatory and compliance risks including, but not limited to, the handling of material non-public information, position reporting, personal securities trading, valuation of investments on a vehicle-specific basis, document retention, investor disclosure, potential conflicts of interest and the allocation of investment opportunities.

United States

Our business, as well as the financial services industry generally, is subject to extensive regulation in the United States and elsewhere. Certain of our subsidiaries are registered as investment advisers with the SEC. Registered investment advisers are subject to the requirements and regulations of the Investment Advisers Act of 1940, as amended (the "Investment Advisers Act”). Such requirements relate to, among other things, fiduciary duties to advisory clients, maintaining an effective compliance program, solicitation agreements, conflicts of interest, recordkeeping and reporting requirements, disclosure requirements, limitations on agency, cross and principal transactions between an adviser and advisory clients and general anti-fraud prohibitions. In addition, our registered investment advisers may be subject to routine periodic examinations by the staff of the SEC.

We are also subject to regulation under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Investment Company Act of 1940, as amended (the “Investment Company Act”), the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) and various other statutes. A number of our investing activities are subject to regulation by various U.S. state regulators. A number of portfolio companies owned by Fortress-managed funds are also publicly traded and/or are subject to significant regulatory oversight. For example, OneMain Holdings Inc. (“OneMain") (formerly known as Springleaf Holdings Inc.) is in the consumer finance industry and Nationstar Mortgage Holdings Inc. (“Nationstar”) is in the mortgage servicing industry. Both industries have recently been the subject of extensive regulatory focus. In particular, mortgage servicers continue to face meaningful regulatory oversight

from an array of state and federal authorities (including the Consumer Financial Protection Bureau and various state attorney generals), which has resulted in increased regulatory scrutiny across the industry, including Nationstar. This increased scrutiny may result in Nationstar experiencing increased regulatory costs, and being requested to pay fines or change its business practices. In addition, two of OneMain’s subsidiaries are in the insurance industry and are subject to extensive regulation by state authorities. Moreover, investments are subject to regulation from non-financial, sector-specific regulatory bodies.

We conduct fund raising activities for our managed funds through Fortress Capital Formation LLC, an affiliate that is registered as a limited purpose broker-dealer with the SEC, is a member of the Financial Industry Regulatory Authority (“FINRA”), and is registered as a broker-dealer in all 50 states, the District of Columbia, and the Virgin Islands. Fortress Capital Formation LLC is subject to regulation and examination by the SEC, as well as by the state securities regulatory agencies. Additionally, FINRA, a self-regulatory organization that is subject to SEC oversight, maintains regulatory authority over all securities firms doing business in the United States (including our broker-dealer), adopts and enforces rules governing the activities of its member firms, and conducts cycle examinations and targeted sweep inquiries on issues of immediate concern, among other roles and responsibilities. Broker-dealers are subject to various rules relating to internal operations and dealings with customers including, but not limited to, the form or organization of the firm, qualifications of associated persons, net capital and customer protection rules, books and records, financial statements, and reporting.

Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFTC obtained regulatory jurisdiction over certain derivative instruments, including swaps. As such, certain of our or our subsidiaries’ risk management or other commodities interest-related activities may be subject to CFTC oversight. In addition, new rules adopted by the CFTC removed or limited previously available exemptions and exclusions from registration, which has imposed additional registration and reporting requirements for operators of pooled vehicles that use or trade in futures, swaps and other derivatives regulated by the CFTC. Accordingly, certain of our affiliates have registered with the CFTC as commodity pool operators and have obtained membership with the National Futures Association in connection with such CFTC registration. Such entities are subject to the rules and requirements applicable to such registration and membership, including record-keeping, reporting, operational and marketing requirements and disclosure obligations.

Certain of our permanent capital vehicles, as public companies, are subject to SEC regulation, applicable stock exchange regulations and Sarbanes-Oxley. Moreover, our permanent capital vehicles are subject to regulation from financial and non-financial regulatory bodies. For example, New Senior is subject to regulations applicable to operators of independent living and assisted living facilities, as well as laws designed to protect Medicaid; New Media is subject to environmental and employee safety and health laws and regulations pertaining to its print facilities; New Residential is subject to numerous laws and regulations with respect to mortgage servicing rights and various other investments and a wholly owned captive insurer is subject to state captive insurance requirements; Newcastle is subject to a number of environmental regulations in connection with its golf facilities and operations; Eurocastle is subject to a variety of regulations in connection with its investments in real estate related assets in Europe; and FTAI currently invests across, among other things, the rail, aviation, and offshore energy sectors, and its investments are subject to regulations applicable to those sectors.

Certain of the permanent capital vehicles are organized and conduct their operations to qualify as a real estate investment trust (“REIT”) for U.S. federal income tax purposes. To maintain their qualification as REITs, such companies have to distribute at least 90% of their taxable income to their shareholders and meet, on a continuing basis, certain other complex requirements under the Internal Revenue Code.

A meaningful portion of the capital managed in Logan Circle is subject to regulation by the Department of Labor under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). In addition, each of the U.S. mutual funds and investment companies we, through Logan Circle, manage is registered under the Investment Company Act as an investment company or is exempt from such registration. The U.S. mutual funds and investment companies and the entities that serve as those vehicles’ investment advisers or sub-advisers are subject to the Investment Company Act and the rules thereunder, which among other things regulate the relationship between a registered investment company and its investment adviser and prohibit joint transactions. Logan Circle also manages non-U.S. mutual funds and investment companies, and is subject to similar laws and regulations in such non-U.S. jurisdictions.

We are subject to a number of laws and regulations governing payments and contributions to political persons or other third parties including, but not limited to, restrictions imposed by Rule 206(4)-5 of the Investment Advisers Act addressing “pay-to-play” practices, the Foreign Corrupt Practices Act (“FCPA”), as well as trade sanctions and other export control laws administered by Office of Foreign Asset Controls (“OFAC”), the U.S. Department of Commerce and the U.S. Department of State. The FCPA is intended to prohibit bribery of foreign governments and their officials and political parties, and requires U.S. public companies to keep books and records that accurately and fairly reflect those companies’ transactions. OFAC, the U.S. Department of Commerce and the U.S. Department of State administer and enforce various export control laws and regulations, including economic and trade sanctions based on U.S. foreign policy and national security goals against targeted foreign states, organizations and individuals.

These laws and regulations relate to a number of aspects of our business, including sourcing new investments. Similar laws in non-U.S. jurisdictions, such as EU sanctions or the U.K. Bribery Act, as well as other applicable anti-bribery, anticorruption, anti-money laundering, or sanctions or other export control laws in the U.S. and abroad, may impose stricter or more onerous requirements than the FCPA, OFAC, the U.S. Department of Commerce and the U.S. Department of State, and implementing them may disrupt our business or cause us to incur significantly more costs to comply with those laws. Different laws may also contain conflicting provisions, making compliance with all laws more difficult.

United Kingdom and the European Union

Fortress Investment Group (UK) Ltd. and Drawbridge (UK) LLP are each authorized in the United Kingdom under the Financial Services and Markets Act 2000 (the “FSMA”) and have obtained permission to engage in a number of corporate finance activities regulated under FSMA, including advising on, managing and arranging deals in relation to certain types of, investments. FSMA and related rules govern most aspects of investment businesses, including sales, research and trading practices, provision of investment advice, corporate finance, use and safekeeping of client funds and securities, regulatory capital, record keeping, margin practices and procedures, approval standards for individuals, anti-money laundering, periodic reporting and settlement procedures. The Financial Conduct Authority is responsible for administering these requirements and compliance with them.

The EU Alternative Investment Fund Managers Directive ("AIFMD") establishes a comprehensive regulatory and supervisory framework for alternative investment fund managers ("AIFM"s) managing and/or marketing alternative investment funds ("AIF"s) in the EU. Non-EU AIFMs, such as us, may continue to market fund interests within the EU under the private placement regimes of the individual member states subject to complying with certain requirements imposed by the AIFMD (including, without limitation, baseline disclosures to prospective investors, EU member state-specific notification or registration requirements, ongoing reporting obligations to both regulators and investors, and specific rules concerning control positions in EU-based portfolio companies) and any additional requirements that individual member states may impose. To date, we have registered several funds in various EU member states pursuant to AIFMD, and we may register additional funds in the future.

Similar to Dodd-Frank in the United States, European regulators have adopted the European Market Infrastructure Regulation (“EMIR”) relating to the regulation of derivative transactions, including reporting of derivative transactions, conduct standards and risk mitigation.

In addition, a new market abuse regime focused on anti-money laundering and insider trading, among other things, is expected to be implemented in mid-2016, which may also impose additional costs on the operation of our business in Europe.

Other Jurisdictions

Outside the United States, certain of our affiliates are subject to registration and compliance with laws and regulations of non-U.S. governments, their respective agencies and/or various self-regulatory organizations or exchanges relating to, among other things, investment advisory services and the marketing of investment products and any failure to comply with these regulations could expose us to liability and/or damage our reputation. For example:


•	FIG HK (Hong Kong) Limited is licensed by the Hong Kong Securities and Futures Commission to carry on Type 9 (asset management) regulated activity;


•	Fortress (Dubai) Transportation & Infrastructure Advisors Ltd., a company limited by shares in the Dubai International Financial Centre, holds a Category 3C license issued by the Dubai Financial Services Authority and is authorized to arrange credit or deal in investments, advise on financial products or credit, and manage assets;


•	Fortress Investment Group (Japan) GK is registered as an investment adviser with the Japan Financial Services Agency and holds a real estate brokerage license, which is required for an entity to engage in the business of selling real estate in Japan;


•	Fortress Investment Group (Australia) Pty Limited is licensed by the Australian Securities and Investments Commission as an Australian Financial Services Licensee and is authorized to carry on a financial services business to provide financial product advice for certain enumerated classes of financial products and deal in financial products for wholesale clients; and


•	Fortress Investment Group (Singapore) Pte. Ltd. is registered as a fund manager with the Monetary Authority of Singapore.

In addition, we and/or our affiliates and subsidiaries may become subject to additional regulatory demands in the future to the extent we expand our investment advisory business in existing and new jurisdictions. There are also a number of pending or recently enacted legislative and regulatory initiatives in the United States and in other jurisdictions that could significantly impact our business.

Structure

The diagram below depicts our organizational structure as of December 31, 2015.


(1)	The principals generally hold almost all of the Class B shares, which represent 43.9% of the total combined voting power (i.e., combined voting power of Class A shares and Class B shares) in Fortress Investment Group LLC. The Class B shares are held by the principals and a former senior employee. The Class B shares have no economic interest in Fortress Investment Group LLC.


(2)	Represents 56.1% of the limited partner interests (Class A Common Units) and a 100% general partner interest in each of the Operating Entities and in Principal Holdings. We refer to a collection of one limited partner interest in each such entity as a Fortress Operating Group unit ("FOGU").


(3)	FOGU is the term we use to refer to a collection of one limited partner interest in each Fortress Operating Group entity. Represents 43.9% of the limited partner interests (Class B Common Units) in each of the Operating Entities and in Principal Holdings.


(4)	Excludes the effect of equity interests to be granted under our equity incentive plan to employees and directors.

Performance Graph

The following graph compares the cumulative total return for our Class A shares (stock price change plus reinvested dividends) with the comparable return of four indices: Russell 3000, S&P 500, S&P Financial Services, and SNL Asset Manager Index. The graph assumes an investment of $100 in the Company's Class A shares and in each of the indices on December 31, 2010, and that all dividends were reinvested. The past performance of our Class A shares is not an indication of future performance.



	Period Ending
Index	12/31/10	12/31/11	12/31/12	12/31/13	12/31/14	12/31/15
Fortress Investment Group LLC	100.00	59.30	81.07	163.36	163.67	113.11
SNL Asset Manager Index	100.00	86.50	110.97	170.54	179.91	153.43
Russell 3000	100.00	101.03	117.61	157.07	176.76	177.64
S&P 500	100.00	102.11	118.45	156.82	178.28	180.75
S&P Financial Services	100.00	63.78	96.38	130.55	160.15	150.57

Where Readers Can Find Additional Information

Fortress Investment Group LLC is a Delaware limited liability company that was formed on November 6, 2006. Our principal executive offices are located at 1345 Avenue of the Americas, New York, New York 10105.

Fortress files annual, quarterly and current reports, proxy statements and other information required by the Exchange Act, with the SEC. Readers may read and copy any document that Fortress files at the SEC’s Public Reference Room located at 100 F Street, N.E., Washington, D.C. 20549, U.S.A. Please call the SEC at 1-800-SEC-0330 for further information on the Public Reference Room. Our SEC filings are also available to the public from the SEC’s internet site at http://www.sec.gov.

Our Internet site is http://www.fortress.com. We will make available free of charge through our internet site our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and Forms 3, 4 and 5 filed on behalf of directors and executive officers and any amendments to those reports filed or furnished pursuant to the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Also posted on our website in the ‘‘Public Shareholders - Corporate Governance’’ section are charters for the company’s Audit Committee, Compensation Committee and Nominating, Corporate Governance and Conflicts Committee as well as our Corporate Governance Guidelines and our Code of Business Conduct and Ethics governing our directors, officers and employees. Information on, or accessible through, our website is not a part of, and is not incorporated into, this report.

Item 1A. Risk Factors

We face a variety of significant and diverse risks, many of which are inherent in our business. Described below are certain risks that we currently believe could materially affect us. Other risks and uncertainties that we do not presently consider to be material or of which we are not presently aware may become important factors that affect us in the future. The occurrence of any of the risks discussed below could materially and adversely affect our business, prospects, financial condition, results of operations or cash flow.

Risks Related to Our Business

We depend on Messrs. Briger, Edens and Nardone, and the loss of any of their services could have a material adverse effect on us.

The success of our business depends on the efforts, judgment and personal reputations of our principals, Peter Briger, Wesley Edens and Randal Nardone. One of our principals, Randal Nardone, was appointed Chief Executive Officer of the Company in addition to his other duties. Our principals' reputations, expertise in investing, relationships with our investors and relationships with members of the business community on whom our funds depend for investment opportunities and financing, are each critical elements in operating and expanding our businesses. We believe our performance is strongly correlated to the performance of these individuals. Accordingly, the retention of our principals is crucial to our success. In addition, if any of our principals were to join or form a competitor, some of our investors could choose to invest with that competitor rather than in our funds. The loss of the services of any of our principals could have a material adverse effect on us, including our ability to retain and attract investors and raise new funds, and the performance of our funds. Two or more of our principals occasionally travel together, which concentrates the potential impact of an accident on our Company. We do not carry any “key man” insurance that would provide us with proceeds in the event of the death or disability of any of our principals.

Each of our principals has an employment agreement with us, which extends to January 1, 2017. If a principal terminates his employment voluntarily or we terminate his employment for cause (as defined in the agreement), the principal will be subject to eighteen-month post-employment covenants requiring him not to compete with us. However, if we terminate a principal's employment without cause, the principal will not be subject to the non-competition provisions.

There is no guarantee that our principals will not resign, join our competitors or form a competing company, or that the non-competition provisions in the employment agreements would be upheld by a court. If any of these events were to occur, our business, prospects, financial condition and results of operations could be materially adversely affected.

Several of our funds have “key person” provisions pursuant to which the failure of one or more of our principals or senior employees (other than our principals) to be actively involved in the business provides investors with the right to redeem their investment or otherwise limits our rights to manage the funds. The loss of the services of any one of such senior employees could have a material adverse effect on certain of our funds to which such key person provisions relate and in some circumstances on us.

Certain of our existing funds have key person provisions relating to our principals or senior employees other than our principals, and the resignation or termination of any such senior employee could result in a material adverse effect on the applicable fund or funds and on us.

Investors in most of our hedge funds may generally redeem their investment without paying redemption fees if the relevant key person ceases to perform his functions with respect to the fund for 90 consecutive days. In addition, the terms of certain of our hedge funds' financing arrangements contain “key person” provisions, which may result, under certain circumstances, in the acceleration of such funds' debt or the inability to continue funding certain investments if the relevant employee ceases to perform his functions with respect to the fund and a replacement has not been approved. Additionally, funds on our affiliated manager

platform may have “key person” provisions pursuant to which the failure of one or more of their principals or senior employees (other than their principals) to be actively involved in the business provides investors with the right to redeem their investment or otherwise limits the affiliated manager’s rights to manage the funds.

The loss of Mr. Briger or his inability to perform his services for 90 days could result in substantial withdrawal requests from investors in our credit hedge funds and, in the event that a replacement for him is not approved, the termination of a substantial portion of the funds' financing arrangements. Such withdrawals and terminations would have a material adverse effect on the credit hedge funds and us by reducing our management fees from those funds. Further, such withdrawals and terminations could lead possibly to the eventual liquidation of the funds and a corresponding elimination of our management fees and potential to earn incentive income from those funds. Similarly, our credit PE funds contain key man provisions with respect to Mr. Briger, which would limit the ability of the funds to make future investments or call capital if both Mr. Briger and the funds' co-chief investment officer, Constantine Dakolias, were to cease to devote time to the funds. The loss of Mr. Briger could, therefore, ultimately result in a loss of a material portion of our earnings attributable to our credit hedge fund and/or credit PE business segments.

If either Mr. Edens or Mr. Nardone ceases to devote certain minimum portions of their business time to the affairs of certain of our private equity funds, the funds will not be permitted to make further investments, and then-existing investments may be liquidated if investors vote to do so. Our ability to earn management fees and realize incentive income from our private equity funds therefore would be adversely affected if we cannot make further investments or if we are required to liquidate fund investments at a time when market conditions result in our obtaining less for investments than could be obtained at later times. In addition, we may be unable to raise additional private equity funds if existing private equity fund key-man provisions are triggered. The loss of either Mr. Edens or Mr. Nardone could, therefore, ultimately result in a loss of substantially all of our earnings attributable to our private equity funds.

In January 2015, the Fortress Asia Macro Funds transitioned into an autonomous business, named Graticule, with Fortress as a non-control shareholder under our affiliated manager platform. Adam Levinson, Chief Investment Officer of Graticule, continues to invest for Graticule and for managed accounts which are counted toward Fortress’ AUM. The loss of Mr. Levinson could result in withdrawal requests from such investors and investors in Graticule funds. Substantial withdrawals would have a material adverse effect on our affiliated manager platform and could possibly lead to the liquidation of the funds and a corresponding elimination of our earnings from those funds. The loss of Mr. Levinson or his departure from Graticule could ultimately result in the loss of our earnings attributable to certain managed accounts or the Graticule funds.

In addition, the terms of certain of our existing funds may be amended over time to add additional key persons, and senior employees (including, but not limited to, our principals) may also be deemed as key persons for funds that are formed in the future. Any such events would potentially have a direct material adverse effect on our revenues and earnings (depending on the size of the particular fund to which a key person event relates), and would likely harm our ability to maintain or grow management fee paying assets under management in existing funds or raise additional funds in the future.

Our ability to retain our managing directors is critical to our success, and our ability to grow depends on our ability to attract additional key personnel.

Our success depends on our ability to retain our managing directors and the other members of our investment management team and to recruit additional qualified personnel. We refer to these key employees (other than our principals) collectively as our “investment professionals.” Our investment professionals possess substantial experience and expertise in investing, are responsible for locating and executing our funds' investments, have significant relationships with the institutions that are the source of many of our funds' investment opportunities, and in certain cases have strong relationships with our investors. Therefore, if our investment professionals join competitors or form competing companies, it could result in the loss of significant investment opportunities and certain existing investors. As a result, the loss of even a small number of our investment professionals could impact the performance of our funds, which could have a material adverse effect on our results of operations as well as our ability to retain and attract investors and raise new funds. Also, while we have non-competition and non-solicitation agreements with certain investment professionals, there is no guarantee that the agreements to which our investment professionals are subject, together with our other arrangements with them, will prevent them from leaving us, joining our competitors or otherwise competing with us or that these agreements will be enforceable in all cases. In particular, some jurisdictions in which we operate our businesses (for example, California) have public policies limiting the enforcement of restrictive covenants applicable to employees. In addition, these agreements will expire after a certain period of time following resignation or termination, at which point such persons would be free to compete against us and solicit investors in our funds, clients and employees.

Efforts to retain or attract investment professionals may result in significant additional expenses, which could adversely affect our profitability, and changes in law could hamper our recruitment and retention efforts. We might not be able, or may elect not, to

provide future investment professionals with equity interests in our business to the same extent or with the same tax consequences as our existing investment professionals, and the retentive utility of grants of equity of our public company is affected during periods of slow or negative stock price performance. Therefore, in order to recruit and retain existing and future investment professionals, we may need to increase the level of cash compensation that we pay to them. Accordingly, as we promote or hire new investment professionals over time, we may increase the level of cash compensation we pay to our investment professionals, which would cause our total employee compensation and benefits expense as a percentage of our total revenue to increase and adversely affect our profitability. In addition, we may deem it necessary to maintain compensation levels to retain employees even during periods when we generate less revenues than in previous periods, which would reduce our profit margins. Also, if proposed legislation were to be enacted by the U.S. Congress to treat carried interest as ordinary income rather than as capital gain for U.S. federal income tax purposes, such legislation would materially increase the amount of taxes that we and our investment professionals that are compensated in part with carried interest would be required to pay on such compensation, thereby adversely affecting our ability to recruit, retain and motivate our current and future professionals. See “- Our structure involves complex provisions of U.S. federal income tax law for which no clear precedent or authority may be available. Our structure also is subject to potential legislative, judicial or administrative change and differing interpretations, possibly on a retroactive basis.” Furthermore, in recent years, various legislative and regulatory bodies have focused on the issue of compensation in the financial services industry. In Europe, due to the nature and scope of our activities there, we do not anticipate the remuneration regulations in the European Union will have a material impact on our existing compensation structure. In the U.S., the SEC recently proposed mandatory clawback rules which would require listed companies to adopt a clawback policy providing for recovery of incentive-based compensation awarded to executive officers if the company is required to prepare an accounting restatement resulting from material noncompliance with financial reporting requirements. However, legal requirements flowing out of these bodies continue to be updated and the specific long-term impact on us is not yet clear. There is the potential that new compensation rules will make it more difficult for us to attract and retain investment professionals by capping the amount of variable compensation compared to fixed pay, requiring the deferral of certain types of compensation over time, implementing “clawback” requirements, or other rules deemed onerous by such investment professionals.

Certain of our businesses face particular retention issues with respect to investment professionals whose compensation is tied, often in large part, to performance thresholds or “high water marks.” This retention risk is heightened during periods where market conditions make it more difficult to generate positive investment returns and where capital markets provide fewer opportunities for realization of portfolio company investments. Several investment professionals receive performance-based compensation at the end of each year based upon their annual investment performance, and this performance-based compensation has historically represented a substantial majority of the compensation those professionals are entitled to receive during the year. If an investment professional's annual performance is negative, or insufficient to overcome prior negative results, the professional may not be entitled to any performance-based compensation for the year. If an investment professional or fund, as the case may be, does not produce investment results sufficient to merit performance-based compensation, any affected investment professional may be incentivized to join a competitor because doing so would allow the professional to eliminate the burden of having to satisfy the high water mark before earning performance-based compensation. Similarly, many of our investment professionals in our private equity fund and credit PE fund businesses are compensated with grants of carried interest in our funds. During periods of economic volatility, realization events in our private equity fund and credit PE fund businesses may be delayed, and it may therefore take significantly longer for investments to result in payments to such professionals. In addition, in the event that overall returns for any of our private equity funds or credit PE funds result in the generation of less incentive income than anticipated, such professionals' grants of carried interest in such fund will have similarly decreased in value. To retain such professionals, the fund's manager may elect to compensate the professional using a portion of the management fees earned by the manager, which would, in turn, reduce the amount of cash available to the public company, thereby reducing the amount available for distribution to our Class A shareholders or for other liquidity needs.

Operational risks may disrupt our businesses, result in losses or limit our growth.

We face operational risk from errors made in the negotiation, execution, confirmation or settlement of transactions on behalf of our funds. We also face operational risk from transactions not being properly recorded, valued, evaluated or accounted for in our funds. In particular, our liquid hedge fund, including the affiliated manager platform and, to a lesser extent, credit fund businesses and certain permanent capital vehicles are highly dependent on our ability to process, value and evaluate, on a daily basis, transactions across markets and geographies in a time-sensitive, efficient and accurate manner. Consequently, we rely heavily on our financial, accounting and other data processing systems. For example, the efficacy of investment and trading strategies depends largely on the ability to establish and maintain an overall market position in a combination of financial instruments. If a fund's trading orders are not executed in a timely and efficient manner due to systems failures, human error or otherwise, the funds might only be able to acquire some but not all of the components of the position, or if the overall position were to need adjustment, the funds might not be able to make such adjustment. As a result, the funds would not be able to achieve the market position selected by the management company or general partner of such funds, and might incur a loss in liquidating their position. In addition, new investment products have created, and future investment products may create, a significant risk that our existing systems may

not be adequate to identify or control the relevant risks in the investment strategies employed by such new investment products. If any of these systems do not operate properly, are inadequately designed, disabled, or are the target of a cyber security attack (which is an ongoing threat), we could suffer financial loss, disruption of our businesses, liability to our funds and their investors, regulatory intervention and reputational damage.

In addition, we operate in an industry that is highly dependent on its information systems and technology. We believe that we have designed, purchased and installed high-quality information systems to support our business. There can be no assurance, however, that our information systems and technology will continue to be able to accommodate our operations, or that the cost of maintaining such systems will not increase from its current level. Such a failure to accommodate our operations, or a material increase in costs related to such information systems, could have a material adverse effect on us.

In addition, in connection with the affiliated manager platform, we provide use of certain of these systems to Graticule as part of the infrastructure services currently provided for fees. The provision of our systems to autonomous businesses may heighten our operational risks for as long as we provide these services.

Although we take protective measures and endeavor to modify them as circumstances warrant, the security of our computer systems, software and networks may be vulnerable to breaches, unauthorized access, misuse, computer viruses or other malicious code and other events that could have a security impact. Additionally, breaches of security may occur through intentional or unintentional acts by those having authorized or unauthorized access to confidential or other information that we maintain, including information with respect to us, investors in our funds and our counterparties. One or more such events could potentially jeopardize such confidential and other information processed and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions or malfunctions in our operations and, our fund investors', counterparties' or third parties' operations, which could result in significant losses, increased costs, liability to our funds and investors, regulatory intervention or reputational damage to us. We may be required to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures arising from operational and security risks, and we may be subject to litigation and financial losses that are either not insured against or not fully covered through any insurance maintained by us.

Furthermore, we depend on our headquarters, which is located in New York City, and related infrastructure for the operation of our business. A disaster or a disruption in the infrastructure that supports our businesses, including a disruption involving electronic communications or other services used by us or third parties with whom we conduct business, or directly affecting our headquarters, may have an adverse impact on our ability to continue to operate our business without interruption, which could have a material adverse effect on us. Although we have disaster recovery programs in place, there can be no assurance that these will be sufficient to mitigate the harm that may result from such a disaster or disruption. In addition, insurance and other safeguards might only partially reimburse us for our losses.

Finally, we rely on third-party service providers for certain aspects of our business. In particular, we rely heavily on the services of third-party administrators in our hedge fund businesses, on the general ledger software provider for a number of our funds, and on third parties to provide critical front- and back-office systems support to Logan Circle. Any interruption or deterioration in the performance of these third parties, particularly with respect to the services provided to Logan Circle, could impair the quality of operations and could impact our reputation and adversely affect our business and limit our ability to grow.

Our removal as the investment manager, or the liquidation, of one or more of our funds could have a material adverse effect on our business, results of operations and financial condition.

We derive a substantial portion of our revenues from funds managed pursuant to investment management agreements that may be terminated or fund partnership agreements that permit investors to request liquidation of investments in our funds on short notice.

The terms of our funds generally give either the general partner of the fund or the fund's board of directors the right to terminate our investment management agreement with the fund. However, insofar as we control the general partner of our funds that are limited partnerships, the risk of termination of any investment management agreement for such funds is limited, subject to our fiduciary or contractual duties as general partner. This risk is more significant for our offshore hedge funds for which we do not serve as the general partner and represent a significant portion of our hedge fund AUM. In addition, the boards of directors of certain hedge funds and our publicly traded permanent capital vehicles, and the holders of a simple majority of the outstanding shares of our publicly traded permanent capital vehicles, have the right under certain circumstances to terminate the investment management agreements or otherwise attempt to renegotiate the terms of such agreements with the applicable fund or publicly traded permanent capital vehicle. Termination of these agreements, or revisions to the terms that are detrimental to the manager, could affect the fees we earn from the relevant funds or permanent capital vehicles, which could have a material adverse effect on our results of operations.

In addition, investors in our private equity funds or credit PE funds and certain hedge funds have the ability to act, without cause, to accelerate the date on which the fund must be wound down. We will cease earning management fees on the assets of any such fund that is wound down. In addition, our ability to realize incentive income from such funds would be adversely affected if we are required to liquidate fund investments at a time when market conditions result in our obtaining less for investments than could be obtained at later times.

We may become involved in lawsuits or investigations that could result in significant liabilities and reputational harm, which could materially adversely affect our results of operations, financial condition and liquidity.

We could be sued by many different parties, including, but not limited to, our fund investors, creditors of our funds, shareholders of the companies in which our funds have investments or we manage, groups on the affiliated manager platform and their respective investors, our shareholders, our employees, regulators, and residents of senior living facilities that we manage. We have been a defendant in many lawsuits filed by various parties in recent years. In addition, we may participate in transactions that involve litigation (including the enforcement of property rights) from time to time, and such transactions may expose us to increased risk from countersuits. Any of these parties could bring an array of claims not just against us but also against our funds and their portfolio companies, permanent capital vehicles, other investments or the affiliated manager platform based on a variety of allegations relating to, among other things, conflicts of interest, improper related party transactions, breaches of financing or other agreements, violations of any of a multitude of laws applicable to us, non-compliance with organizational documents, misconduct by employees and improper influence over the companies in which our funds or accounts have investments. It is likely that we would be brought into any lawsuit that involves a fund-related issue and we may be brought into lawsuits involving the affiliated manager platform. We also face the risk of lawsuits relating to claims for compensation, which may individually or in the aggregate be significant in amount, particularly since our workforce consists of many very highly paid investment professionals. Such claims are more likely to occur when individual employees experience significant volatility in their year-to-year compensation due to trading performance or other issues, and in situations where previously highly compensated employees are terminated for performance or efficiency reasons, as has occurred recently. The cost of settling such claims could adversely affect our results of operations.

Lawsuits or investigations in which we may become involved could be very expensive and highly damaging to our reputation, even if the underlying claims are without merit. We could potentially be found liable for significant damages. For instance, in a lawsuit based on an allegation of negligent management of any of our funds, plaintiffs could potentially recover damages in an amount equal to the fund's investment losses. In general, the applicable standard of care in our contracts with fund or account investors is gross negligence or willful misconduct. However, the majority of the capital in our Logan Circle business is managed under a negligence or reasonable person standard of care, which is more favorable to plaintiffs.

Fund investments may also be subject to litigation, which could impact the value of the investment and harm the performance of one or more of our funds. Although we have certain indemnification rights from the funds we manage, these rights may be challenged. Moreover, we could incur legal, settlement and other costs in an amount that exceeds the insurance coverage maintained by us or by our funds. The costs arising out of litigation or investigations could have a material adverse effect on our results of operations, financial condition and liquidity.

Certain of our consolidated subsidiaries have potentially unlimited liability for the obligations of various Fortress Funds under applicable partnership law principles, because they act as general partners of such funds. In the event that any such fund was to fall into a negative net equity position, the full amount of the negative net equity would be recorded as a liability on the balance sheet of the general partner entity. Such liability would be recorded on our balance sheet in consolidation until the time such liability was legally resolved.

As part of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), so-called “whistleblower” provisions entitle persons who report alleged wrongdoing to the SEC to cash rewards and the SEC has awarded significant cash awards pursuant to these provisions. Dealing with such claims could generate significant expenses and take up significant management time, even for frivolous and non-meritorious claims. Moreover, there may be a related increase in regulatory investigations or inquiries relating to trading and other investment activities, including potential conflicts of interest relating to such activities, of alternative asset management managers such as us. Such investigations or inquiries may impose additional expense on us, may require the attention of senior management and may result in fines and/or reputational damage whether or not any of our funds are deemed to have violated any regulations.

The U.S. government’s increased focus on the regulation of the financial services industry may adversely affect our business.

Our business may be adversely affected by new or revised legislation or regulations imposed by the U.S. government, the SEC, the Commodity Futures Trading Commission (“CFTC") or other U.S. governmental regulatory bodies or self-regulatory

organizations that supervise the financial markets. We may also be adversely affected by changes in the interpretation or enforcement of existing laws and rules. Dodd-Frank imposes significant new rules on almost every aspect of the U.S. financial services industry, including aspects of our business and the markets in which we operate, which may adversely affect our business. These rules address, among other things, the following topics:


•	oversight and regulation of systemic market risk (including the power to liquidate certain institutions);


•	regulation by the Federal Reserve of non-bank institutions;


•	prohibitions on insured depositary institutions and their affiliates from conducting proprietary trading and investing in private equity funds and hedge funds;


•	new registration, recordkeeping and reporting requirements for private fund investment advisers;


•	comprehensive regulation of the OTC derivatives markets;


•	minimum equity retention requirements for issuers of asset-backed securities;


•	the establishment of a bureau of consumer financial protection;


•	new requirements and higher liability standards on credit rating agencies; and


•	increased disclosure of executive compensation and mandatory shareholder votes on executive compensation.

Dodd-Frank and the regulations thereunder are complex and expansive in scope and will likely require us to continue to devote a significant amount of time and resources in assessing and modifying our business practices to comply. The regulations may also increase our costs of operating in the financial markets and impose restrictions on our business activities. For example, the Dodd-Frank margin requirements applicable to uncleared over-the-counter derivatives are expected to increase the overall costs of trading and maintaining those instruments. Moreover, the new regulations, even if not directly applicable to us, are likely to increase our overall costs of entering into certain transactions and could also adversely affect the performance of certain of our trading strategies. For example, trading counterparties that incur increased costs as a result of registration and/or operation as a "swap-dealer" or "security-based swap-dealer" under Dodd-Frank could pass through those costs to us. Likewise, new regulations may lead to reductions in the liquidity of certain investment products, causing higher pricing or reduced availability, or the reduction of arbitrage opportunities for us, which could also adversely affect the performance of certain of our trading strategies.

Dodd-Frank also established a regulatory body called the Financial Stability Oversight Counsel (“FSOC”), responsible for identifying, monitoring and constraining systemic risks and maintaining financial stability. Non-bank financial institutions designated as “systemically important” by the FSOC are subject to enhanced regulatory requirements established by the Federal Reserve. U.S. regulators are reviewing the asset management industry generally with respect to these matters and any regulation of us or the markets in which we operate arising as a result could negatively impact our business.

In addition, U.S. regulatory reforms also require us to comply with new registration and reporting requirements. In October 2011, the SEC adopted a rule that requires fund advisors with over $1.5 billion in AUM, such as Fortress, to file substantial quarterly disclosure on fund assets, leverage, investment positions, valuations, trading practices and other topics. In addition, due to regulations adopted in 2012, certain of our affiliates have registered with the CFTC as commodity pool operators (“CPOs”). The Commodity Exchange Act and CFTC regulations impose various requirements on CPOs, including record-keeping, reporting, operational and marketing requirements, disclosure obligations and prohibitions on fraudulent activities. Complying with these requirements could increase our expenses and negatively impact our financial results.

Finally, regulatory initiatives that do not apply directly to us may have a negative impact on us indirectly because they may still increase our costs of entering into transactions with the parties to whom the requirements are directly applicable, such as banks and other counterparties with whom we do business. For example, in December 2010, the Basel Committee on Banking Supervision, an international body comprised of senior representatives of bank supervisory authorities and central banks from various countries, including the United States, finalized a comprehensive set of capital, leverage and liquidity standards, commonly referred to as "Basel III," for internationally active banking organizations. These standards require banks to hold more capital, reduce leverage and improve liquidity standards. U.S. federal banking regulators continue to implement many aspects of Basel III, as well as changes required by Dodd-Frank. These rules comprehensively revise the regulatory capital framework for the U.S. banking sector. Compliance with the new standards is expected to result in significant costs to banks and may result in reduction of access to, or increase of costs for, certain types of credit for the private sector, including our funds and portfolio companies.

Our reputation, business and operations could be adversely affected by regulatory compliance failures, the potential adverse effect of changes in laws and regulations applicable to our business and the effects of negative publicity surrounding the alternative asset management industry in general.

Potential regulatory compliance failures pose a significant risk to our reputation and thereby to our business. Our business is subject to extensive regulation in the United States and in the other countries in which our investment activities occur. The SEC oversees our activities as a registered investment adviser under the Investment Advisers Act of 1940, as amended (the “Investment

Advisers Act"). We are subject to regulation under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Investment Company Act of 1940, as amended (the "Investment Company Act"), and various other statutes. We are subject to regulation by the Department of Labor under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). We and certain of our permanent capital vehicles, as public companies, are subject to applicable stock exchange regulations to the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley"). A number of portfolio companies are also publicly traded and/or are subject to significant regulatory oversight. For example, OneMain Holdings, Inc. ("OneMain") is in the consumer finance industry and Nationstar Mortgage Holdings Inc. (“Nationstar”) is in the mortgage servicing industry, both of which have recently been the focus of extensive regulation. In particular, mortgage servicers continue to face meaningful regulatory oversight from an array of state and federal authorities (including the Consumer Financial Protection Bureau and various state attorneys general), which has resulted in increased regulatory scrutiny across the industry, including Nationstar. This increased scrutiny may result in Nationstar experiencing increased regulatory costs, and being required to pay fines or change its business practices. Moreover, some of our portfolio companies are subject to regulation from non-financial bodies (such as our senior living and railroad investments). For example, as a manager of senior living facilities we are subject to regulations applicable to operators of independent living and assisted living facilities, as well as laws designed to protect Medicaid. As an affiliate of a registered broker-dealer, we are subject to certain rules promulgated by the Financial Industry Regulatory Authority (“FINRA") and the SEC. A number of our investing activities, such as our lending business, are subject to regulation by various U.S. state regulators. In the United Kingdom, we are subject to regulation by the U.K. Financial Conduct Authority. Our other European operations, and our investment activities in Singapore, Australia, Japan, Hong Kong and other parts of the globe, are subject to a variety of regulatory regimes that vary by country.

Many of the regulatory bodies with jurisdiction over us have regulatory powers dealing with many aspects of financial services, including the authority to grant, and in specific circumstances to cancel, permissions to carry on particular businesses and to conduct investigations and proceedings that may result in fines and other sanctions. A failure to comply with the obligations imposed by the Investment Advisers Act on investment advisers, including record-keeping, advertising and operating requirements, disclosure obligations and prohibitions on fraudulent activities, or by the Investment Company Act could result in investigations, sanctions and reputational damage and potentially revocation of our registration as an investment advisor and exemptions from investment company requirements. Private equity funds, in particular, have come under greater regulatory scrutiny from the SEC as examinations of private equity advisers have found violations or material weaknesses with respect to the collection of fees and allocation of expenses. The SEC has also stated that their asset management unit's priorities for private equity funds and hedge funds include conflicts of interest, valuation, compliance and controls and cybersecurity. Private equity advisers have recently settled with the SEC for disclosure failures and misallocation of expenses. Our liquid hedge fund business, and, to a lesser degree, our credit fund and our private equity businesses, are involved regularly in trading activities which implicate a broad number of U.S. and foreign securities law regimes, including laws governing trading on inside information, market manipulation and a broad number of technical trading requirements that implicate fundamental market regulation policies. In addition, we are subject to U.S. and foreign laws and regulations relating to corrupt and illegal payments to, and hiring practices with regard to, government officials and others, including the Foreign Corrupt Practices Act ("FCPA") and the U.K. Bribery Act. Violation of such laws could result in severe restrictions on our activities and in damage to our reputation. Furthermore, the mere investigation by authorities of alleged or potential wrong-doing, such as insider trading, mishandling of fees, expenses or valuation, or anti-bribery and FCPA violations, has the potential to create a material adverse effect on companies in our industry including us, including due to the effects of negative publicity surrounding the alternative asset management industry in general. We may also be adversely affected if there is misconduct by personnel of portfolio companies in which our funds invest and permanent capital vehicles that have personnel whom we do not employ or supervise. For example, failures by such personnel to comply with anti-bribery, trade sanctions or other legal and regulatory requirements could adversely affect our business and reputation.

Changes in ERISA requirements, or a failure to comply with ERISA requirements, could adversely affect our business. Our funds generally operate pursuant to exemptions from the fiduciary requirements of ERISA with respect to their assets. However, it is possible that the U.S. Department of Labor may amend any applicable regulations or that the characteristics of our funds may change. If these funds fail to qualify for such exemptions or otherwise satisfy any applicable requirements of ERISA, including the requirement of investment prudence and diversification or the prohibited transaction rules, it could materially interfere with our activities in relation to these funds or expose us to risks related to our failure to comply with such requirements. A meaningful portion of the capital managed in our Logan Circle business is subject to ERISA requirements, and our failure to comply with those requirements could have a material adverse effect on our business. The U.S. Department of Labor recently issued a proposed regulation that would make it more likely that persons who recommend investments to employee benefit plans and individual retirement accounts would be considered fiduciaries with respect to such plans and accounts for purposes of ERISA and certain provisions of the Internal Revenue Code. If adopted, the regulation could materially restrict our ability to market interests in our funds to such investors.

Our failure to comply with applicable laws or regulations could result in fines, censure, suspensions of personnel or investing activities or other sanctions. The regulations to which our businesses are subject are designed primarily to protect investors in our

funds and to ensure the integrity of the financial markets. They are not designed to protect holders of our publicly traded Class A shares. Even if a sanction imposed against us or our personnel by a regulator is for a small monetary amount, the adverse publicity related to such sanction could harm our reputation, result in redemptions by our fund investors and impede our ability to raise additional capital or new funds, all of which would be materially damaging to the value of our Class A shares.

Our results of operations may also be negatively impacted if certain proposed tax legislation is enacted. If legislation were to be enacted by the U.S. Congress to treat carried interest as ordinary income rather than as capital gain for U.S. federal income tax purposes, such legislation would materially increase the amount of taxes that we and possibly our equity holders are required to pay, thereby reducing the value of our Class A shares and adversely affecting our ability to recruit, retain and motivate our current and future professionals. President Obama has publicly stated that he supports similar changes to the tax code. See “-Our structure involves complex provisions of U.S. federal income tax law for which no clear precedent or authority may be available. Our structure also is subject to potential legislative, judicial or administrative change and differing interpretations, possibly on a retroactive basis” and “-Several items of tax legislation are currently being considered which, if enacted, could materially affect us, including by preventing us from continuing to qualify as a partnership for U.S. federal income tax purposes. Our structure also is subject to potential judicial or administrative change and differing interpretations, possibly on a retroactive basis.”

New legislation in Europe and in other international markets in which we operate could increase our costs and make it more difficult to operate and market our funds.

Similar to the United States, our business may be adversely affected by new or revised legislation or regulation imposed by governmental regulators and other authorities in Europe or other jurisdictions in which we operate. European regulators have implemented legislation (the Alternative Investment Fund Manager Directive, or "AIFMD") requiring fund managers to comply with new rules regarding their activities in the EU, including the marketing of fund interests to EU-domiciled investors. AIFMD additionally covers topics such as periodic reporting to fund investors, disclosures to shareholders of EU companies targeted for acquisition or disposition, limitations on dividends by fund-controlled EU companies, monitoring the use of leverage, and imposition of remuneration guidelines. The legislation came into effect in July 2013 although full implementation of the rules will be staggered over the following five years. AIFMD imposes significant additional costs on the operation of our business in the EU, limits our operating flexibility and may generally hamper our ability to grow our business in Europe. In addition, similar to Dodd-Frank, European regulators have adopted the European Market Infrastructure Regulation ("EMIR") relating to the regulation of derivative transactions, including reporting of derivative transactions, conduct standards and risk mitigation. Further, a new market abuse regime focused on anti-money laundering and insider trading, among other things, is expected to be implemented in mid-2016 and a new version of the Markets in Financial Instruments Directive is currently being developed, both of which may also impose additional costs on the operation of our business in Europe.

In addition, similar to Europe, lawmakers and regulators in Asia and other jurisdictions in which we operate are in the process of implementing derivatives reforms similar to those under Dodd-Frank, including as to mandatory clearing of derivatives, margin, reporting, business conduct standards and risk mitigation. Although regulators are working to harmonize these regulations across jurisdictions so as to create common global standards, such a result is unlikely. Monitoring and complying with divergent regulations across multiple jurisdictions may, among other things, increase our operating costs or otherwise force us to modify our business practices in respect of these financial markets, which may adversely affect our business.

Our failure to deal appropriately with conflicts of interest could damage our reputation and adversely affect our business.

As we have expanded the number and scope of our businesses, we increasingly confront potential conflicts of interest relating to our funds' investment activities, the management of our permanent capital vehicles and our other activities, such as our management of senior living facilities. Certain of our funds and permanent capital vehicles, which may have different fee structures, have overlapping investment objectives, and potential conflicts may arise with respect to our decisions regarding how to allocate investment opportunities among these vehicles. For example, a decision to receive material non-public information about a company while pursuing an investment opportunity for a particular fund gives rise to a potential conflict of interest if it results in our having to restrict the ability of other funds to take any action. In addition, perceived conflicts of interest regarding investment decisions for funds in which our principals, who have and may continue to make significant personal investments in a variety of Fortress Funds, are personally invested may also arise, particularly with respect to funds in which they have made significant investments. Similarly, conflicts of interest may exist or develop regarding decisions about the allocation of specific investment opportunities between Fortress and the Fortress Funds or otherwise in situations where multiple funds are making investments in one portfolio company at the same or different levels of the investee's capital structure, in situations where one portfolio company engages another portfolio company to provide goods or services or in situations where funds and permanent capital vehicles, or multiple permanent capital vehicles, are competing for or making investments in the same assets or are buying or selling assets from one another. In addition, the publicly traded permanent capital vehicles are public companies that generally have no employees and their officers and many of the individuals that perform services for them are Fortress employees. Several officers and directors

of the permanent capital vehicles have responsibilities and commitments to Fortress entities other than such permanent capital vehicles. Moreover, because certain of our operating entities are held, in part, by FIG Corp., which is subject to U.S. federal corporate income tax, conflicts of interest may exist regarding decisions about which of Fortress's holdings should be held by these taxable entities and which by entities not subject to U.S. federal corporate income tax. We have, from time to time, made advances or loans to, or acquired preferred equity interests in, several of our investment funds or other investment vehicles. In addition, our principals have sometimes extended capital to our funds, or made equity investments in portfolio companies, in their individual capacities. The existence and the repayment of such obligations by the funds to us and our principals, or the existence of personal investments by our principals in our portfolio companies, creates the potential for claims of conflicts of interest by our fund and portfolio company investors.

Pursuant to the terms of our operating agreement, whenever a potential conflict of interest exists or arises between any of the principals, one or more directors or their respective affiliates, on the one hand, and the Company, any subsidiary of the Company or any member other than a principal, on the other, any resolution or course of action by our board of directors shall be permitted and deemed approved by all shareholders if the resolution or course of action (i) has been specifically approved by a majority of the members of a committee composed entirely of two or more independent directors, or it is deemed approved because it complies with rules or guidelines established by such committee, (ii) has been approved by a majority of the total votes held by disinterested parties that may be cast in the election of directors, (iii) is on terms no less favorable to the Company or shareholders (other than a principal) than those generally being provided to or available from unrelated third parties or (iv) is fair and reasonable to the Company taking into account the totality of the relationships between the parties involved. In addition, conflicts of interest involving fund investments are reviewed by the advisory boards of the applicable fund and conflicts of interest involving the permanent capital vehicles are reviewed by the independent directors of the applicable vehicle. Notwithstanding the foregoing, potential or perceived conflicts have given, and in the future could give, rise to investor or shareholder dissatisfaction or litigation or regulatory inquiries or enforcement actions, including from shareholders or regulators of our permanent capital vehicles. For example, investors or regulators could claim that a conflict should have been brought before a board or that disclosure of the conflict was inadequate. Appropriately dealing with conflicts of interest is complex and difficult and our reputation could be damaged if we fail, or appear to fail, to deal appropriately with one or more potential or actual conflicts of interest. Regulatory scrutiny of, or litigation in connection with, conflicts of interest would have a material adverse effect on our reputation, which could lead to redemptions by investors in our hedge funds, prompt shareholders of one or more of our permanent capital vehicles to sell their shares or become activist shareholders, hamper our ability to raise additional capital and discourage counterparties to do business with us. Any such development could have a material adverse effect on our business.

Employee misconduct could harm us by impairing our ability to attract and retain investors and by subjecting us to significant legal liability, regulatory scrutiny and reputational harm.

Our reputation is critical to maintaining and developing relationships with the investors in our funds, potential investors and third parties with whom we do business. There have been a number of highly-publicized cases involving fraud, insider trading, conflicts of interest or other misconduct by individuals in the financial services industry in general and the hedge fund industry in particular. There is a risk that our employees or employees at entities we manage could engage in misconduct that adversely affects our business. We could be subject to litigation, regulatory sanctions and suffer serious harm to our reputation, financial position, investor relationships and ability to attract future investors if an employee were to engage or be accused of engaging in illegal or suspicious activities such as improper trading, disclosure of confidential information or breach of fiduciary duties. Moreover, in July 2012, we entered into agreements to manage senior living facilities pursuant to which we became the employer of a significant number of on-site employees (the compensation expense of which is reimbursed to us by the owners of the facilities). As a result, we are now subject to the risk of employee misconduct with respect to the personal care of the residents of such facilities. We are also subject to risk of employee misconduct from employees of portfolio companies in which our funds invest and permanent capital vehicles that have personnel whom we do not employ or supervise. Employee misconduct could also prompt regulators to allege or to determine based upon such misconduct that we have not established adequate supervisory systems and procedures to inform employees of applicable rules or to detect and deter violations of such rules. It is not always possible to deter employee misconduct, and the precautions we take to detect and prevent misconduct may not be effective in all cases. Misconduct by employees, or even unsubstantiated allegations, could result in a material adverse effect on our reputation and our business.

Additionally, public state pension plans and retirement systems considering an investment in our funds may require us to make certain representations, warranties and covenants with respect to our and our employees' use of placement agents, political donations and gifts to state employees. A misrepresentation or breach of such covenants could result in damage to our reputation or in such investors seeking recovery of losses, withdrawal of their investment, repayment of management fees or liquidated damages, any of which could cause our revenues and earnings to decline.

The alternative investment management business is intensely competitive.

The alternative investment management business is intensely competitive. We compete in all aspects of our business with a large number of investment management firms, private equity fund sponsors, hedge fund sponsors and other financial institutions. Competition is based on a number of factors, including:


•	investment performance;


•	identifying suitable investments;


•	investor perception of investment managers' drive, focus and alignment of interest;


•	terms of investment, including the level of fees and expenses charged for services;


•	actual or perceived financial condition, liquidity and stability;


•	the quality and mix of services provided to, and the duration of relationships with, investors; and


•	business reputation.

A number of factors increase our competitive risks, some of which are outside of our control, and could reduce revenues and profitability and materially and adversely affect our business:


•	some of our funds may not perform as well as competitor funds or other available investment products;


•	the closing of our Fortress Macro Funds and related managed accounts and potential impact on investor perception;


•	changing decision making processes of investors, including concerns that we will allow a business to grow to the detriment of its performance or a preference to invest with an investment manager that is not publicly traded;


•	investors may reduce their investments with us or not make additional investments with us based upon dissatisfaction with our investment performance, market conditions, their available capital or their perception of the health of our business;


•	investors' liquidity and willingness to invest;


•	some of our competitors have greater capital, lower cost of capital, better access to financing, lower targeted returns or greater sector or investment strategy specific expertise than we do, which creates competitive disadvantages with respect to investment opportunities;


•	some of our competitors may have greater technical, marketing and other resources than we possess;


•	some of our competitors may perceive risk differently than we do, which could allow them either to outbid us for investments in particular sectors or, generally, to consider a wider variety of investments;


•	some of our competitors may agree to more restrictive terms or policies (such as those related to electoral donations or a different standard of care), which would allow them to compete for the capital being invested by entities wishing to impose such terms;


•	some of our competitors are corporate buyers and may be able to achieve synergistic cost savings in respect of an investment, which may provide them with a competitive advantage in bidding for an investment, particularly if conditions in the debt markets increase our financing costs or make debt financing generally unavailable or cost prohibitive; and


•	other industry participants continuously seek to recruit our investment professionals, particularly our top performers, away from us.

Furthermore, competition in the alternative asset management business has been increasing, including the level of competition for capital raising, particularly for big-fund capital in the alternative investment industry. When trying to raise new capital, we are competing for fewer total available assets in an increasingly competitive environment, and there can be no assurance that we will be successful in continuing to raise capital at our historical growth rates. Depending on industry dynamics, we and our competitors may be compelled to offer investors improved terms (such as lower fees, improved liquidity or increased investments in funds) in order to continue to attract significant amounts of new investment capital. If we are forced to compete with other alternative asset managers on the basis of fees, we may not be able to maintain our current management and performance fee structures. Such changes would adversely affect our revenues and profitability.

The due diligence process that we undertake in connection with investments by our funds or the public company may not reveal all relevant facts in connection with an investment.

Before making investments, we conduct due diligence that we deem reasonable and appropriate based on the facts and circumstances applicable to each investment. When conducting due diligence, we may be required to evaluate important and complex business, financial, tax, accounting, environmental and legal issues. Outside consultants, legal advisors, accountants and investment banks may be involved in the due diligence process in varying degrees depending on the type of investment. When conducting due diligence and making an assessment regarding an investment, we rely on the resources available to us, including information provided by the target of the investment and outside advisors and, in some circumstances, third-party investigations. In addition,

if investment opportunities are scarce or the process for selecting bidders is competitive, our ability to conduct a due diligence investigation may be limited, and we would be required to make investment decisions based upon a less thorough diligence process than would otherwise be the case. The due diligence investigation that we will carry out with respect to any investment opportunity may not reveal or highlight all relevant facts that may be necessary or helpful in evaluating such investment opportunity, including, among other things, the existence of fraud or other illegal or improper behavior. Moreover, such an investigation will not necessarily result in the investment being successful.

Failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and stock price.

As a public company, we are required to maintain effective internal control over financial reporting in accordance with Section 404 of Sarbanes-Oxley. While management has certified that our internal controls over financial reporting were effective as of December 31, 2015, 2014 and 2013, because internal control over financial reporting is complex and may be revised over time to adapt to changes in our business, or changes in applicable accounting rules, we cannot assure you that our internal control over financial reporting will be effective in the future. For example, we consolidate certain funds and may be required to consolidate other entities that we manage and therefore document and test effective controls over financial reporting of any of the entities that we consolidate in accordance with Section 404. Any failure to implement required controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations. If we are not able to maintain or document effective internal control over financial reporting, our independent registered public accounting firm would not be able to certify as to the effectiveness of our internal control over financial reporting as of the required dates. Matters impacting our internal controls may cause us to be unable to report our financial information on a timely basis, or may cause us to restate previously issued financial information, and thereby subject us to adverse regulatory consequences, including sanctions or investigations by the SEC, or violations of applicable New York Stock Exchange listing rules, and result in a breach of the covenants under our credit agreement. There could also be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements. Confidence in the reliability of our financial statements is also likely to suffer if we or our independent registered public accounting firm reports a material weakness in our internal control over financial reporting. This could materially adversely affect us by leading to a decline in our share price and impairing our ability to raise capital.

Our continued growth and development places significant demands on our administrative, operational and financial resources.

Our success depends in part on our continued growth and the development of our business, which is uncertain and creates significant demands on our legal, accounting and operational infrastructure, and results in increased expenses. The complexity of these demands, and the expense required to address them, is a function not simply of our growth, but also of significant differences in the investing strategies of our different businesses and of the differences between lines of business. For example, in April 2010, we acquired Logan Circle, which requires operational infrastructure that differs from the infrastructure used in our alternative asset management business, which we were not familiar with prior to the acquisition. In July 2012, our workforce grew significantly when we became the manager of several senior living facilities (the compensation expense of which is reimbursed to us by the owners of the facilities), which has placed significant demands on our human resources and other infrastructure. In 2014, we announced the launch of the affiliated manager platform, and in 2015 we transitioned the management of the Fortress Asia Macro Funds to an autonomous asset management business in which we retain an economic interest in and currently provide infrastructure services for. In 2015, we and Mount Kellett Capital Management LP ("Mount Kellett") entered into an agreement for us to become co-manager of the Mount Kellett investment funds and related accounts.

Our ability to continue to grow will depend, among other things, on our ability to maintain an operating platform and management system sufficient to address our growth. In order to grow, we will have to incur significant additional expenses and to commit additional senior management and operational resources. As a result, we face significant challenges:


•	maintaining adequate accounting, financial, compliance, trading and other business controls,


•	implementing new or updated information, financial and disclosure systems and procedures, and


•	recruiting, training, managing and appropriately sizing our work force and other components of our business on a timely and cost-effective basis.

In addition, we are required to continuously develop our systems and infrastructure in response to the increasing sophistication of the investment management market and legal, accounting and regulatory developments. Moreover, the strains upon our resources caused by our growth are compounded by the additional demands imposed upon us as a public company with shares listed on the New York Stock Exchange and, thus, subject to an extensive body of regulations.

Our organizational documents do not limit our ability to enter into new lines of businesses, and we may enter into new businesses, make future strategic investments or acquisitions or enter into joint ventures, each of which may result in additional risks and uncertainties in our business and reputation.

We intend, to the extent that market conditions warrant, to grow our business by increasing management fee paying assets under management in existing businesses and creating new investment products. In addition, our organizational documents do not limit us to the investment management business and we may pursue growth through strategic investments, acquisitions or joint ventures, which may include entering into new lines of business, such as the banking, insurance or financial advisory industries, and which may involve assuming responsibility for the actual operation of assets or entire companies. For example, in July 2012, we entered into the business of managing senior living facilities on behalf of owners of senior living facilities and in 2014 we launched the affiliated manager platform. In addition, opportunities may arise to acquire other alternative or traditional asset managers. To the extent we make strategic investments or acquisitions, enter into joint ventures, or enter into a new line of business, we will face numerous risks and uncertainties, including risks associated with (i) the required investment of capital and other resources, (ii) the possibility that we have insufficient expertise to engage in such activities profitably or without incurring inappropriate amounts of risk, and (iii) combining or integrating or separating and providing operational and management systems and controls. Entry into certain lines of business may subject us to new laws and regulations with which we are not familiar, or from which we are currently exempt, and may lead to increased litigation and regulatory risk and negative publicity. For example, in April 2010 we acquired Logan Circle, which is a traditional investment manager that is required to comply with ERISA regulations from which our other funds are currently generally exempt and which operates under a standard of care that is generally less favorable to us and exposes us to greater liability for simple negligence than do our alternative asset management businesses. In addition, our management of senior living facilities exposes us to licensing and regulatory regimes with which we have limited experience, as well as litigation risk arising from, among other things, the care of seniors. In the case of joint ventures, we are subject to additional risks and uncertainties in that we may be dependent upon, and subject to liability, losses or reputational damage relating to, systems, controls and personnel that are not under our control. If a new business generates insufficient revenues or if we are unable to efficiently manage our expanded operations, our results of operations will be adversely affected.

In addition, generally, there are few limitations on the execution of our funds' investment strategies, which are, in some cases, subject to the sole discretion of the management company or the general partner of such funds. The execution of a particular fund's strategy - for example, a strategy involving the enforcement of intellectual property rights through litigation, or a strategy of purchasing pools of tax liens on residential properties or pools of life settlements - may negatively impact one or more other Fortress funds whether due to reputational or other concerns. We have historically been subjected to intermittent protests by groups affiliated with an animal rights movement related to a particular investment. Although no Fortress Fund continues to hold the investment targeted by such protesters, the protest activity may nevertheless have a negative effect on our reputation.

Our revenue and profitability fluctuate, particularly inasmuch as we cannot predict the timing of realization events in our private equity and credit PE businesses, which may make it difficult for us to achieve steady earnings growth on a quarterly basis and may cause volatility in the price of our Class A shares.

We experience significant variations in revenues and profitability during the year and among years because, among other reasons, we are paid incentive income from certain funds only when investments are realized, rather than periodically on the basis of increases in the funds' NAVs. The timing and receipt of incentive income generated by our private equity funds and credit PE funds is event driven and thus highly variable, which contributes to the volatility of our segment revenue, and our ability to realize incentive income from our private equity funds and credit PE funds may be limited. It takes a substantial period of time to identify attractive investment opportunities, to raise all the funds needed to make an investment and then to realize the cash value (or other proceeds) of an investment through a sale, public offering, recapitalization or other exit. Even if an investment proves to be profitable, it may be several years before any profits can be realized. We cannot predict when, or if, any realization of investments will occur. If we were to have a realization event in a particular quarter, it may have a significant impact on our segment revenues and profits for that particular quarter that may not be replicated in subsequent quarters. In addition, our private equity funds and credit PE fund investments are adjusted for accounting purposes to their NAV at the end of each quarter, resulting in income (loss) attributable to our investments in our funds, even though we receive no cash distributions from our private equity funds and credit PE funds, which could increase the volatility of our quarterly earnings. The terms of the operating documents of our private equity funds and credit PE funds generally require that if any investment in a particular fund has been marked down below its initial cost basis, the aggregate amount of any such markdowns (plus the amount of the accrued preferred return on the capital used to make such investments) be factored into the computation of the amount of any incentive income we would otherwise collect on the realization of other investments within the same fund. This provision generally will result in an overall lower level of incentive income being collected by the Company in the near term for any private equity fund or credit PE fund that has investments that are carried both above and below their cost basis. To the extent that our investments in our private equity funds or credit PE funds (or direct investments in private equity transactions) are marked down, such mark-downs will flow through our statements of

operations as a GAAP loss, even in circumstances where we have a long investment horizon and have no present intention of selling the investment.

With respect to our credit hedge funds and liquid hedge funds, our incentive income is generally paid annually if the NAV of a fund has increased for the period. The amount (if any) of the incentive income we earn from our hedge funds depends on the increase in the NAV of the funds, which is subject to market volatility. Our liquid hedge funds have historically experienced significant fluctuations in NAV from month to month. Certain of our hedge funds also have “high water marks” whereby we do not earn incentive income for a particular period even though the fund had positive returns in such period if the fund had greater losses in prior periods. Therefore, if a hedge fund experiences losses in a period, we will likely not be able to earn incentive income from that fund until it surpasses the previous high water mark. As of December 31, 2015, the investment performance of certain hedge funds is down from the date on which such funds last earned incentive income. Each fund must generate earnings, on an investor by investor basis, equal to any amount lost as a result of negative performance before it will generate additional incentive income for us from existing fund investors. See the “Management Agreements and Fortress Funds” note to the consolidated financial statements included herein for more information.

In addition, no private equity fund, permanent capital vehicle, or credit PE fund will earn incentive income on any particular investment in the event that the aggregate carrying value of the other investments contained in the same fund is lower than the invested and unreturned capital in such fund plus, in some cases, any preferred return relating to such fund or the operating results of the publicly traded permanent capital vehicle are lower than specified returns to shareholders. The NAVs of some of these private equity style funds, as of period end, and operating results of some of the publicly traded permanent capital vehicles for the period were below these amounts as they apply to the respective funds or vehicle and, thus, these funds and vehicles will not be able to earn incentive income until their respective NAVs or operating results exceed these amounts. In addition, incentive income for the publicly traded permanent capital vehicles are calculated on a cumulative basis and therefore we may not earn incentive income for a particular period even though the vehicle had positive operating results for such period if the vehicle had greater losses on a cumulative basis. See the “Management Agreements and Fortress Funds” note to the consolidated financial statements included herein for more information.

Furthermore, we earn investment income from our investments in the Fortress Funds. Certain investments may be more speculative and more likely to result in loss of capital than other investments, which may contribute to volatility of our income. For example, investments in digital currencies differ from traditional currencies, commodities or securities, and its value is entirely market-based, which subjects the investment to increased risks.

These quarterly fluctuations in our revenues and profits in any of our businesses could lead to significant volatility in the price of our Class A shares.

The terms of our credit agreement may restrict our current and future operations, particularly our ability to respond to certain changes or to take future actions.

We entered into a new credit agreement in January 2016, which we also refer to as the "2016 Credit Agreement", for a new unsecured revolving facility, which contains a number of restrictive covenants. These covenants collectively impose significant operating and financial restrictions on us, including restrictions that may limit our ability to engage in acts that may be in our long-term best interests. The financial covenants require that we:


•	not exceed a total leverage ratio;


•	maintain a minimum AUM; and


•	maintain a minimum consolidated interest coverage ratio.

The financial covenants are tested as of the end of each fiscal quarter. Our ability to comply with these and other covenants is dependent upon a number of factors, some of which are beyond our control but could nonetheless result in noncompliance. For example, our leverage ratio fluctuates depending upon changes in revenues and expenses relative to our outstanding debt; our consolidated interest coverage ratio fluctuates depending upon changes in revenues and expenses relative to our interest payment obligations; and the value of our AUM fluctuates due to a variety of factors, including mark-to-market valuations of certain assets, other market factors, and our net capital raised or returned.

Our credit agreement also contains other covenants that restrict our operations and a number of events that would constitute an event of default under the agreement.

A failure by us to comply with the covenants in our credit agreement could result in an event of default under the agreement, which would give the lenders under the agreement the right to terminate their commitments to provide additional loans under our revolving credit facility and to declare all borrowings outstanding, together with accrued and unpaid interest and fees, to be immediately due and payable. If the debt under our credit agreement were accelerated, we might not have sufficient cash on hand or be able to sell sufficient assets to repay this debt, which could have an immediate material adverse effect on our business, results of operations and financial condition. For more detail regarding our current credit agreement and the status of our compliance with the related covenants, please see “Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Debt Obligations,” and “— Covenants.”

In addition, the 2016 Credit Agreement matures in January 2021. The terms of any new revolving credit facility or other replacement financing may be less favorable to us than the terms of our existing credit agreement.

An increase in our borrowing costs may adversely affect our earnings and liquidity.

Under the 2016 Credit Agreement, which is scheduled to mature in January 2021, we have a $275.0 million revolving credit facility (including a $15.0 million letter of credit subfacility).

After giving effect to the initial extensions of credit thereunder of $75.0 million, and a subsequent borrowing of $100.0 million in February 2016, approximately $97.3 million was available to be drawn. The new revolving credit facility generally bears interest at an annual rate equal to LIBOR plus an applicable rate that fluctuates depending upon the credit rating of the borrower's senior unsecured long-term debt and a commitment fee on undrawn amounts that fluctuates depending upon such credit rating. Therefore the interest expense we incur will vary with changes in the applicable LIBOR reference rate and the credit rating. As a result, an increase in short-term interest rates will increase our interest costs and will reduce the spread between the returns on our investments and the cost of our borrowings. An increase in interest rates would adversely affect the market value of any fixed-rate debt investments and/or subject them to prepayment or extension risk, which may adversely affect our earnings and liquidity. We may, from time to time, hedge these interest rate related risks. There is no guarantee that any such hedges will be economically effective.

When we approach the maturity date of our facility, we may seek to enter into new facilities or issue new debt, which could result in higher borrowing costs, or to issue equity, which would dilute existing shareholders. We could also repay a facility by using cash on hand (if available) or cash from the sale of our assets. No assurance can be given that we will be able to enter into new facilities, issue new debt or issue equity in the future on attractive terms, or at all.

Our hedging arrangements may fail to reduce our exposure to exchange rate and other economic risks.

We may from time to time enter into hedging arrangements intended to limit our economic exposure to various risks, such as interest rate or foreign currency exchange rate risk. We have currently entered into agreements intended to hedge our potential exposure to the dollar/Yen exchange rate based on our estimates of the likely receipt of certain incentive income payments relating to our fund management operations in Asia. There can be no assurance that in entering into such arrangements that we will have correctly estimated either the amount of incentive income that we will receive in the future or that we will have correctly forecast movements in the applicable exchange rate. Failure to make such estimates correctly may result in our under or over hedging our currency exposure, which could materially impact the economic value of any incentive payments we ultimately receive. We may also choose in some situations not to attempt to hedge our exposure to similar risks, which would leave us exposed to movements in interest rates or exchange rates.

Risks Related to Our Funds

Our results of operations are dependent on the performance of our funds. Poor fund performance will result in reduced revenues, reduced returns on our investments in our funds and reduced earnings. Poor performance of our funds will also make it difficult for us to retain or attract investors to our funds and to grow our business. The performance of each fund we manage is subject to some or all of the following risks.

The historical performance of our funds should not be considered as indicative of the future results of our funds or of our future results or of any returns expected on our Class A shares.

The historical and potential future returns of the funds we manage are not directly linked to returns on our Class A shares. Therefore, readers should not conclude that positive performance of the funds we manage will necessarily result in positive returns on our Class A shares.

Moreover, with respect to the historical performance of our funds:


•	the historical performance of our funds should not be considered indicative of the future results that should be expected from such funds or from any future funds we may raise;


•	our funds' returns have benefited historically from investment opportunities and general market conditions that currently may not exist and may not repeat themselves, and there can be no assurance that our current or future funds will be able to avail themselves of profitable investment opportunities;


•	the performance of a number of our funds that is calculated on the basis of NAV of the funds' investments reflects unrealized gains that may never be realized;

•

several of our private equity portfolio companies have become public companies and have experienced significant subsequent decreases in their public market value. There can be no assurance that we will be able to realize such investments at profitable sale prices, particularly if market conditions are weak or the market perceives that the companies will perform less well when a Fortress fund reduces its investment in them; and


•	Certain of the funds are newly established funds without any operating history or are managed by management companies or general partners who do not have a significant track record as an independent manager and certain of our publicly traded permanent capital vehicles are also new public companies without any operating history as independent companies.

Poor performance of our funds would cause a decline in our revenue and results of operations, could obligate us to repay incentive income previously paid to us, and could adversely affect our ability to raise capital for future funds.

Poor performance of our funds could have a material adverse impact on our primary sources of revenue, which are: (1) management fees, which are based on AUM; (2) incentive income, which is based on the performance of our funds; and (3) investment income (loss) from our investments in our funds. Losses in our funds result in a decrease in AUM, which results in lower management fee revenues. In addition, our funds may be unable to pay all or part of the management fees that we are owed for an indeterminate period of time, or they may require advances to cover expenses if they perform poorly or suffer from liquidity constraints due to operational or market forces. In situations where we have deferred the receipt of management or other fees in order to provide liquidity to one or more of our managed funds, amounts that we have receivable from those funds may be difficult to collect in the future (or may take longer than anticipated to collect) if such funds have continued liquidity problems or if fund investors raise objections to such collections. As of December 31, 2015, amounts due from our funds included $38.6 million of past due management fees and $11.0 million of private equity general and administrative expenses advanced on behalf of a certain Fortress Fund. As of December 31, 2015, we also had past due amounts of $12.2 million of management fees and $6.8 million of private equity general and administrative expenses due from another Fortress Fund which Fortress has fully reserved. The amount of deferred management fees and reimbursements may increase in the future.

In addition, as a result of the performance of our funds or other factors, hedge fund investors may redeem their investments in our funds, while investors in our private equity funds and credit PE funds may decline to invest in future funds we raise. Poor performance of our publicly traded permanent capital vehicles may result in the lowering of the market price of their common stock and impair their ability to raise capital or pay dividends. The annual return of capital request date for our flagship credit hedge fund occurs in October and our credit hedge funds received return of capital requests from fee paying investors for a total of $0.8 billion, $0.2 billion and $0.2 billion for the years ended December 31, 2015, 2014 and 2013, respectively. Our liquid hedge funds received redemption requests from fee paying investors for a total of $2.6 billion, $2.2 billion and $1.0 billion during the years ended December 31, 2015, 2014 and 2013, respectively. In addition, we closed our Fortress Macro Funds and related managed accounts at the end of 2015, which reduced our AUM and therefore our management fees and may impact our reputation and our ability to raise capital for future funds. See "—Assets Under Management —Redemptions."

If, as a result of poor performance of investments in a private equity fund or credit PE fund, the fund does not achieve total investment returns that exceed a specified investment return threshold for the life of the fund, we will be obligated to repay the amount by which incentive income that was previously distributed to us exceeds the amounts to which we are ultimately entitled. We have contractually agreed to guarantee the payment in certain circumstances of such “clawback” obligations for our managed investment funds that are structured as private equity style funds. Subsequent to December 31, 2015, we paid $66.9 million to Fortress Investment Fund III representing all of the prior net incentive income distributions received ($45.1 million net of employee amounts). Following such payment, no remaining clawback obligation exists for our private equity funds. We may be unable — as a result of poor fund performance or other issues — to raise enough new capital and new funds to seize investment opportunities in the future. If our competitors are more successful than we are in raising new fund capital and seizing investment opportunities, we may face challenges in competing for future investor capital and investment opportunities.

Difficult market conditions can adversely affect our funds in many ways, including by reducing the value or performance of the investments made by our funds and reducing the ability of our funds to raise or deploy capital, which could materially reduce our revenue and adversely affect our results of operations.

Our funds are materially affected by conditions in the global financial markets and economic conditions throughout the world. The global market and economic climate may be adversely affected by factors beyond our control, including rising interest rates or accelerating asset deflation or inflation, deterioration or volatility in the credit and finance markets, deterioration in the credit of sovereign nations, terrorism or political uncertainty. Recently, markets have been affected by an overall weak global economy, the Federal Reserve's long awaited increase in interest rates, concerns of China's slowing economy and rapidly falling oil prices. In the event of a continued market downturn, each of our businesses could be affected in different ways. During market downturns, our private equity style funds have faced reduced opportunities to sell and realize value from their existing investments. In addition, adverse market or economic conditions as well as the slowdown of activities in particular sectors in which portfolio companies of these funds or the permanent capital vehicles operate (including, but not limited to, transportation and infrastructure, financial services, gaming, real estate and senior living) have had an adverse effect on the earnings and liquidity of such portfolio companies, which in some cases has negatively impacted the valuations of our funds' investments, or the operating results of our publicly traded permanent capital vehicles and, therefore, our actual and potential earnings from management and incentive fees. Our credit hedge funds and liquid hedge funds may also be adversely affected by difficult market conditions if they fail to predict the adverse effect of such conditions on particular investments, resulting in a significant reduction in the value of those investments. See “Market Considerations.”

The 2008 financial crisis adversely affected our operating performance in a number of ways, and if the economy were to re-enter a period of recession, it may cause our revenue, results of operations and financial condition to decline by causing:


•	AUM to decrease, lowering management fees;


•	increases in costs associated with financial instruments;


•	adverse conditions for our portfolio companies or publicly traded permanent capital vehicles (e.g., decreased revenues, liquidity pressures, increased difficulty in obtaining access to financing and complying with the terms of existing financings as well as increased financing costs);


•	lower investment returns, reducing incentive income or eliminating incentive income for a period of time;


•	reduced demand to purchase assets held by our funds, which would negatively affect the funds' ability to realize value from such assets;


•	material reductions in the value of our private equity fund investments in portfolio companies or the operating results of our publicly traded permanent capital vehicles, which would reduce our ability to realize incentive income from these investments or vehicles;


•	difficulty raising additional capital;


•	investor redemptions, resulting in lower fees and potential increased difficulty in raising new capital; and


•	decreases in the carrying value of our investments in our funds.

The deterioration of market conditions in the future, particularly another failure of one or more major financial institutions, a default or serious deterioration in the financial condition of one or more sovereign nations, or another severe contraction of available debt or equity capital, would have a negative impact on our funds, which could materially reduce our revenue and adversely affect our results of operations. Furthermore, while difficult market conditions may increase opportunities to make certain distressed asset investments, our ability to take advantage of these opportunities may depend on our access to debt and equity capital and these trends may also be disadvantageous to us, for example such conditions also increase the risk of default with respect to debt investments held by our funds, in particular the mortgage opportunities funds and certain of our permanent capital vehicles.

Our funds may make investments that are concentrated in certain companies, asset types or geographical regions, which means that negative developments in certain sectors could have a material adverse effect on our revenues and results of operations.

The governing agreements of our funds contain limited investment restrictions and limited requirements as to diversification of fund investments, whether by geographic region or asset type. Many of our private equity funds have significant investments in particular companies whose assets are concentrated in certain industries, and from time to time we establish funds that target particular asset classes, such as our Italian NPL Funds, MSR Opportunities Funds, Real Estate Opportunities Funds, Japan Opportunity Funds and LDVF Patent and Life Settlements Funds. Our permanent capital vehicles, such as New Senior which is concentrated in senior living, also have assets concentrated in certain industries. Sectors in which our private equity funds have significant investments include transportation and infrastructure, financial services (particularly loan servicing and consumer finance), gaming, real estate (including Florida commercial real estate) and senior living. In particular, the performance of our investments in Nationstar, OneMain, Florida East Coast Railway, Florida East Coast Industries and Holiday Retirement has the

potential to significantly influence the overall financial results of our private equity segment. In addition, our credit PE funds, from time to time, may have significant investments in particular companies, industries or sectors. The credit PE funds have significant investments in certain sectors including commercial real estate, wireless spectrum and energy. If these sectors, or any other sector in which our funds have concentrated investments, were adversely affected by market conditions or other factors, certain of our funds may perform poorly. Moreover, poor performance by our private equity fund, permanent capital vehicle, and credit fund businesses could harm our reputation, which could make it difficult for us to raise capital for our other businesses. For a description of the potential consequences to us of poor fund performance, see “Poor performance of our funds would cause a decline in our revenue and results of operations, could obligate us to repay incentive income previously paid to us, and could adversely affect our ability to raise capital for future funds.”

Certain of our permanent capital vehicles and funds could be adversely affected by a contraction of the structured finance and mortgage markets.

Certain of our permanent capital vehicles have historically relied on the structured finance and mortgage markets in order to obtain leverage and thereby increase the yield on portions of their investments. To the extent that volatility in those credit markets leads to a situation where financing of that type is unavailable or limited (as was the case during the 2008 financial crisis and several years thereafter), Newcastle, New Residential or Eurocastle may be unable to make new investments on a basis that is as profitable as during periods when such financing was available. Furthermore, it could significantly reduce the yield available for reinvesting capital received from prior investments, thereby reducing profits. As a result of impairments recorded in connection with the 2008-2009 structured finance and mortgage market disruption, we do not expect to earn incentive income from Newcastle for an indeterminate period of time.

Many of our funds also have relied on the structured finance markets. To the extent that financing of that type is unavailable or limited, such funds may be unable to make certain types of investments as the yield on those investments will be outside of the funds' target range without leverage. This could reduce the overall rate of return such funds obtain from their investments and could lead to a reduction in overall investments by those funds and a slower rate of growth of fee paying assets under management in those funds, with a commensurate decrease in the rate of growth of our management fees.

We and our funds are subject to counterparty default and concentration risks.

Our funds enter into numerous types of financing arrangements with counterparties globally, including loans, hedge contracts, swaps, repurchase agreements and other derivative and non-derivative contracts. The terms of these contracts are often customized and complex, and many of these arrangements occur in markets or relate to products that are not subject to regulatory oversight. Generally, funds are not restricted from dealing with any particular counterparty or from concentrating any or all of their transactions with one counterparty. In particular, some of our funds utilize prime brokerage arrangements with a relatively limited number of counterparties, which has the effect of concentrating the transaction volume (and related counterparty default risk) of these funds with these counterparties. Our funds may also experience counterparty concentration risk with respect to partners in coinvestments.

Our funds are subject to the risk that the counterparty to one or more of these contracts defaults, either voluntarily or involuntarily, on its performance under the contract. Any such default may occur rapidly and without notice to us. Moreover, if a counterparty defaults, we may be unable to take action to cover our exposure, either because we lack the contractual ability or because market conditions make it difficult to take effective action. This inability could occur in times of market stress, which are precisely the times when defaults may be most likely to occur. In the event of a counterparty default, particularly a default by a major investment bank, one or more of our funds could incur material losses, and the resulting market impact of a major counterparty default could harm our business, results of operations and financial condition. In the event that one of our counterparties becomes insolvent or files for bankruptcy, our ability to eventually recover any losses suffered as a result of that counterparty's default may be limited by the liquidity of the counterparty or the applicable legal regime governing the bankruptcy proceeding.

Our funds are also exposed to the risk that a counterparty will not settle a transaction in accordance with its terms and conditions because of a dispute over the terms of the contract (whether or not bona fide) or because of a credit or liquidity problem, thus causing the fund to suffer a loss. Counterparty risk is increased for contracts with longer maturities where events may intervene to prevent settlement, or where the fund has concentrated its transactions with a single or small group of counterparties. The absence of a regulated market to facilitate settlement may increase the potential for losses.

In addition, our funds' risk-management models may not accurately anticipate the impact of market stress or counterparty financial condition, and as a result, we may not take sufficient action to reduce our risks effectively. Although each of our funds monitors its credit exposures, default risk may arise from events or circumstances that are difficult to detect, foresee or evaluate. In addition, concerns about, or a default by, one large participant could lead to significant liquidity problems for other participants, which may in turn expose us to significant losses.

The counterparty risks that we face have increased in complexity and magnitude as a result of the insolvency of certain financial institutions (such as Lehman Brothers and MF Global) who served as counterparties for derivative contracts, insurance policies and other financial instruments. The consolidation and elimination of counterparties has increased our concentration of counterparty risk and decreased the universe of potential counterparties, and our funds are generally not restricted from dealing with any particular counterparty or from concentrating any or all of their transactions with one counterparty. For additional detail on counterparty risks, please see “— We are subject to risks in using prime brokers, custodians and other financial intermediaries.”

Because the public company is dependent on receiving cash from our funds, any loss suffered by a fund as a result of a counterparty default would also affect the results of the public company. In addition, the board of directors of the public company has only limited ability to influence any fund's choice of, or the amount of a fund's exposure to, any given counterparty. As a result, our funds may have concentrated exposure to one or more counterparties and thus be exposed to a heightened risk of loss if that counterparty defaults. This may mean that the Company has a significant concentration of risk with one or more particular counterparties at any particular time if aggregate counterparty risk were to be measured across all of the various Fortress Funds.

Third party investors in our investment funds with commitment-based structures may not satisfy their contractual obligation to fund capital calls when requested by us, which could adversely affect a fund's operations and performance.

Investors in our private equity funds and credit PE funds make capital commitments to those funds that we are entitled to call from those investors at any time during prescribed periods. We depend on investors fulfilling their commitments when we call capital from them in order for those funds to consummate investments and otherwise pay their obligations (for example, management fees) when due. As of the end of this reporting period, we have not had investors fail to honor capital calls to any extent meaningful to us. Any investor that did not fund a capital call would generally be subject to several possible penalties, including having a significant amount of its existing investment forfeited in that fund. However, the impact of the penalty is directly correlated to the amount of capital previously invested by the investor in the fund and if an investor has invested little or no capital, for instance early in the life of the fund, then the forfeiture penalty may not be as meaningful. Investors may also negotiate for lesser or reduced penalties at the outset of the fund, thereby inhibiting our ability to enforce the funding of a capital call. If investors were to fail to satisfy a significant amount of capital calls for any particular fund or funds, the operation and performance of those funds could be materially and adversely affected.

Investors in our hedge funds may redeem their investments, and investors in our private equity funds and credit PE funds and certain hedge funds may elect to dissolve the funds, at any time without cause. These events would lead to a decrease in our AUM (and, therefore, our revenues), which could be substantial and could lead to a material adverse effect on our business.

Investors in our hedge funds may generally redeem their investments on an annual or quarterly basis, subject to the applicable fund's specific redemption provisions, and certain of our liquid hedge funds have a monthly redemption class. Investors may decide to move their capital away from us to other investments for any number of reasons in addition to poor investment performance. Factors that could result in investors leaving our funds include the need to increase available cash reserves or to fund other capital commitments, changes in interest rates that make other investments more attractive, the publicly traded nature of the indirect parent of their manager, changes in investor perception regarding our focus or alignment of interest, dissatisfaction with changes in or broadening of a fund's investment strategy, changes in our reputation, and departures or changes in responsibilities of key investment professionals. In a declining financial market, the pace of redemptions and consequent reduction in our fee paying assets under management could accelerate. The decrease in our revenues that would result from significant redemptions in our hedge fund business would have a material adverse effect on our business.

The annual return of capital request date for our flagship credit hedge fund occurs in October and our credit hedge funds received return of capital requests from fee paying investors for a total of $0.8 billion, $0.2 billion and $0.2 billion for the years ended December 31, 2015, 2014 and 2013, respectively. Our liquid hedge funds received redemption requests from fee paying investors for a total of $2.6 billion, $2.2 billion and $1.0 billion during the years ended December 31, 2015, 2014 and 2013, respectively. In addition, we closed our Fortress Macro Funds and related managed accounts at the end of 2015, which reduced our AUM and therefore our management fees and may impact our reputation. Investors in our credit hedge funds are permitted to request that their capital be returned generally on an annual basis, and such returns of capital may be paid over time as the underlying investments are liquidated, in accordance with the governing documents of the applicable funds. See "— Assets Under Management —Redemptions."

In addition, the investors in our private equity funds, credit PE funds and certain hedge funds may, subject to certain conditions, act at any time to accelerate the liquidation date of the fund without cause, resulting in a reduction in management fees we earn from such funds and a significant reduction in the amounts of total incentive income we could earn from those funds. See “-Our removal as the investment manager, or the liquidation, of one or more of our funds could have a material adverse effect on our

business, results of operations and financial condition.” Incentive income could be significantly reduced as a result of our inability to maximize the value of a fund's investments in a liquidation. The occurrence of such an event with respect to any of our funds would, in addition to the significant negative impact on our revenue and earnings, likely result in significant reputational damage as well.

A significant decline in AUM could result in one or more defaults under certain fund agreements, which could negatively impact our business.

Our funds have various agreements that create debt or debt-like obligations (such as repurchase arrangements, ISDAs, credit default swaps and total return swaps, among others) with a material number of counterparties. Such agreements in many instances contain covenants or “triggers” that require our funds to maintain specified amounts of AUM. In particular, many such covenants to which our hedge funds are party are designed to protect against sudden and pronounced drops in AUM over specified periods, so if our funds were to receive larger-than-anticipated redemption requests during a period of poor performance, such covenants may be breached. Decreases in such funds' AUM (whether due to performance, redemption, or both) that breach such covenants may result in defaults under such agreements, and such defaults could permit the counterparties to take various actions that would be adverse to the funds, including terminating the financing arrangements, increasing the amount of margin or collateral that the funds are required to post (so-called “supercollateralization” requirements) or decreasing the aggregate amount of leverage that such counterparty is willing to provide to our funds. Defaults under any such covenants would be likely to result in the affected funds being forced to sell financed assets (which sales would presumably occur in suboptimal or distressed market conditions) or otherwise raise cash by reducing other leverage, which would reduce the funds' returns and our opportunities to produce incentive income from the affected funds.

Many of our funds invest in high-risk, illiquid assets that often have significantly leveraged capital structures, and we may fail to realize any profits from these activities for a considerable period of time or lose some or all of the principal amount we invest in these activities.

Many of our funds invest in securities, loans or other assets that are not publicly traded. In many cases, our funds may be prohibited by contract or by applicable securities laws from selling such securities for a period of time. Our funds will generally not be able to sell these securities publicly unless their sale is registered under applicable securities laws, or unless an exemption from such registration requirements is available. The ability of many of our funds, particularly our private equity style funds, to dispose of investments is heavily dependent on the public equity markets, inasmuch as our ability to realize any value from an investment may depend upon our ability to sell equity of the portfolio company in the public equity markets through an initial public offering or secondary public offering of shares of the portfolio company in which such investment is held. Furthermore, large holdings even of publicly traded equity securities can often be disposed of only over a substantial period of time, exposing the investment returns to risks of downward movement in market prices during the disposition period. Accordingly, our funds may be forced to sell securities at a loss under certain conditions. The illiquid nature of many of our funds' assets may also negatively affect a fund's ability to retain sufficient liquidity to satisfy its obligations as they become due. As a result, a fund with illiquid assets may be unable, for example, to generate sufficient liquidity to pay the management fees or other amounts due to the manager, which would, in turn, reduce the amounts we receive from our funds, thereby reducing the amount of funds available to us to satisfy our obligations, including any obligations under our credit agreement.

In addition, many of our funds invest in businesses with capital structures that have significant leverage. The large amount of borrowing in the leveraged capital structure of such businesses increases the risk of losses due to factors such as rising interest rates, downturns in the economy or deteriorations in the condition of the investment or its industry. In the event of defaults under borrowings, the assets being financed would be at risk of foreclosure, and the fund could lose its entire investment.

Our funds are subject to risks due to potential illiquidity of assets and leverage of capital structure.

Our funds may make investments or hold trading positions in markets that are volatile and which may be illiquid. Timely divestiture or sale of trading positions can be impaired by decreased trading volume, increased price volatility, concentrated trading positions, limitations on the ability to transfer positions in highly specialized or structured transactions to which we may be a party, and changes in industry and government regulations. When a fund holds a security or position it is vulnerable to price and value fluctuations and may experience losses to the extent the value of the position decreases and it is unable to timely sell, hedge or transfer the position. Therefore, it may be impossible or costly for our funds to liquidate positions rapidly, particularly if the relevant market is moving against a position or in the event of trading halts or daily price movement limits on the market or otherwise. Alternatively, it may not be possible in certain circumstances for a position to be purchased or sold promptly, particularly if there is insufficient trading activity in the relevant market or otherwise.

In addition, the funds we manage may operate with a substantial degree of leverage. They may borrow, invest in derivative instruments and purchase securities using borrowed money, so that the positions held by the funds may in aggregate value exceed the NAV of the funds. This leverage creates the potential for higher returns, but also increases the volatility of a fund, including the risk of a total loss of the amount invested. In addition, our private equity funds have historically leveraged some of their investments in order to return capital to investors earlier than would have otherwise been possible without a sale of the asset. In many such cases, such debt was secured by publicly-traded stock of portfolio companies. To the extent that the value of such collateral decreases due to decreases in the share price of such portfolio companies, our funds may be subject to margin calls that require them to call additional capital from investors, sell assets or otherwise take actions that decrease the overall return of the impacted funds. Such actions would result in overall decreased revenues for us and a lower likelihood of generating incentive income from the affected investments.

The risks identified above will be increased if a fund is required to rapidly liquidate positions to meet redemption requests, margin requests, margin calls or other funding requirements on that position, fully unwind or otherwise. The inability to rapidly sell positions due to a lack of liquidity has historically been the cause of substantial losses in the hedge fund industry. The ability of counterparties to force liquidations following losses or a failure to meet a margin call can result in the rapid sale of highly leveraged positions in declining markets, which would likely subject our hedge funds to substantial losses. We may fail to adequately predict the liquidity that our funds require to address counterparty requirements due to falling values of fund investments being financed by such counterparties, which could result not only in losses related to such investments, but in losses related to the need to liquidate unrelated investments in order to meet the fund's obligations. Our funds may incur substantial losses in the event significant capital is invested in highly leveraged investments or investment strategies. Such losses would result in a decline in AUM, lead to investor requests to redeem remaining AUM (in the case of our hedge funds), and damage our reputation, each of which would materially and adversely impact our earnings.

Valuation methodologies for certain assets in our funds can be subject to significant subjectivity, and the values of assets established pursuant to such methodologies may never be realized, which could result in significant losses for our funds.

There are no readily-ascertainable market prices for a very large number of illiquid investments in our private equity funds and credit PE funds and, to a lesser extent, credit hedge funds as well as a small number of so‑called “sidepocket” investments in our liquid hedge funds. The fair value of such investments of our funds is determined periodically by us based on the methodologies described in the funds' valuation policies. These policies are based on a number of factors, including the nature of the investment, the expected cash flows from the investment, bid or ask prices provided by third parties for the investment, the length of time the investment has been held, the trading price of securities (in the case of publicly traded securities), restrictions on transfer and other recognized valuation methodologies. The methodologies we use in valuing individual investments are based on a variety of estimates and assumptions specific to the particular investments, and actual results related to the investment therefore often vary materially from such assumptions or estimates. In addition, because many of the illiquid investments held by our funds are in industries or sectors that are unstable, in distress, or in the midst of some uncertainty, such investments are subject to rapid changes in value caused by sudden company-specific or industry-wide developments. Moreover, in many markets, transaction flow is further limited by uncertainty about accurate asset valuations, which may cause hedge fund investors to become concerned about valuations of funds that have illiquid or hard-to-value assets. This concern may lead to increased redemptions by investors irrespective of the performance of the funds. In addition, uncertainty about asset values on redemptions from our investments in our hedge funds may lead to an increased risk of litigation by investors over NAVs.

Because there is significant uncertainty in the valuation of, or in the stability of the value of, illiquid investments, the fair values of such investments as reflected in a fund's NAV do not necessarily reflect the prices that would actually be obtained by us on behalf of the fund when such investments are sold. Realizations at values significantly lower than the values at which investments have been reflected in fund NAVs would result in losses for the applicable fund, a decline in management fees and the loss of potential incentive income. Also, a situation where asset values turn out to be materially different than values reflected in fund NAVs could cause investors to lose confidence in us, which would, in turn, result in redemptions from our hedge funds or difficulties in raising additional private equity funds and credit PE funds. The SEC has highlighted valuation practices as one of its areas of focus in investment adviser examinations and has instituted enforcement actions against private equity fund advisers for misleading investors about valuation.

Certain of our funds utilize special situation, distressed debt, mortgage-backed and short-selling investment strategies that involve significant risks.

Our private equity and credit funds, permanent capital vehicles and hedge funds invest in obligors and issuers with weak financial conditions, poor operating results, substantial financial needs, negative net worth, and/or special competitive problems and/or securities that are illiquid, distressed, tied to real estate or have other high-risk features. These funds also invest in obligors and issuers that are involved in bankruptcy or reorganization proceedings. It may be difficult to obtain complete information as to the

exact financial and operating conditions of these obligors and issuers. Additionally, the fair values of such investments are subject to abrupt and erratic market movements and significant price volatility if they are widely traded securities and significant uncertainty in general if they are not widely traded securities or have no recognized market. A fund's or vehicle’s exposure to such investments may be substantial in relation to the market for those investments, and the assets are likely to be illiquid and difficult to sell or transfer. As a result, it may take a number of years for the fair value of such investments to ultimately reflect their intrinsic value as perceived by us. For example, several of our funds and permanent capital vehicles from time to time make significant investments in mortgage-backed securities and other investments that are directly or indirectly related to the value of real estate in various locations globally, particularly in the United States. As a result, the results of a number of our funds and permanent capital vehicles have been, and may continue to be affected, in some cases materially, by fluctuations in the value of real estate and real estate related investments. Such fluctuations could have a meaningful impact on the performance of the applicable fund or vehicle and potentially on our operating results.

A central feature of our distressed investment strategy is our ability to successfully predict the occurrence of events such as mortgage default rates, mortgage prepayment rates, the amounts of any prepayments, maturity extensions, interest rates for mortgage-backed securities and similar instruments as well as corporate events such as capital raises, restructurings, reorganizations, mergers and other transactions. Predicting any of these data points is difficult and subject to uncertainty, and if our analyses are inaccurate, the actual results of such investments could be materially lower than expected and the applicable fund's investment results could decline sharply.

In addition, these investments could subject our private equity, credit PE funds, permanent capital vehicles and hedge funds to certain potential additional liabilities that may exceed the value of their original investment. Under certain circumstances, payments or distributions on certain investments may be reclaimed if any such payment or distribution is later determined to have been a fraudulent conveyance, a preferential payment or similar transaction under applicable bankruptcy and insolvency laws. In addition, under certain circumstances, a lender that has inappropriately exercised control of the management and policies of a debtor may have its claims subordinated or disallowed, or may be found liable for damages suffered by parties as a result of such actions. In the case where the investment in securities of troubled companies is made in connection with an attempt to influence a restructuring proposal or plan of reorganization in bankruptcy, our funds may become involved in substantial litigation.

Furthermore, our funds may engage in short-selling, which is subject to the theoretically unlimited risk of loss because there is no limit on how much the price of a security may appreciate before the short position is closed out. A fund may be subject to losses if a security lender demands return of the lent securities and an alternative lending source cannot be found or if the fund is otherwise unable to borrow securities that are necessary to hedge its positions.

If our risk management systems for our fund business are ineffective, we may be exposed to material unanticipated losses.

In our fund business, we continue to refine our risk management techniques, strategies and assessment methods. However, our risk management techniques and strategies do not fully mitigate the risk exposure of our funds in all economic or market environments, or against all types of risk, including risks that we might fail to identify or anticipate. Some of our strategies for managing risk in our funds are based upon our use of historical market behavior statistics. We apply statistical and other tools to these observations to measure and analyze the risks to which our funds are exposed. Any failures in our risk management techniques and strategies to accurately quantify such risk exposure could limit our ability to manage risks in the funds or to seek adequate risk-adjusted returns. In addition, any risk management failures could cause fund losses to be significantly greater than the historical measures predict. Further, our mathematical modeling does not take all risks into account. Our more qualitative approach to managing those risks could prove insufficient, exposing us to material unanticipated losses.

We participate in large-sized investments, which involve certain complexities and risks that are not encountered in small- and medium-sized investments.

Our funds participate in large transactions from time to time. The increased size of these investments involves certain complexities and risks that may not be encountered in small- and medium-sized investments. For example, larger transactions may be more difficult to finance and complete, and exiting larger deals may present challenges in many cases. In addition, larger transactions may entail greater scrutiny by regulators, labor unions, political bodies and other third parties and greater risk of litigation. Any of these factors could increase the risk that our larger investments could be unsuccessful. The consequences to our funds of an unsuccessful larger investment could be more severe than those of a smaller investment.

Our investment funds often make investments in companies that we do not control and the affiliated manager platform will involve having interests in funds that we do not control.

Investments by most of our investment funds will include debt instruments and equity securities of companies that we do not control. Such instruments and securities may be acquired by our investment funds through trading activities or through purchases of securities from the issuer. In addition, our private equity funds and credit funds may acquire debt investments or minority equity interests and may also dispose of a portion of their majority equity investments in portfolio companies over time in a manner that results in the investment funds retaining a minority investment. In addition, we launched the affiliated manager platform that involves taking a non-control economic interest in autonomous fund management businesses under a fee-for-services model for infrastructure services. In January 2015, the Fortress Asia Macro Funds transitioned into an autonomous business with Fortress as a non-control partner and Fortress is currently providing infrastructure services through its affiliated manager platform. The typical affiliated manager platform participant will pay fees to Fortress for support services in addition to Fortress having a significant minority ownership stake in the general partner and/or manager. Those investments will be subject to increased risk that the entity in which the investment is made may make business, financial or management decisions with which we do not agree or that the majority stakeholders or the management of the entity may take risks or otherwise act in a manner that does not serve our interests. If any of the foregoing were to occur, the values of investments by our investment funds and the fees we earn from the affiliated manager business could decrease, and our financial condition, results of operations and cash flow could suffer as a result.

Some of our funds invest in foreign countries and securities of issuers located outside of the United States, which involves foreign exchange, political, social, regulatory and economic uncertainties and risks.

Some of our funds invest a portion of their assets in the equity, debt, loans or other securities of issuers located outside the United States, which may entail risks that are not typically associated with an investment in a U.S. issuer. In addition to business uncertainties, such investments may be affected by changes in currency exchange values, including currencies in the Asia-Pacific region and the Euro. Instability of the Eurozone, including fears of sovereign debt defaults, and stagnant growth generally, and of certain Eurozone member states in particular, have resulted in concerns regarding the suitability of a shared currency for the region, which could lead to the reintroduction of individual currencies for member states. If this were to occur, Euro-denominated assets and liabilities of certain of our funds would be redenominated to such individual currencies, which could result in a mismatch in the values of assets and liabilities and expose us and certain of our funds to additional currency risks. Even if the Euro is maintained, continued concerns regarding the stability of the Eurozone and the potential effects of government intervention intended to address it could materially adversely affect our business.

Foreign investments and operations may also expose us to political, social, regulatory and economic uncertainties affecting a country or region, or to political hostility to investments by foreign or private equity investors. Many financial markets are not as developed or as efficient as those in the United States, and as a result, liquidity may be reduced and price volatility may be higher in those markets than in more developed markets. The legal and regulatory environment may also be different, particularly with respect to bankruptcy and reorganization, and may afford us less protection as a creditor than we may be entitled to under U.S. law. Financial accounting standards and practices may differ, and there may be less publicly available information in respect of such companies.

Restrictions imposed or actions taken by foreign governments could include exchange controls, seizure or nationalization of foreign deposits and adoption of other governmental restrictions which adversely affect the prices of securities or the ability to repatriate profits on investments or even the capital invested, which may adversely impact the value of our fund investments. In addition, income received by our funds from sources in some countries may be reduced by withholding and other taxes. Any such taxes paid by a fund will reduce the net income or return from such investments. While we will take these factors into consideration in making investment decisions, including when hedging positions, no assurance can be given that the funds will be able to fully avoid these risks or generate sufficient risk-adjusted returns.

Investments by our funds will frequently rank junior to investments made by others in the same company.

In most cases, the companies in which our investment funds invest will have indebtedness or equity securities, or may be permitted to incur indebtedness or to issue equity securities, that rank senior to our investment. By their terms, such instruments may provide that their holders are entitled to receive payments of dividends, interest or principal on or before the dates on which payments are to be made in respect of our fund's investment. Also, in the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a company in which an investment is made, holders of securities ranking senior to our investment would typically be entitled to receive payment in full before distributions could be made in respect of our investment. After repaying senior security holders, the company may not have any remaining assets to use for repaying amounts owed in respect of our fund's investment. To the extent that any assets remain, holders of claims that rank equally with our investment would be entitled to share on an equal and

ratable basis in distributions that are made out of those assets. Also, during periods of financial distress or following an insolvency, the ability of our investment funds to influence a company's affairs and to take actions to protect their investments may be substantially less than that of the senior creditors.

Fund investments are subject to risks relating to investments in commodities, futures, options and other derivatives.

Fund investments are subject to risks relating to investments in commodities, futures, options and other derivatives, the prices of which are highly volatile and may be subject to the theoretically unlimited risk of loss in certain circumstances, including if the fund writes a call option. Price movements of commodities, futures and options contracts and payments pursuant to swap agreements are influenced by, among other things, interest rates, changing supply and demand relationships, trade, fiscal, monetary and exchange control programs and policies of governments and national and international political and economic events and policies. The value of futures, options and swap agreements also depends upon the price of the commodities underlying them. In addition, hedge funds' assets are subject to the risk of the failure of any of the exchanges on which their positions trade or of their clearinghouses or counterparties. Most U.S. commodities exchanges limit fluctuations in certain commodity interest prices during a single day by imposing “daily price fluctuation limits” or “daily limits,” the existence of which may reduce liquidity or effectively curtail trading in particular markets. Dodd-Frank also gives rise to a substantial set of new rules focused on the use of derivatives, which when fully formulated and enacted will likely require modification of business practices to comply with new regulations, increase costs of operating in the financial markets and impose restrictions on activities in these markets. For additional information on the potential impacts of Dodd-Frank regulations see “The U.S. government’s increased focus on the regulation of the financial services industry may adversely affect our business.”

We have been engaged as the investment manager or co-manager of third-party investment funds and managed accounts, and we may be engaged as the investment manager or co-manager of other third-party investment funds or managed accounts in the future, and each such engagement exposes us to a number of potential risks.

Changes within the alternative asset management industry may cause investors of some funds to replace their existing fund or managed account managers or may cause certain such managers to resign. In such instances, we may seek to be engaged as investment manager of these funds or accounts. For example, in 2009, we became the investment manager of certain investment funds and accounts previously managed by D.B. Zwirn & Co., L.P. Investment managers may also seek to partner with us to co-manage their funds. In 2015, we became co-manager of the Mount Kellett investment funds and related managed accounts.

While being engaged as investment manager or co-manager of third-party funds or accounts potentially enables us to grow our business, it also entails a number of risks that could harm our reputation, results of operations and financial condition. For example, we may choose not to, or be unable to, conduct significant due diligence of the fund and its investments, and any diligence we undertake may not reveal all relevant facts that may be necessary or helpful in evaluating such engagement. We may be unable to complete such transactions, which could harm our reputation and subject us to costly litigation. We may willingly or unknowingly assume actual or contingent liabilities for significant expenses, we may become subject to new laws and regulations with which we are not familiar, and we may become subject to increased risk of litigation, regulatory investigation or negative publicity. For example, we have been named as a defendant in various lawsuits relating to the Zwirn portfolio, and as part of our role as manager, we may incur time and expense in defending these and any similar future litigation. In addition to defending against litigation, being engaged as investment manager or co-manager may require us to invest significant capital and other resources for various other reasons, which could detract from our existing funds or our ability to capitalize on future opportunities. In addition, being engaged as investment manager or co-manager may require us to integrate complex technological, accounting and management systems, which may be difficult, expensive and time-consuming and which we may not be successful in integrating into our current systems. If we include the financial performance of funds for which we have been engaged as the investment manager or co-manager in our public filings, we are subject to the risk that, particularly during the period immediately after the engagement, this information may prove to be inaccurate or incomplete. The occurrence of any of these negative integration events could negatively impact our reputation with both regulators and investors, which could, in turn, subject us to additional regulatory scrutiny and impair our relationships with the investment community. The occurrence of any of these problems could negatively affect our reputation, financial condition and results of operations.

We are subject to risks in using prime brokers, custodians and other financial intermediaries.

The funds in our hedge fund business depend on the services of prime brokers and custodians to carry out certain securities transactions. In the event of the insolvency of a prime broker and/or custodian, the funds might not be able to recover equivalent assets in full as they will rank among the prime broker's and custodian's unsecured creditors in relation to assets which the prime broker or custodian borrows, lends or otherwise uses. In addition, the funds' cash held with a prime broker or custodian will not be segregated from the prime broker's or custodian's own cash, and the funds will therefore rank as unsecured creditors in relation to the cash they have deposited. In addition, credit risk may arise through a default by one of several large institutions that are

dependent on one another to meet their liquidity or operational needs, so that a default by one institution causes a series of defaults by the other institutions. This “systemic risk” may adversely affect the financial intermediaries (such as clearing agencies, clearing houses, banks, investment banks, securities firms and exchanges) with which the funds interact on a daily basis.

Risks Related to Our Organization and Structure

Concentrated ownership by our principals of the combined voting power of our shares and holding their economic interest through Fortress Operating Group may give rise to conflicts of interests.

Our principals currently control 44.1% of the combined voting power of our outstanding Class A and Class B shares. Accordingly, our principals have significant influence over our management and affairs. In addition, they are able to significantly influence the outcome of matters requiring shareholder approval and a change of control of our Company or a change in the composition of our board of directors, and could preclude any unsolicited acquisition of our Company. The concentration of voting power in our principals could deprive Class A shareholders of an opportunity to receive a premium for their Class A shares as part of a sale of our Company, and might ultimately affect the market price of the Class A shares. In addition, in February 2016 our board of directors authorized the company to repurchase up to $100.0 million in cash of our outstanding shares, either through open market purchases, tender offers or other means. On February 5, 2016, we launched a tender offer to repurchase up to $100.0 million in cash of our Class A shares. If we were to successfully close the tender offer and purchase the maximum amount of Class A shares at the low end of the price range, this would result in our principals controlling 47.5% of the combined voting power of our outstanding Class A and Class B shares.

In addition, the shareholders agreement among us and the principals provides the principals, who are then employed by the Fortress Operating Group, so long as the principals and their permitted transferees continue to hold more than 40% of the total combined voting power of our outstanding Class A and Class B shares, with the right to cause the board of directors to nominate individuals designated by such principals such that such principals will have five designees on the board of directors and with approval rights over a variety of significant corporate actions, including:


•	ten percent indebtedness: any incurrence of indebtedness, in one transaction or a series of related transactions, by us or any of our subsidiaries in an amount in excess of approximately 10% of the then existing long-term indebtedness of us and our subsidiaries;

•

ten percent share issuance: any issuance by us, in any transaction or series of related transactions, of equity or equity-related securities that would represent, after such issuance, or upon conversion, exchange or exercise, as the case may be, at least 10% of the total combined voting power of our outstanding Class A and Class B shares other than (1) pursuant to transactions solely among us and our wholly owned subsidiaries, or (2) upon conversion of convertible securities or upon exercise of warrants or options, which convertible securities, warrants or options are either outstanding on the date of, or issued in compliance with, the shareholders agreement;


•	investment of $250 million or more: any equity or debt commitment or investment or series of related equity or debt commitments or investments in an entity or related group of entities in an amount equal to or greater than $250 million;


•	new business requiring investment in excess of $100 million: any entry by us or any of our controlled affiliates into a new line of business that does not involve investment management and that requires an investment in excess of $100 million;


•	the adoption of a shareholder rights plan;


•	any appointment of a chief executive officer or co-chief executive officer; or


•	the termination without cause of the employment of a principal with us or any of our material subsidiaries.

Furthermore, the principals have certain consent rights with respect to structural changes involving our Company.

Because our principals primarily hold their economic interests in our business directly through Fortress Operating Group, rather than through the public company, they may have conflicting interests with holders of Class A shares. For example, our principals may have different tax positions from us, which could influence their decisions regarding whether and when to dispose of assets, and whether and when to incur new or refinance existing indebtedness, especially in light of the tax receivable agreement. In addition, the structuring of future transactions may take into consideration the principals' tax considerations even where no similar benefit would accrue to us. Moreover, any distribution by Fortress Operating Group to us to satisfy our tax obligations or to make payments to our principals under the tax receivable agreement will result in a corresponding pro rata distribution to our principals. Our principals are also entitled to distributions on their Fortress Operating Group units in respect of their tax obligations as holders of Fortress Operating Group units. As a result of the foregoing, amounts may be distributed to the holders of the Fortress Operating Group units that are greater in the aggregate, or are distributed earlier in time, than distributions that are made to holders of Class A shares (on a per share basis).

Our ability to pay regular dividends may be limited by our holding company structure; we are dependent on distributions from the Fortress Operating Group to pay dividends, taxes and other expenses. Our ability to pay dividends is also subject to not defaulting on our credit agreement.

As a holding company, our ability to pay dividends is subject to the ability of our subsidiaries to provide cash to us. When we declare a dividend on our Class A shares, we generally expect to cause Fortress Operating Group to make distributions to its unitholders, including our wholly-owned subsidiaries, pro rata in an amount sufficient to enable us to pay such dividends to our Class A shareholders. However, no assurance can be given that such distributions will or can be made. Our board can reduce or eliminate our dividend at any time, in its discretion. For example, our board determined not to pay any dividend to our Class A shareholders from the third quarter of 2008 through the third quarter of 2011. Our board has elected to resume quarterly dividends, beginning with the fourth quarter of 2011. In addition, Fortress Operating Group is required to make minimum tax distributions to its unitholders. See also “- Risks Related to Taxation - There can be no assurance that amounts paid as dividends on Class A shares will be sufficient to cover the tax liability arising from ownership of Class A shares.” If Fortress Operating Group has insufficient funds, we may have to borrow additional funds or sell assets, which could materially adversely affect our liquidity and financial condition. In addition, Fortress Operating Group's earnings may be insufficient to enable it to make required minimum tax distributions to unitholders. Furthermore, our Board of Directors may choose to utilize funds that would otherwise be available to pay dividends on our Class A shares for other uses, such as share repurchases. For example, in November 2015, we repurchased a portion of our equity for $255.7 million from a retiring principal, and in February 2016 we announced a tender offer to repurchase up to $100.0 million of our Class A shares.

We are also subject to certain contingent repayment obligations that may affect our ability to pay dividends. We earn incentive income - generally 20% of the profits - from each of our private equity funds and credit PE funds based on a percentage of the profits earned by the fund as a whole, provided that the fund achieves specified performance criteria. We generally receive, however, our percentage share of the profits on each investment in the fund as it is realized, before it is known with certainty that the fund as a whole will meet the specified criteria. As a result, the incentive income paid to us as a particular investment made by the funds is realized is subject to contingent repayment (or “clawback”) if, upon liquidation of the fund, the aggregate amount paid to us as incentive income exceeds the amount actually due to us based upon the aggregate performance of the fund. If we are required to repay amounts to a fund in order to satisfy a clawback obligation, any such repayment will reduce the amount of cash available to distribute as a dividend to our Class A shareholders. While the principals have personally guaranteed, subject to certain limitations, this ''clawback'' obligation related to certain funds, we have agreed to indemnify the principals for all amounts that the principals pay pursuant to any of these personal guarantees in favor of such funds. Consequently, any requirement to satisfy a clawback obligation could impair our ability to pay dividends on our Class A shares. In February 2016, we made a payment of $66.9 million for Fortress Investment Fund III in connection with such a clawback obligation.

There may also be circumstances under which we are restricted from paying dividends under applicable law or regulation (for example due to Delaware limited partnership or limited liability company act limitations on making distributions if liabilities of the entity after the distribution would exceed the value of the entity's assets). In addition, under our credit agreement, the ability of the loan parties thereunder and certain of our other subsidiaries to make cash distributions is subject to certain restrictions, including the following restriction: no default exists at the time of declaration or event of default exists at the time of payment or immediately after giving effect thereto. Such restrictions on certain of our subsidiaries may in turn limit our ability to make cash distributions. The events of default under the credit agreement are typical of such agreements and include payment defaults, failure to comply with credit agreement covenants (including a leverage covenant that is negatively affected by realized losses), cross-defaults to material indebtedness, bankruptcy and insolvency and change of control.

Tax consequences to the principals may give rise to conflicts of interests.

As a result of unrealized built-in gain attributable to the value of our assets held by the Fortress Operating Group entities at the time of our initial public offering, or as a result of other differences between the tax attributes of our principals and the Fortress Operating Group entities, upon the sale, refinancing or disposition of the assets owned by the Fortress Operating Group entities, our principals will incur different and significantly greater tax liabilities as a result of the disproportionately greater allocations of items of taxable income and gain to the principals upon a realization event. As the principals will not receive a corresponding greater distribution of cash proceeds, they may, subject to applicable fiduciary or contractual duties, have different incentives regarding the appropriate pricing, timing and other material terms of any sale, refinancing, or disposition, or whether to sell such assets at all. Decisions made with respect to an acceleration or deferral of income or deductions or the sale or disposition of assets may also influence the timing and amount of payments that are received by an exchanging or selling principal under the tax receivable agreement. All other factors being equal, earlier disposition of assets following a transaction will tend to accelerate such payments and increase the present value of the tax receivable agreement, and disposition of assets before a transaction will increase a principal's tax liability without giving rise to any rights to receive payments under the tax receivable agreement. Decisions made regarding a change of control also could have a material influence on the timing and amount of payments received by the principals pursuant to the tax receivable agreement.

We are required to pay our principals for most of the tax benefits we realize as a result of the tax basis step-up we receive in connection with taxable exchanges by our principals of units held in the Fortress Operating Group entities or our acquisitions of units from our principals.

At any time and from time to time, each of our principals and a former senior employee (who is not a principal) has the right to exchange his Fortress Operating Group units for our Class A shares in a taxable transaction. These taxable exchanges, as well as our acquisitions of units from our principals, may result in increases in the tax depreciation and amortization deductions, as well as an increase in the tax basis of other assets, of the Fortress Operating Group that otherwise would not have been available. These increases in tax depreciation and amortization deductions, as well as the tax basis of other assets, may reduce the amount of tax that FIG Corp. and any other corporate taxpayers would otherwise be required to pay in the future, although the IRS may challenge all or part of increased deductions and tax basis increase, and a court could sustain such a challenge.

We have entered into a tax receivable agreement with our principals that provides for the payment by the corporate taxpayers to our principals of 85% of the amount of tax savings, if any, that the corporate taxpayers actually realize (or are deemed to realize in the case of an early termination payment by the corporate taxpayers or a change of control, as discussed below) as a result of increases in tax deductions and tax basis of the Fortress Operating Group caused by such transactions with the principals. The payments that the corporate taxpayers may make to our principals could be material in amount.

Although we are not aware of any issue that would cause the IRS to challenge a tax basis increase, our principals will not reimburse the corporate taxpayers for any payments that have been previously made under the tax receivable agreement. As a result, in certain circumstances, payments could be made to our principals under the tax receivable agreement in excess of the corporate taxpayers' cash tax savings. The corporate taxpayers' ability to achieve benefits from any tax basis increase, and the payments to be made under this agreement, will depend upon a number of factors, including the timing and amount of our future income.

In addition, the tax receivable agreement provides that, upon a merger, asset sale or other form of business combination or certain other changes of control, the corporate taxpayers' (or their successors') obligations with respect to exchanged or acquired units (whether exchanged or acquired before or after such change of control) would be based on certain assumptions, including that the corporate taxpayers would have sufficient taxable income to fully utilize the deductions arising from the increased tax deductions and tax basis and other benefits related to entering into the tax receivable agreement.

If we were deemed an investment company under the Investment Company Act, applicable restrictions could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business and the price of our Class A shares.

We do not believe that we are an “investment company” under the Investment Company Act because the nature of our assets and the sources of our income exclude us from the definition of an investment company pursuant to Rule 3a-1 under the Investment Company Act. In addition, we believe we are not an investment company under Section 3(b)(1) of the Investment Company Act because we are primarily engaged in a non-investment company business. If one or more of the Fortress Operating Group entities ceased to be a wholly owned subsidiary of ours as such term is defined in the Investment Company Act, our interests in those subsidiaries could be deemed an “investment security” for purposes of the Investment Company Act. Generally, a person is an “investment company” if it owns investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. We intend to conduct our operations so that we will not be deemed an investment company. However, if we were to be deemed an investment company, restrictions imposed by the Investment Company Act, including limitations on our capital structure and our ability to transact with affiliates, could make it impractical for us to continue our business as contemplated and would have a material adverse effect on our business and the price of our Class A shares.

Risks Related to Our Class A Shares

The market price and trading volume of our Class A shares may be volatile, which could result in rapid and substantial losses for our shareholders.

The market price of our Class A shares may be highly volatile. In addition, the trading volume in our Class A shares may fluctuate and cause significant price variations to occur, which may limit or prevent investors from readily selling their Class A shares and may otherwise negatively affect the liquidity of our Class A shares. If the market price of our Class A shares declines significantly, holders may be unable to resell their Class A shares at or above their purchase price, if at all. We cannot provide any assurance

that the market price of our Class A shares will not fluctuate or decline significantly in the future. Some of the factors that could negatively affect the price of our Class A shares or result in fluctuations in the price or trading volume of our Class A shares include:


•	variations in our quarterly operating results or dividends, or a reversal of our recent history of paying quarterly dividends;


•	failure to meet analysts' earnings estimates;


•	sales by the Company, key executives or other shareholders of a significant amount of our equity securities, including sales to cover withholding taxes with respect to equity-based compensation;


•	difficulty in complying with the provisions in our credit agreement such as financial covenants;


•	publication of research reports or press reports about us, our investments or the investment management industry or the failure of securities analysts to cover our Class A shares;


•	additions or departures of our principals and other key management personnel or lack of certainty about our principals' employment agreements, whose term ends in January 2017;


•	closure of funds, including the Fortress Macro Funds and related managed accounts;


•	adverse market reaction to any indebtedness we may incur or securities we may issue in the future;


•	actions by shareholders;


•	changes in market valuations and performance or share price of other alternative asset managers;


•	speculation in the press or investment community;


•	changes or proposed changes in laws or regulations or differing interpretations thereof affecting our business or enforcement of these laws and regulations, or announcements relating to these matters;


•	litigation or governmental investigations or regulatory activities;


•	poor performance or other complications affecting our funds or current or proposed investments;


•	adverse publicity about the asset management industry generally, our specific funds or investments, or individual scandals, specifically;


•	general market and economic conditions; and


•	dilution resulting from the issuance of equity-based compensation to employees.

In addition, when the market price of a stock has been volatile in the past, holders of that stock have, at times, instituted securities class action litigation against the issuer of the stock. If any of our shareholders brought a lawsuit against us, we may be required to incur substantial costs defending any such suit, even those without merit. Such a lawsuit could also divert the time and attention of our management from our business and lower our Class A share price.

Our Class A share price may decline due to the large number of shares eligible for future sale and for exchange into Class A shares.

The market price of our Class A shares could decline as a result of sales of a large number of our Class A shares or the perception that such sales could occur. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and price that we deem appropriate. As of December 31, 2015, we had 407,554,334 outstanding Class A shares on a fully diluted basis, including 101,066,240 resulting from vested equity compensation granted pursuant to our equity incentive plan, 21,249,447 restricted Class A share units granted to employees and affiliates pursuant to our equity incentive plan (net of forfeitures), 1,177,392 restricted Class A shares granted to directors pursuant to our equity incentive plan. As of December 31, 2015, 58,100,769 Class A shares remained available for future grant under our equity incentive plan. The Class A shares reserved under our equity incentive plan is increased on the first day of each fiscal year during the plan's term by the lesser of (x) the excess of (i) 15% of the number of outstanding Class A and Class B shares of the Company on the last day of the immediately preceding fiscal year over (ii) the number of shares reserved and available for issuance under our equity incentive plan as of such date or (y) 60,000,000 shares. In January 2016 and 2015, the number of shares reserved for issuance pursuant to this calculation did not increase. In January 2014, the number of shares reserved for issuance pursuant to this calculation increased by 8,174,614. We may issue and sell in the future additional Class A shares or any securities issuable upon conversion of or exchange or exercise for, Class A shares (including Fortress Operating Group units) at any time.

As of December 31, 2015, our principals directly owned an aggregate of 169,207,335 Fortress Operating Group units and also owned an aggregate of 1,611,935 Class A shares (excluding Mr. Novogratz). Each principal has the right to exchange each of his directly owned Fortress Operating Group units for one of our Class A shares at any time, subject to the exchange agreement. These Class A shares and Fortress Operating Group units are eligible for resale from time to time, subject to certain contractual restrictions and Securities Act limitations. Mr. Novogratz, a principal, officer and director of Fortress retired effective January 2016. In November 2015, we purchased from Mr. Novogratz 56,817,035 Fortress Operating Group units and corresponding Class B shares at $4.50 per share, or an aggregate purchase price of $255.7 million. Subsequent to December 31, 2015, we issued 1.6 million Class A shares to a principal in connection with the vesting of dividend paying RSUs (excluding the issuance of 0.6 million Class A shares to Mr. Novogratz in connection with the vesting of dividend paying RSUs).

Our principals are parties to shareholders agreements with us. The principals have the ability to cause us to register the Class A shares they acquire upon exchange for their Fortress Operating Group units and we have filed a shelf registration statement for that purpose.

Concentrated ownership of our Class B shares and anti-takeover provisions in our charter documents and Delaware law could delay or prevent a change in control.

Our principals (and a former senior employee) beneficially own all of our Class B shares. Class B shares currently represent 43.4% of the total combined voting power of our outstanding Class A and Class B shares. As a result, if they vote all of their shares in the same manner, they will be able to significantly influence matters requiring the approval of shareholders and a change in control of our Company. In addition, provisions in our operating agreement may make it more difficult and expensive for a third party to acquire control of us even if a change of control would be beneficial to the interests of our shareholders. For example, our operating agreement provides for a staggered board, requires advance notice for proposals by shareholders and nominations, places limitations on convening shareholder meetings, and authorizes the issuance of preferred shares that could be issued by our board of directors to thwart a takeover attempt. In addition, certain provisions of Delaware law may delay or prevent a transaction that could cause a change in our control. The market price of our Class A shares could be adversely affected to the extent that our principals' significant influence over us, as well as provisions of our operating agreement, discourage potential takeover attempts that our shareholders may favor. In addition, in February 2016 our board of directors authorized the company to repurchase up to $100.0 million in cash of our outstanding shares, either through open market purchases, tender offers or other means. On February 5, 2016, we launched a tender offer to repurchase up to $100.0 million in cash of our Class A shares. If we were to successfully close the tender offer and purchase the maximum amount of Class A shares at the low end of the price range, this would result in Class B shares representing 46.7% of the total combined voting power of our outstanding Class A and Class B shares.

There are certain provisions in our operating agreement regarding exculpation and indemnification of our officers and directors that differ from the Delaware General Corporation Law in a manner that may be less protective of the interests of our Class A shareholders.

Our operating agreement provides that, to the fullest extent permitted by applicable law, our directors or officers will not be liable to us. However, under the Delaware General Corporate Law (“DGCL”), a director or officer would be liable to us for (i) breach of duty of loyalty to us or our shareholders, (ii) intentional misconduct or knowing violations of the law that are not done in good faith, (iii) improper redemption of shares or declaration of dividend, or (iv) a transaction from which the director or officer derived an improper personal benefit. In addition, our operating agreement provides that we indemnify our directors and officers for acts or omissions to the fullest extent provided by law. However, under the DGCL, a corporation can only indemnify directors and officers for acts or omissions if the director or officer acted in good faith, in a manner he reasonably believed to be in the best interests of the corporation, and, in a criminal action, if the officer or director had no reasonable cause to believe his conduct was unlawful. Accordingly, our operating agreement may be less protective of the interests of our Class A shareholders as compared to the DGCL, insofar as it relates to the exculpation and indemnification of our officers and directors.

Risks Related to Taxation

Class A shareholders may be subject to U.S. federal income tax on their share of our taxable income, regardless of whether they receive any cash dividends from us.

So long as we are not required to register as an investment company under the Investment Company Act and 90% of our gross income for each taxable year constitutes “qualifying income” within the meaning of the Internal Revenue Code of 1986, as amended (the “Code”), on a continuing basis, we will be treated, for U.S. federal income tax purposes, as a partnership and not as an association or a publicly traded partnership taxable as a corporation. Class A shareholders may be subject to U.S. federal, state, local and possibly, in some cases, foreign income taxation on their allocable share of our items of income, gain, loss, deduction and credit (including our allocable share of those items of any entity in which we invest that is treated as a partnership or is otherwise subject to tax on a flow through basis) for each of our taxable years ending with or within their taxable year, regardless of whether or not they receive cash dividends from us. They may not receive cash dividends equal to their allocable share of our net taxable income or even the tax liability that results from that income.

In addition, certain of our holdings, including holdings, if any, in a Controlled Foreign Corporation (“CFC”) and a Passive Foreign Investment Company (“PFIC”), may produce taxable income prior to the receipt of cash relating to such income, and holders of our Class A shares will be required to take such income into account in determining their taxable income. Under our operating agreement, in the event of an inadvertent partnership termination in which the Internal Revenue Service (“IRS”) has granted us limited relief, each holder of our Class A shares also is obligated to make such adjustments as are required by the IRS to maintain our status as a partnership. Such adjustments may require persons who hold our Class A shares to recognize additional amounts in income during the years in which they hold such shares. We may also be required to make payments to the IRS.

Our subsidiary, FIG Corp., is subject to corporate income taxation in the United States, and we may be subject to additional taxation in the future.

A significant portion of our investments and activities may be made or conducted through FIG Corp. Dividends paid by FIG Corp. from time to time will, as is usual in the case of a U.S. corporation, then be included in our income. Income received as a result of investments made or activities conducted through our subsidiary FIG Asset Co. LLC (but excluding through its taxable corporate affiliates) is not subject to corporate income taxation in our structure, but we cannot provide any assurance that it will not become subject to additional taxation in the future, which would negatively impact our results of operations.

There can be no assurance that amounts paid as dividends on Class A shares will be sufficient to cover the tax liability arising from ownership of Class A shares.

Any dividends paid on Class A shares will not take into account a shareholder's particular tax situation (including the possible application of the alternative minimum tax) and, therefore, because of the foregoing as well as other possible reasons, may not be sufficient to pay their full amount of tax based upon their share of our net taxable income. In addition, the actual amount and

timing of dividends will always be subject to the discretion of our board of directors. In particular, the amount and timing of dividends will depend upon a number of factors, including, among others:


•	our actual results of operations and financial condition;


•	restrictions imposed by our operating agreement or applicable law;


•	restrictions imposed by our credit agreements;


•	reinvestment of our capital;


•	the timing of the investment of our capital;


•	the amount of cash that is generated by our investments or to fund liquidity needs;


•	levels of operating and other expenses;


•	contingent liabilities; or


•	factors that our board of directors deems relevant.

Even if we do not distribute cash in an amount that is sufficient to fund a shareholder's tax liabilities, they will still be required to pay income taxes on their share of our taxable income.

Tax gain or loss on disposition of our Class A shares could be more or less than expected.

Upon a sale of Class A shares the shareholder will recognize a gain or loss equal to the difference between the amount realized and the adjusted tax basis in those shares. Prior distributions to such shareholder in excess of the total net taxable income allocated to such shareholder, which decreased the tax basis in its Class A shares, will increase the gain recognized upon a sale when the Class A shares are sold at a price greater than such shareholder's tax basis in those shares, even if the price is less than the original cost. A portion of the amount realized, whether or not representing gain, may be treated as ordinary income to such shareholder.

We have not made an election under Section 754 of the Internal Revenue Code to adjust our asset basis, so a holder of our Class A shares could be allocated more taxable income in respect of those shares prior to disposition than if such an election were made.

We have not made an election under Section 754 of the Internal Revenue Code to adjust our asset basis. Since no Section 754 election was made, there will generally be no adjustment to the basis of our assets in connection with our initial public offering, or upon a subsequent transferee's acquisition of Class A shares from a prior holder of such shares, even if the purchase price for those shares is greater than the portion of the aggregate tax basis of our assets attributable to those shares immediately prior to the acquisition. Consequently, upon our sale of an asset, gain allocable to a holder of Class A shares could include built-in gain in the asset existing at the time such holder acquired such shares, which built-in gain would otherwise generally be eliminated if a Section 754 election had been made.

If we are treated as a corporation for U.S. federal income tax purposes, the value of the Class A shares would be adversely affected.

We have not requested, and do not plan to request, a ruling from the IRS on our treatment as a partnership for U.S. federal income tax purposes, or on any other matter affecting us. As of the date of the consummation of our initial public offering, under then current law and assuming full compliance with the terms of our operating agreement (and other relevant documents) and based upon factual statements and representations made by us, our outside counsel opined, as of that date, that we would be treated as a partnership, and not as an association or a publicly traded partnership taxable as a corporation for U.S. federal income tax

purposes. However, opinions of counsel are not binding upon the IRS or any court, and the IRS may challenge this conclusion and a court may sustain such a challenge. The factual representations made by us upon which our outside counsel relied related to our organization, operation, assets, activities, income, and present and future conduct of our operations. In general, if an entity that would otherwise be classified as a partnership for U.S. federal income tax purposes is a “publicly traded partnership” (as defined in the Code) it will be nonetheless treated as a corporation for U.S. federal income tax purposes, unless the exception described below, and upon which we intend to rely, applies. A publicly traded partnership will, however, be treated as a partnership, and not as a corporation for U.S. federal income tax purposes, so long as 90% or more of its gross income for each taxable year constitutes “qualifying income” within the meaning of the Code and it is not required to register as an investment company under the Investment Company Act. We refer to this exception as the “qualifying income exception.”

Qualifying income generally includes dividends, interest, capital gains from the sale or other disposition of stocks and securities and certain other forms of investment income. We expect that our income generally will consist of interest, dividends, capital gains and other types of qualifying income, including dividends from FIG Corp. and interest on indebtedness from FIG Corp. No assurance can be given as to the types of income that will be earned in any given year. If we fail to satisfy the qualifying income exception described above, items of income and deduction would not pass through to holders of our Class A shares, and holders of our Class A shares would be treated for U.S. federal (and certain state and local) income tax purposes as shareholders in a corporation. In such a case, we would be required to pay income tax at regular corporate rates on all of our income. In addition, we would likely be liable for state and local income and/or franchise taxes on all of such income. Dividends to holders of our Class A shares would constitute ordinary dividend income taxable to such holders to the extent of our earnings and profits, and the payment of these dividends would not be deductible by us. Taxation of us as a publicly traded partnership taxable as a corporation could result in a material adverse effect on our cash flow and the after-tax returns for holders of our Class A shares and thus could result in a substantial reduction in the value of our Class A shares.

Our structure involves complex provisions of U.S. federal income tax law for which no clear precedent or authority may be available. Our structure also is subject to potential legislative, judicial or administrative change and differing interpretations, possibly on a retroactive basis.

The U.S. federal income tax treatment of holders of the Class A shares depends in some instances on determinations of fact and interpretations of complex provisions of U.S. federal income tax law for which no clear precedent or authority may be available. Readers should be aware that the U.S. federal income tax rules are constantly under review by persons involved in the legislative process, the IRS, and the U.S. Treasury Department, frequently resulting in revised interpretations of established concepts, statutory changes, revisions to regulations and other modifications and interpretations. The IRS pays close attention to the proper application of tax laws to partnerships. The present U.S. federal income tax treatment of an investment in the Class A shares may be modified by administrative, legislative or judicial interpretation at any time, possibly on a retroactive basis, and any such action may affect investments and commitments previously made. For example, changes to the U.S. federal tax laws and interpretations thereof could make it more difficult or impossible to meet the qualifying income exception for us to be treated as a partnership for U.S. federal income tax purposes that is not taxable as a corporation, affect or cause us to change our investments and commitments, change the character or treatment of portions of our income (including, for instance, treating carried interest as ordinary fee income rather than capital gain), affect the tax considerations of an investment in us and adversely affect an investment in our Class A shares. See " - Several items of tax legislation are currently being considered which, if enacted, could materially affect us, including by preventing us from continuing to qualify as a partnership for U.S. federal income tax purposes. Our structure also is subject to potential judicial or administrative change and differing interpretations, possibly on a retroactive basis."

Our organizational documents and agreements permit the board of directors to modify our operating agreement from time to time, without the consent of the holders of our Class A shares, in order to address certain changes in U.S. federal income tax regulations, legislation or interpretation. In some circumstances, such revisions could have a material adverse impact on some or all of the holders of our Class A shares. Moreover, we will apply certain assumptions and conventions in an attempt to comply with applicable rules and to report income, gain, deduction, loss and credit to holders in a manner that reflects such holders' beneficial ownership of partnership items, taking into account variation in ownership interests during each taxable year because of trading activity. However, these assumptions and conventions may not be in compliance with all aspects of applicable tax requirements. It is possible that the IRS will assert successfully that the conventions and assumptions used by us do not satisfy the technical requirements of the Code and/or Treasury regulations and could require that items of income, gain, deductions, loss or credit, including interest deductions, be adjusted, reallocated, or disallowed, in a manner that adversely affects holders of the Class A shares.

We cannot match transferors and transferees of our Class A shares, and we have therefore adopted certain income tax accounting positions that may not conform with all aspects of applicable tax requirements. The IRS may challenge this treatment, which could adversely affect the value of our Class A shares.

Because we cannot match transferors and transferees of our Class A shares, we have adopted depreciation, amortization and other tax accounting positions that may not conform with all aspects of existing Treasury regulations. A successful IRS challenge to those positions could adversely affect the amount of tax benefits available to our common unitholders. It also could affect the timing of these tax benefits or the amount of gain on the sale of our Class A shares and could have a negative impact on the value of our Class A shares or result in audits of and adjustments to our shareholders' tax returns.

The sale or exchange of 50% or more of our capital and profit interests will result in the termination of our partnership for U.S. federal income tax purposes. We will be considered to have been terminated for U.S. federal income tax purposes if there is a sale or exchange of 50% or more of the total interests in our capital and profits within a 12-month period. Our termination would, among other things, result in the closing of our taxable year for all shareholders and could result in a deferral of depreciation deductions allowable in computing our taxable income.

FIG Asset Co. LLC may not be able to invest in certain assets, other than through a taxable corporation.

In certain circumstances, FIG Asset Co. LLC or one of its subsidiaries may have an opportunity to invest in certain assets through an entity that is characterized as a partnership for U.S. federal income tax purposes, where the income of such entity may not be “qualifying income” for purposes of the publicly traded partnership rules. In order to manage our affairs so that we will meet the qualifying income exception, we may either refrain from investing in such entities or, alternatively, we may structure our investment through an entity classified as a corporation for U.S. federal income tax purposes. If the entity were a U.S. corporation, it would be subject to U.S. federal income tax on its operating income, including any gain recognized on its disposal of its interest in the entity in which the opportunistic investment has been made, as the case may be, and such income taxes would reduce the return on that investment.

Complying with certain tax-related requirements may cause us to forego otherwise attractive business or investment opportunities or enter into acquisitions, borrowings, financings or arrangements that we may not have otherwise entered into.

In order for us to be treated as a partnership for U.S. federal income tax purposes, and not as an association or publicly traded partnership taxable as a corporation, we must meet the qualifying income exception discussed above on a continuing basis, and we must not be required to register as an investment company under the Investment Company Act. In order to effect such treatment we (or our subsidiaries) may be required to invest through foreign or domestic corporations, forego attractive business or investment opportunities or enter into borrowings or financings we may not have otherwise entered into. This may adversely affect our ability to operate solely to maximize our cash flow. Our structure also may impede our ability to engage in certain corporate acquisitive transactions because we generally intend to hold all of our assets through the Fortress Operating Group. In addition, we may be unable to participate in certain corporate reorganization transactions that would be tax-free to our holders if we were a corporation. To the extent we hold assets other than through the Fortress Operating Group, we will make appropriate adjustments to the Fortress Operating Group agreements so that distributions to principals and us would be the same as if such assets were held at that level.

The IRS could assert that we are engaged in a U.S. trade or business, with the result that some portion of our income would be properly treated as effectively connected income with respect to non-U.S. holders. Moreover, certain REIT dividends and other stock gains may be treated as effectively connected income with respect to non-U.S. holders.

While we expect that our method of operation will not result in a determination that we are engaged in a U.S. trade or business, there can be no assurance that the IRS will not assert successfully that we are engaged in a U.S. trade or business, with the result that some portion of our income would be properly treated as effectively connected income with respect to non-U.S. holders. Moreover, dividends paid by an investment that we make in a REIT that is attributable to gains from the sale of U.S. real property interests will, and sales of certain investments in the stock of U.S. corporations owning significant U.S. real property may, be treated as effectively connected income with respect to non-U.S. holders. To the extent our income is treated as effectively connected income, non-U.S. holders generally would be subject to withholding tax on their allocable shares of such income, would be required to file a U.S. federal income tax return for such year reporting their allocable shares of income effectively connected with such trade or business, and would be subject to U.S. federal income tax at regular U.S. tax rates on any such income. Non-U.S. holders may also be subject to a 30% branch profits tax on such income in the hands of non-U.S. holders that are corporations.

An investment in Class A shares will give rise to UBTI to certain tax-exempt holders.

We will not make investments through taxable U.S. corporations solely for the purpose of limiting unrelated business taxable income, or UBTI, from “debt-financed” property and, thus, an investment in Class A shares will give rise to UBTI to certain tax-exempt holders. For example, FIG Asset Co. LLC will invest in or hold interests in entities that are treated as partnerships, or are otherwise subject to tax on a flow-through basis, that will incur indebtedness. FIG Asset Co. LLC may borrow funds from FIG Corp. or third parties from time to time to make investments. These investments will give rise to UBTI from “debt-financed” property. However, we expect to manage our activities to avoid a determination that we are engaged in a trade or business, thereby limiting the amount of UBTI that is realized by tax-exempt holders of our Class A shares.

We may hold or acquire certain investments through an entity classified as a PFIC or CFC for U.S. federal income tax purposes.

Certain of our investments may be in foreign corporations or may be acquired through a foreign subsidiary that would be classified as a corporation for U.S. federal income tax purposes. Such an entity may be a PFIC or a CFC for U.S. federal income tax purposes. U.S. holders of Class A shares indirectly owning an interest in a PFIC or a CFC may experience adverse U.S. tax consequences.

Several items of tax legislation are currently being considered which, if enacted, could materially affect us, including by preventing us from continuing to qualify as a partnership for U.S. federal income tax purposes. Our structure also is subject to potential judicial or administrative change and differing interpretations, possibly on a retroactive basis.

In May 2010, the U.S. House of Representatives passed H.R. 4213, the American Jobs and Closing Tax Loopholes Act of 2010. That proposed legislation contains a provision that, if enacted, would have the effect of treating some or all of the income recognized from “carried interests” as ordinary income. While the proposed legislation, if enacted in its current form, would explicitly treat such income as nonqualifying income under the publicly traded partnership rules, thereby precluding us from qualifying for treatment as a partnership for U.S. federal income tax purposes, the proposed legislation provides for a 10-year transition period before such income would become nonqualifying income. In addition, the proposed legislation could, upon its enactment, prevent us from completing certain types of internal reorganization transactions, or converting to a corporation, on a tax free basis and acquiring other asset management companies on a tax free basis. The proposed legislation may also increase the ordinary income portion of any gain realized from the sale or other disposition of a Class A Share.

On February 26, 2014, the House Ways and Means Committee Chairman proposed the Tax Reform Act of 2014. The proposed legislation, if enacted, would limit the definition of qualifying income under the publicly traded partnership rules to income from activities relating to mining and natural resources effective in tax years beginning after 2016. Based on our current income, this change would thereby preclude us from qualifying for treatment as a partnership for U.S. federal income tax purposes. Therefore, this results in us being subject to taxation as a U.S. corporation, which would have a material adverse effect on our net income. It is not possible to predict whether this or similar legislation will be enacted in the future.

Other legislative proposals previously considered would subject our offshore funds to significant U.S. federal income taxes and potentially state and local taxes, which would adversely affect our ability to raise capital from foreign investors and certain tax-exempt investors.

In addition, as a result of widespread budget deficits, several states are evaluating proposals to subject partnerships to state entity level taxation through the imposition of state income, franchise or other forms of taxation. If any version of any of these legislative proposals were to be enacted into law in the form in which it was introduced, or if other similar legislation were enacted or any other change in the tax laws, rules, regulations or interpretations were to preclude us from qualifying for treatment as a partnership for U.S. federal income tax purposes under the publicly-traded partnership rules or otherwise impose additional taxes, Class A shareholders would be negatively impacted because we would incur a material increase in our tax liability as a public company from the date any such changes became applicable to us, which could result in a reduction in the value of our Class A shares.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties.

Our principal executive offices are located in leased office space at 1345 Avenue of the Americas, New York, New York. As of December 31, 2015, we lease our offices in locations including New York, San Francisco, Philadelphia, London, Tokyo, Dallas, Frankfurt, Los Angeles, Sydney, New Canaan, Atlanta, Singapore, Rome, Shanghai and Hong Kong. We do not own any real property. We consider these facilities to be suitable and adequate for the management and operations of our business.

Item 3. Legal Proceedings

We are and may become from time to time involved in legal proceedings incidental to the conduct of our business. Our industry is generally subject to scrutiny by government regulators, which could result in legal proceedings related to regulatory compliance matters, including but not limited to regulatory investigations and inquiries. As a result, we maintain insurance policies in amounts and with the coverage and deductibles we believe are adequate, based on the nature and risks of our business, historical experience and industry standards. Although we are unable to predict with certainty the eventual outcome of any litigation, regulatory investigation or inquiry, in the opinion of management, we do not expect our current or threatened legal proceedings to have a material adverse effect on our business, financial position or results of operations. However, increased regulatory scrutiny of asset managers, including private equity funds and hedge fund trading activities, may cause us to re-examine our beliefs regarding the likelihood that regulatory investigations or inquiries and defense-related costs could have a material adverse effect on our business. In addition, given the inherent unpredictability of these types of proceedings, it is possible that future adverse outcomes could have a material effect on our financial results.

Item 4. Mine Safety Disclosures

None.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our Class A shares have been listed and are traded on the New York Stock Exchange (“NYSE”) under the symbol “FIG.” The following table sets forth, for the periods indicated, the high, low and last sale prices in dollars on the NYSE for our Class A shares and the dividends per share we declared with respect to the periods indicated.



	High		Low		Last Sale		Dividends Declared (A)
2015
First Quarter	$	8.35	$	7.03	$	8.07	$	0.08
Second Quarter	$	8.65	$	7.28	$	7.30	$	0.08
Third Quarter	$	7.55	$	4.16	$	5.55	$	0.08
Fourth Quarter	$	6.29	$	4.77	$	5.08	$	0.08

2014
First Quarter	$	9.16	$	7.20	$	7.40	$	0.08
Second Quarter	$	8.03	$	6.58	$	7.44	$	0.26
Third Quarter	$	7.75	$	6.68	$	6.88	$	0.08
Fourth Quarter	$	8.08	$	5.58	$	8.02	$	0.38


(A)	Represents amounts our board of directors declared as dividends based on earnings and liquidity with respect to the specified periods. The actual declaration dates occurred in the following quarter.

On an annual basis, we expect to distribute substantially all of our after-tax distributable earnings from all sources, including net management fees, net incentive income and distributable earnings generated by balance sheet investment realizations (with potential for incremental distribution based on returns of capital from balance sheet realizations). These distributions will include quarterly base dividends in an amount generally equal to net management fees and potential quarterly special dividends, which would be primarily balance sheet related, with potential special dividends following year-end also taking into consideration net incentive income. Any dividend declared by us will be subject to our determination of cash necessary or appropriate to provide for the conduct of our business, including making investments in our business or funds and maintaining compliance with applicable laws and covenants associated with our debt instruments or other obligations.

On February 24, 2016, we declared a base quarterly dividend of $0.08 per share for the fourth quarter of 2015. Our board of directors has not yet made a final determination as to whether to declare a special dividend or the amount of any special dividend. We declared a base quarterly dividend of $0.08 for each of the first three quarters in 2015 and for each quarter in 2014. The base quarterly dividends were supplemented by the investments made in November 2015 and February 2014 to repurchase approximately 13% and 12%, respectively, of our then outstanding dividend paying shares. Also, in addition to the base quarterly dividend, a special cash dividend of $0.18 per share was declared for the second quarter of 2014 and a special cash dividend of $0.30 per share was declared for the fourth quarter of 2014.

Dividend declarations are generally announced concurrently with earnings releases. The declaration and payment of any dividends will be made in the sole discretion of our board of directors, which may decide to change our dividend policy at any time. No assurance can be given that any dividends, whether quarterly, special or otherwise, will or can be paid, or the timing of any such declaration. Actual dividends paid to Class A shareholders depend upon the board’s assessment of a number of factors, including general economic and business conditions, our strategic plans and prospects, business and investment opportunities, our financial condition, liquidity and operating results, working capital requirements and anticipated cash needs, contractual restrictions and obligations, including fulfilling our current and future capital commitments, legal, tax and regulatory restrictions and other factors that our board of directors may deem relevant, including the success of our other efforts to return value to shareholders. The amount of dividends we are able to pay may be limited by the covenants under our credit agreement, as described under Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Covenants.”

In addition, in February 2016 our board of directors authorized the company to repurchase up to $100.0 million of our outstanding shares, either through open market purchases, tender offers or other means and we announced the commencement of a modified "Dutch auction" self-tender offer to repurchase up to $100.0 million in cash of our Class A shares, at a price per share within the range of $4.25 to $4.75, less applicable withholding taxes and without interest. Shareholders whose shares are validly tendered and accepted for payment pursuant to the tender offer will not be eligible to receive future dividends.

On February 19, 2016, the closing price for our Class A shares, as reported on the NYSE, was $4.22. As of February 19, 2016, there were approximately 27 record holders of our Class A shares. This figure does not reflect the beneficial ownership of shares held in nominee name, nor does it include holders of our Class B shares, restricted Class A shares, restricted Class A share units or restricted partnership units.

Item 6. Selected Financial Data.

The selected historical financial information set forth below as of, and for the years ended, December 31, 2015, 2014, 2013, 2012, and 2011 has been derived from our audited historical consolidated financial statements.

The information below should be read in conjunction with “Management's Discussion and Analysis of Financial Condition and Results of Operations,” included in Item 7 and the consolidated financial statements and notes thereto included in Item 8 in this Annual Report on Form 10-K.



	Year Ended December 31,
	2015			2014			2013			2012			2011
	(in thousands, except share data)
Operating Data
Revenues
Management fees, incentive income, expense reimbursements and other revenues	$	1,213,856		$	1,205,580		$	1,264,983		$	969,869		$	858,628
Total Revenue	1,213,856			1,205,580			1,264,983			969,869			858,628
Expenses
Operating Expenses ^(A)	951,878			991,746			897,603			908,220			1,954,908
Transfer of interest in Graticule	101,000			—			—			—			—
Total Expense	1,052,878			991,746			897,603			908,220			1,954,908
Other Income (Loss)
Gains (losses)	(18,919		)	(11,757		)	53,933			48,921			(30,054		)
Tax receivable agreement liability adjustment	(6,141		)	(33,116		)	(8,787		)	(8,870		)	3,098
Earnings (losses) from equity method investees	(32,915		)	78,199			136,866			156,530			41,935
Gain on transfer of Graticule	134,400			—			—			—			—
Total Other Income (Loss)	76,425			33,326			182,012			196,581			14,979
Income (loss) before income taxes	237,403			247,160			549,392			258,230			(1,081,301		)
Income tax benefit (expense)	(55,788		)	(6,947		)	(65,801		)	(39,408		)	(36,035		)
Net Income (Loss)	$	181,615		$	240,213		$	483,591		$	218,822		$	(1,117,336	)
Allocation of Net Income (Loss)
Principals' and Others' Interests in Income (Loss) of Consolidated Subsidiaries	$	103,129		$	139,956		$	283,144		$	140,538		$	(685,821	)
Redeemable Non-controlling Interests in Income (Loss) of Consolidated Subsidiaries	(6		)	(709		)	—			—			—
Net Income (Loss) Attributable to Class A Shareholders	78,492			100,966			200,447			78,284			(431,515		)
	$	181,615		$	240,213		$	483,591		$	218,822		$	(1,117,336	)
Dividends declared per Class A share	$	0.62		$	0.50		$	0.24		$	0.20		$	—
Earnings Per Class A Share - Fortress Investment Group
Net income (loss) per Class A share, basic	$	0.35		$	0.47		$	0.83		$	0.29		$	(2.34	)
Net income (loss) per Class A share, diluted	$	0.28		$	0.43		$	0.79		$	0.27		$	(2.36	)
Weighted average number of Class A shares outstanding, basic	216,503,554			210,303,241			236,246,296			214,399,422			186,662,670
Weighted average number of Class A shares outstanding, diluted	442,686,774			455,154,136			500,631,423			524,900,132			493,392,235

Continued on next page.



	As of December 31,
	2015		2014		2013		2012		2011
Balance Sheet Data
Assets
Investments, including options	$	1,086,216	$	1,193,389	$	1,357,604	$	1,249,761	$	1,079,777
Cash and cash equivalents	339,842		391,089		364,583		104,242		333,166
Total assets	2,275,281		2,502,384		2,674,432		2,155,678		2,220,686
Liabilities and Equity
Debt obligations payable	230,677		75,000		—		149,453		261,250
Deferred incentive income	332,329		304,526		247,556		231,846		238,658
Total liabilities	1,333,477		1,217,712		1,059,527		939,028		1,158,294
Shareholders' equity, including accumulated other comprehensive income (loss)	570,685		643,599		825,067		626,471		487,431
Principals' and others' interests in equity of consolidated subsidiaries	371,119		639,356		789,838		590,179		574,961
Total Equity	941,804		1,282,955		1,614,905		1,216,650		1,062,392


(A)	Includes expenses related to non-cash compensation expense associated with the Principals Agreement for the year ended December 31, 2011. The Principals Agreement expired in December 2011.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(tables in thousands except as otherwise indicated and per share data)

The following discussion should be read in conjunction with Fortress Investment Group’s consolidated financial statements and the related notes (referred to as “consolidated financial statements” or “historical consolidated financial statements”) included in Item 8 in this Annual Report on Form 10-K. This discussion contains forward-looking statements that are subject to known and unknown risks and uncertainties. Actual results and the timing of events may differ significantly from those expressed or implied in such forward-looking statements due to a number of factors, including those included in Part I, Item 1A, “Risk Factors” and elsewhere in this Annual Report on Form 10-K.

Overview

Our Business

Fortress is a leading, highly diversified global investment management firm with approximately $70.5 billion in AUM as of December 31, 2015. Fortress applies its deep experience and specialized expertise across a range of investment strategies — private equity, credit, liquid markets and traditional fixed income — on behalf of our over 1,700 institutional clients and private investors worldwide. We earn management fees based on the amount of capital we manage, incentive income based on the performance of our alternative investment funds, receive reimbursements of certain expenses from funds we manage, and earn investment income (loss) from our investments in our funds. We continue to invest capital in our alternative investment businesses.

The performance of our funds was mixed in 2015, with positive performance in some funds and negative performance in others, and overall our segment operating results were down in comparison to 2014. In addition, we have continued significant capital raising within our funds and we have improved our capital structure by repurchasing our equity at a discount to their market price. For more information about these topics, please refer to “— Performance of our Funds,” “— Assets Under Management,” and “— Liquidity and Capital Resources” below.

As of December 31, 2015, we managed the following businesses:

Credit Funds — a business that manages approximately $18.1 billion of AUM comprised of two business segments: (i) credit hedge funds which make highly diversified investments in direct lending, corporate debt and securities, portfolios and orphaned assets, real estate and structured finance on a global basis and throughout the capital structure, with a value orientation, as well as non-Fortress originated funds for which Fortress has been retained as manager or co-manager as part of an advisory business; and (ii) credit private equity (“PE”) funds which are comprised of a family of “credit opportunities” funds focused on investing in distressed and undervalued assets, a family of ''long dated value'' funds focused on investing in undervalued assets with limited current cash flows and long investment horizons, a family of “real assets” funds focused on investing in tangible and intangible assets in four principal categories (real estate, capital assets, natural resources and intellectual property), a family of Asia funds, including Japan real estate funds and an Asian investor based global opportunities fund, and a family of real estate opportunities funds, as well as certain sector-specific funds with narrower investment mandates tailored for the applicable sector.

Liquid Hedge Funds — a business that manages approximately $5.4 billion of AUM which includes $4.5 billion of AUM relating to Graticule Asset Management Asia ("Graticule") on the affiliated manager platform ("Affiliated Managers") as a result of the Fortress Asia Macro Funds and related managed accounts transition on January 5, 2015. Fortress also receives fees for providing infrastructure services (technology, back office, and related services) to Graticule. During the second quarter of 2015, Graticule notified Fortress of its intention to terminate the infrastructure services agreement effective at the end of May 2016. Fortress will continue to earn fees for providing services to Graticule through the effective date of the termination. In addition, this business includes an endowment style fund, which invests in Fortress Funds, funds managed by external managers, and direct investments; a fund that primarily focuses on an international "event driven" investment strategy, particularly in Europe, Asia-Pacific and Latin America; and a fund that seeks to generate returns by executing a positively convex investment strategy.

In the fourth quarter of 2015, Fortress closed the Fortress Macro Funds and related managed accounts. Michael Novogratz, a principal, officer and director of Fortress retired effective January 2016. In November 2015, Fortress purchased from Mr. Novogratz 56.8 million Fortress Operating Group units and corresponding Class B shares at $4.50 per share, or an aggregate purchase price of $255.7 million. In connection with this purchase, Fortress paid $100.0 million of cash in November 2015 and issued a $155.7 million promissory note, of which one-half of the principal amount matures in November 2016 and the remainder in November 2017.

Understanding the Asset Management Business

As an asset manager we perform a service — we use our investment expertise to make investments on behalf of other parties (our “fund investors”). An “alternative” asset manager is simply an asset manager that focuses on certain investment methodologies, typically hedge funds and private equity style funds as described below. Our private equity business also manages permanent capital vehicles, also described below. In addition, our liquid hedge fund business includes Affiliated Managers.

Private equity style funds are typically “closed-end” funds, which means they work as follows. We solicit fund investors to make capital commitments to a fund. Fund investors commit a certain amount of capital when the fund is formed. We may “draw” or “call” this capital from the fund investors as the fund makes investments. Capital is returned to fund investors as investments are realized. The fund has a set termination date and we must use an investment strategy that permits the fund to realize all of the investments it makes in the fund within that period. Fund investors may not withdraw or redeem capital, barring certain extraordinary circumstances, and additional fund investors are not permitted to join the fund once it is fully formed. Typically, private equity style funds make longer-term, less liquid (i.e. less readily convertible to cash) investments.

Publicly traded permanent capital vehicles are publicly traded entities which are externally managed by us. "Externally managed" means that their senior management is typically employed by us and that they rely on us for their decision making. In exchange, we receive management fees, incentive income and, when we assist these entities in raising equity capital, options to purchase their common stock. "Publicly traded" means that their equity, in the form of common stock, is typically traded on a major public stock exchange such as the New York Stock Exchange. As a result, their equity investors (stockholders) may trade in and out of their positions, but Fortress continues to earn management fees and incentive income regardless of any turnover in ownership. These entities have indefinite lives and typically pay dividends or distributions to their stockholders only from earnings, while capital is reinvested.

Hedge funds are typically “open-end” funds, which means they work as follows. We solicit fund investors to invest capital at the fund formation and invest this capital as it is received. Additional fund investors are permitted to join the fund on a periodic basis. Fund investors are generally permitted to redeem their capital on a periodic basis. The fund has an indefinite life, meaning that it continues for an indeterminate period as long as it retains fund investors. Typically, hedge funds make short-term, liquid investments. Our credit hedge funds share certain characteristics of both private equity and hedge funds, and generally make investments that are relatively illiquid in nature. Our Affiliated Managers consist of hedge funds managed by autonomous businesses in which we have a minority interest. Our credit hedge funds include the Mount Kellett Funds of which Fortress is co-manager.

In addition, Fortress has a traditional asset management business. The traditional asset management business works similarly to the hedge fund business, except that generally there is no provision for incentive income and management fee rates are lower.

In exchange for our services, we receive remuneration in the form of management fees and incentive income. Management fees are typically based on a fixed annual percentage of the capital we manage for each fund investor, and are intended to compensate us for the time and effort we expend in researching, making, managing and realizing investments. Incentive income is typically based on achieving specified performance criteria, and it is intended to align our interests with those of the fund investors and to incentivize us to earn attractive returns. In addition, we receive certain expense reimbursements pursuant to our management agreements. For Affiliated Managers, we receive a percentage of their earnings and fees for providing infrastructure services.

We also invest our own capital alongside the fund investors in order to further align our interests and to earn a return on the investments.

In addition, Fortress typically receives a number of options in the publicly traded permanent capital vehicles equal to 10% of the number of shares of common stock sold by any such entity when raising equity capital. The options received by Fortress typically have a strike price equal to the market price of the relevant stock on the day of issuance and a ten-year term. If the value of the stock were to increase during the term of the option, the value received by Fortress upon exercise would exceed the strike price paid by Fortress.

In order to be successful, we must do a variety of things including, but not limited to, the following:


•	Increase the amount of capital we manage for fund investors and the amount of capital managed by Affiliated Managers, also known as our “assets under management” or "AUM;"


•	Earn attractive returns on the investments we make; and


•	Effectively manage our liquidity, including our debt, if any, and expenses.

Each of these objectives is discussed below.

Assets Under Management

Management fee paying assets under management, or AUM, fluctuate based on four primary factors:

•

Capital raising: AUM increases when we receive more capital from our fund investors to manage on their behalf, when the publicly traded permanent capital vehicles raise capital such as in an equity offering or when our Affiliated Managers receive more capital. Typically, fund investors make this decision based on: (a) the amount of capital they wish, or are able, to invest in the types of investments a certain manager or fund makes, and (b) the reputation and track record of the manager and its key investment employees.

•

Realization of private equity investments and return of capital distributions: In “closed-end” funds, AUM decreases when we return capital to fund investors as investments are realized. Investments are realized when they are sold or otherwise converted to cash by the manager. Similarly, AUM decreases in publicly traded investment vehicles, including the publicly traded permanent capital vehicles, when return of capital distributions are made to investors.


•	Redemptions: In “open-end” funds, AUM decreases after fund investors ask for their capital to be returned, or “redeemed,” at periodic intervals. Typically, fund investors make this decision based on the same factors they used in making the original investment, which may have changed over time or based on circumstances, as well as on their liquidity needs.


•	Fund performance: AUM increases or decreases in accordance with the performance of fund investments.

In addition, from time to time we may enter into transactions to manage or co-manage third party originated funds. It is critical for us to continue to raise capital from fund investors. Without new capital, AUM declines over time as private equity investments are realized and hedge fund investors redeem capital based on their individual needs. Therefore, we strive to maintain a good reputation and a track record of strong performance. We strive to also form and market funds in accordance with investor demand.

We disclose the changes in our assets under management below, under “— Assets Under Management.”

Performance

Performance can be evaluated in a number of ways, including the measures outlined below:


•	Fund returns: Fund returns express the rate of return a fund earns on its investments in the aggregate. They can be compared to the returns of other managers, to returns offered by other investments or to broader indices. They can also be compared to the performance hurdles necessary to generate incentive income. We disclose our fund returns below, under “— Performance of Our Funds.”


•	Proximity to incentive income threshold: This is a measure of a fund's performance relative to the performance criteria it needs to achieve in order for us to earn incentive income.

Incentive income is calculated differently for the hedge funds, private equity funds and publicly traded permanent capital vehicles, as described below.

•

We generally earn incentive income from hedge funds based on a straight percentage of the returns of each fund investor, since fund investors may enter the fund at different times. Incentive payments are made periodically, typically annually for the Fortress hedge funds. Once an incentive payment is made, it is not refundable. However, if a particular fund investor suffers a loss on its investment, either from the date of the Fund's inception or since the last incentive payment

to the manager, this establishes a “high water mark” for that investor, meaning a threshold that has to be exceeded in order for us to begin earning incentive income again from that fund investor. Investors in the same fund could have different high water marks, in terms of both percentage return and dollar amount.

•

Since it is impractical to disclose this information on a fund investor-by-investor basis, it may be disclosed based on the following metrics: the percentage of fund investors who have a high water mark, and the aggregate dollar difference between the value of those fund investors' investments and their applicable aggregate high water mark. The investments held by fund investors who do not have a high water mark are eligible to generate incentive income for us on their next dollar earned.

•

We generally earn incentive income from private equity style funds based on a percentage of the returns of the fund, subject to the achievement of a minimum return (the “preferred” return) to fund investors. Incentive income is generally paid as each investment in a fund is realized, subject to a “clawback.” At the termination of a fund, a computation is done to determine how much incentive income we should have earned based on the fund's overall performance, and any incentive income payments received by us in excess of the amount we should have earned must be returned by us (or “clawed back”) to the fund for distribution to fund investors. Certain of our private equity style funds pay incentive income only after all of the fund's invested capital has been returned.

•

We generally earn incentive income from publicly traded permanent capital vehicles based on a percentage of operating results in excess of specified returns to shareholders, generally calculated on a cumulative but not compounding basis. Generally, incentive income is earned quarterly and once incentive is earned, it is not subject to clawback. However, if at a later date the total incentive income received by us is in excess of the cumulative amount calculated as of this later date, we would have to make up that difference in order for us to begin earning incentive income again.

Depending on where they are in their life cycle and how they have performed, private equity funds will fall into one of several categories as shown below:



PE Style Fund Status				Key Disclosures
	In a liquidation of the fund’s assets at their estimated fair value as of the reporting date:
Has the fund made incentive income payments to us?	Would the fund owe us incentive income?	Would we owe a clawback of incentive income to the fund?		(Refer to Note 3 to our consolidated financial statements included in Item 8)
Yes	Yes	No	-	The amount of previously distributed incentive income.
			-	The amount of "undistributed incentive income," which is the amount of incentive income that would be due to us upon a liquidation of the fund’s remaining assets at their current estimated fair value.

Yes	No	Yes	-	The amount of previously distributed incentive income.
			-	The "intrinsic clawback," which is the amount of incentive income that we would have to return to the fund upon a liquidation of its remaining assets at their current estimated fair value.
			-	The amount by which the total current fund value would have to increase as of the reporting date in order to reduce the intrinsic clawback to zero such that we would be in a position to earn additional incentive income from the fund in the future.

No	Yes	N/A	-	The amount of "undistributed incentive income," which is the amount of incentive income that would be due to us upon a liquidation of the fund’s remaining assets at their current estimated fair value.

No	No	N/A	-	The amount by which the total current fund value would have to increase as of the reporting date such that we would be in a position to earn incentive income from the fund in the future.

We disclose each of these performance measures, as applicable, for all of our funds in Note 3 to our consolidated financial statements included in Item 8.

Liquidity, Debt and Expense Management

We may choose to use leverage, or debt, to manage our liquidity or enhance our returns. We strive to achieve a level of debt that is sufficient to cover working capital and investment needs, but not in an amount or manner which causes undue stress on performance, either through required payments or restrictions placed on Fortress.

Our liquidity, and our ability to repay our debt, as well as the amount by which our metrics exceed those required under our financial covenants are discussed below, under “— Liquidity and Capital Resources,” “— Debt Obligations,” and “— Covenants.”

We must structure our expenses, primarily compensation expense which is our most significant expense, so that key employees are fairly compensated and can be retained, while ensuring that expenses are not fixed in such a way as to endanger our ability to operate in times of lower performance or reduced liquidity. To this end, we generally utilize discretionary bonuses, profit sharing and equity-based compensation as significant components of our compensation plan.


•	Profit sharing means that when profits increase, either of Fortress as a whole or of a specified component (such as a particular fund) of Fortress, employees receive increased compensation. In this way, employees' interests are aligned with Fortress's, employees can receive significant compensation when performance is good, and we are able to reduce expenses when necessary.


•	Equity-based compensation means that employees are paid in equity of Fortress rather than in cash. This form of compensation has the advantage of not requiring a cash expenditure, while aligning employees' interests with those of Fortress.

Our liquidity is discussed below, under “— Liquidity and Capital Resources.” Our compensation expenses, including profit sharing and equity-based compensation, are discussed in Note 8 to our consolidated financial statements included in Item 8. Our segment operating margin, which we define as the ratio of our fund management distributable earnings to our segment revenues, and which is a measure of our profitability, is discussed in Note 11 to our consolidated financial statements included in Item 8.

Understanding our Financial Statements

Balance Sheet

Our assets consist primarily of the following:


1)	Investments in our funds, recorded generally based on our share of the funds' underlying net asset value, which in turn is based on the estimated fair value of the funds' investments. In addition, we hold options in our publicly traded permanent capital vehicles.


2)	Cash.


3)	Amounts due from our funds for fees and expense reimbursements.


4)	Deferred tax assets, which relate to potential future tax benefits. This asset is not tangible - it was not paid for and does not represent a receivable or other claim on assets.

Our liabilities consist primarily of the following:


1)	Debt owed under our credit facility and other debt obligations (if any).


2)	Accrued compensation, generally payable to employees shortly after year-end.


3)	Amounts due to our Principals under the tax receivable agreement. These amounts partially offset the deferred tax assets and do not become payable to the Principals until the related future tax benefits are realized.


4)	Deferred incentive income, which is incentive income that we have already received in cash but is subject to contingencies and may have to be returned (“clawed back”) to the respective funds if certain performance hurdles are not met.

Management, in considering the liquidity and health of the company, mainly focuses on the following aspects of the consolidated balance sheet:


1)	Expected cash flows from funds, including the potential for incentive income.


2)	Cash on hand.


3)	Collectibility of receivables.


4)	Current amounts due under our credit facility and other debt obligations (if any).


5)	Other current liabilities, primarily accrued compensation.


6)	Financial covenants under our debt obligations.


7)	Likelihood of clawback of incentive income.

Income Statement

Our revenues and other income consist primarily of the following:


1)	Fees and expense reimbursements from our funds, including management fees, which are based on the size of the funds, and incentive income, which is based on the funds' performance.


2)	Returns on our investments in the funds.

Our expenses consist primarily of the following:


1)	Employee compensation paid in cash, including profit sharing compensation.


2)	Equity-based compensation, which is not paid in cash but has a dilutive effect when it vests because it results in additional shares being issued (This amount is broken out from total compensation in Note 8 to our consolidated financial statements included in Item 8).


3)	Other general and administrative expenses and interest expense.


4)	Taxes.

The primary measure of operating performance used by management is “Distributable Earnings,” which is further discussed in the “— Results of Operations — Segment Analysis” section herein.

Essentially, the key components of our income are the fees we are earning from our funds in comparison to the compensation and other corporate expenses we are paying in cash, and the resulting operating margin. Other significant components include (i) the unrealized changes in value of our funds, reported as unrealized gains (losses) and earnings (losses) from equity method investees, as this is indicative of changes in potential future cash flows, (ii) taxes, and (iii) equity-based compensation, because it will eventually have a dilutive effect when the related shares are issued.

Managing Business Performance

We conduct our management and investment business through the following primary segments: (i) private equity funds, (ii) permanent capital vehicles, (iii) credit hedge funds, (vi) credit PE funds, (v) liquid hedge funds and (vi) Logan Circle. These segments are differentiated based on their varying strategies and, secondarily, on fund investor terms. See “— Results of Operations — Segment Analysis” section herein.

The amounts not allocated to a segment consist primarily of interest expense incurred with respect to corporate borrowings, foreign currency translation and interest income. Assets not allocated to a segment consist primarily of cash and net deferred tax assets.

Management assesses our segments on a Fortress Operating Group and pre-tax basis, and therefore adds back the interests in consolidated subsidiaries related to Fortress Operating Group units (held by the principals and a former senior employee) and income tax expense.

Management assesses the performance of each segment based on its ''distributable earnings.'' Distributable earnings is not a measure of cash generated by operations that is available for distribution. Rather distributable earnings is a supplemental measure of operating performance used by management in analyzing its segment and overall results. Distributable earnings should not be considered as an alternative to cash flow in accordance with GAAP or as a measure of our liquidity, and is not necessarily indicative of cash available to fund cash needs (including dividends and distributions).

We believe that the presentation of distributable earnings enhances a reader's understanding of the economic operating performance of our segments. For a more detailed discussion of distributable earnings and how it reconciles to our GAAP net income (loss), see “— Results of Operations — Segment Analysis” section herein.

Market Considerations

Our revenues consist primarily of (i) management fees based generally on AUM, (ii) incentive income based on the performance of our funds and (iii) investment income from our investments in those funds. Our ability to maintain and grow our revenues - both at Fortress and within our funds - depends on our ability to retain existing investors, attract new capital and investors, secure investment opportunities, obtain financing for transactions, consummate investments and deliver attractive risk-adjusted returns.

Our ability to execute our business strategy depends upon a number of market conditions, including:

The strength and liquidity of the U.S. and global equity and debt markets and related financial and economic conditions.

U.S. and global financial and economic conditions have a substantial impact on the success of our business strategy, including our ability to effect realizations and make new investments. In addition, equity market conditions impact the ability of our private equity funds to increase the value, and effect realizations, of their portfolio company investments and the ability of our funds that invest in equities to generate positive investment returns. The condition of the debt markets also has a meaningful impact on our business. Several of our funds are directly and indirectly exposed to the debt markets: we invest in debt instruments, our funds borrow money to make investments and our funds utilize leverage in order to increase investment returns, which ultimately drive the performance of our funds. Our portfolio companies also require access to financing for their operations and refinancing of their debt. Furthermore, from time to time, we utilize debt to finance our investments in our funds and for working capital purposes. In general, strong financial and economic conditions including equity and debt markets enable us to execute our business strategy and generate attractive returns while dampening distressed investment strategies, and periods of weakening economies and markets and increased volatility can also present opportunities to invest at reduced valuations and in distressed asset classes, while negatively impacting fees, realizations and value creation. For example, a significant decline in the value of our funds’ investments would require that our funds satisfy minimum return or “high water mark” requirements before generating incentive income and could subject us to “clawback” payments relating to incentive income previously collected. For hedge funds, opportunities to generate returns depend on their investment strategies, which may benefit from market declines or volatility.

The year ended December 31, 2015 was marked by an overall weak global economy and increased divergences within developed markets. The slowdown in the global economy and the Federal Reserve’s move towards monetary policy tightening contributed to market volatility during the second half of 2015. Global equity markets overall delivered flat returns as optimism for economic recovery in the U.S. was countervailed by concerns over a sharp slowdown in China. Overall, developed market equities outperformed emerging market equities in 2015, which has been an ongoing trend. Some developed markets such as Japan registered positive returns in local-currency terms, but U.S. Dollar strength was a detractor for a large majority of countries and regions. Despite an improvement in the equity markets in the fourth quarter, many asset categories finished 2015 in negative territory and, in particular, commodities and emerging market equities suffered large losses amid decreasing global growth. Fixed-income returns were mixed in 2015. Corporate-bond yield spreads widened, with losses most noticeable in high-yield markets. During the fourth quarter, equity markets improved, helping reverse the previous quarter’s decline. However, most of the rebound occurred in October, growing out of market overreaction late in the third quarter due to slowing growth in China. Equity markets were volatile towards the end of the year as they were affected by falling oil and commodity prices, terrorist attacks, conflicting economic data, geopolitical instability, diverging monetary policies, and varying degrees of stimulus programs across the globe. Overall during the last quarter of the year, U.S. bonds fell and the U.S. Dollar rose against most major currencies. The beginning of 2016 was marked by another decline in equity markets amid worries about China’s slowing economy, rapidly falling oil prices and disappointing U.S corporate earnings growth. The U.S. Dollar continued to rise against most major currencies and perceived safe havens in the bond markets improved.

Throughout 2015, markets continued to focus on the path of U.S. monetary policy and inflation as indicators of the likely direction of global interest rates. Markets were particularly focused on the prospect for the Federal Reserve to increase interest rates. While at its September meeting the Federal Reserve decided to keep interest rates unchanged, by the end of the fourth quarter, the U.S. economy was deemed to have improved enough to support a rise in interest rates. GDP growth was on track for a 2% annual expansion and the unemployment rate declined from the beginning of the year. Consumer price inflation increased but core inflation was almost flat due to declining energy costs. In the housing market, home prices and sales continued to improve overall, though the pace of increases slowed. The Federal Reserve raised the federal funds target rate by 25 basis points in mid-December, the first rate hike in nine years, which reflected the Federal Reserve’s confidence that the U.S. economy was on a path to “sustainable improvement”. The Federal Reserve chose to keep interest rates unchanged at its January meeting and announced that it would continue to monitor events in global markets and their impact on the U.S. economy.

In January 2015, the European Central Bank announced a Federal Reserve-style stimulus plan and committed to a trillion-Euro asset-purchase plan to fight deflation and stimulate growth. The Eurozone growth dynamics have improved and the Eurozone raised its growth forecasts for 2015 as it benefited from cheaper energy, which has also pushed the Eurozone to cut its inflation outlook. In addition, politics have been a source of uncertainty, and while Greece-related risk subsided in the third quarter with

an austerity and reform deal, in the fourth quarter, Portugal and Spain held inconclusive general elections. Additional risks to the Eurozone include weaker emerging markets and China demand for Eurozone exports, potential for a British exit and the migrant crisis. Economic data from the Eurozone was largely encouraging during the fourth quarter, including a decrease in the jobless rate, but the inflation rate remained significantly below the target inflation rate set by the European Central Bank. During the year, the Euro fell to multiyear lows against the U.S. Dollar. European equity markets improved for the first two months of the fourth quarter based on quantitative easing guidance given by European Central Bank president and investor expectations for increased stimulus measures. However, the European equity markets declined in December after the European Central Bank fell short of market expectations. In December, the European Central Bank cut its deposit rate and extended its bond-buying program by six months, disappointing investors who had expected an increase in the amount of bond purchases. The beginning of 2016 was also tumultuous in the Eurozone as global growth concerns combined with worries over the financial sector and banks in particular created volatility.

In Japan, monetary policy remained unchanged and the Bank of Japan kept its monetary expansion efforts of ¥80.0 trillion a year in place. Overall, Japan was among the best-performing developed stock markets in 2015, helped by its large scale quantitative easing program, shareholder-friendly corporate actions, and a weak Yen. However, in the last quarter of the year, economic data remained mixed, with gradual progress in wage growth and inflation numbers, though inflation remained below the Bank of Japan’s target, and a third quarter annualized GDP expansion, in contrast to an expected decline. Amid mixed economic data, the Bank of Japan lowered its growth and inflation forecasts and made modest adjustments to its stimulus program (e.g., by increasing the average maturity of its bond purchases). In January, the Japanese equity market declined due to concerns over global growth and plummeting commodity prices but rebounded when the Bank of Japan made a surprise announcement to set negative interest rates for the first time amid a series of poor economic data releases in an attempt to stimulate the economy and weaken its currency.

Emerging markets underperformed developed-market stocks in 2015, even as they improved in the fourth quarter. Emerging markets were affected by declining commodity prices, a slowing global economy, in particular in China, and U.S. monetary policy. Overall during the year, emerging market currencies fell against the U.S. Dollar. Emerging markets also experienced capital outflows in 2015, which have the potential to create tighter financial conditions that could lead to economic instability. With a few exceptions, emerging market countries should remain challenged by slow global growth, especially as important commodity importers like China experience growth deceleration, and by rising interest rates in the U.S. The Chinese equity market improved in the fourth quarter of 2015 as the People’s Bank of China provided further support to the Chinese economy. In August, Chinese monetary authorities devalued the Chinese currency and, in the fourth quarter, the People’s Bank of China cut interest rates for the sixth time in a year and lowered the amount of cash banks are required to hold as reserves. However, economic data continued to be mixed. In India, the Prime Minister’s party lost a regional election in the fourth quarter, which was seen as a defeat for his reform-minded agenda. In Latin America, markets underperformed in the last quarter of the year. All of the region’s central banks, with the exception of Brazil, increased rates in line with the Federal Reserve in December. Economic data in Brazil continued to deteriorate throughout the last quarter of the year along with continued political turmoil. In December, the finance minister resigned, as two rating agencies downgraded Brazil to non-investment grade, and impeachment proceedings began against the President. Overall, emerging market equities have continued to struggle in 2016, hurt by U.S. Dollar strength, uncertainty about China’s monetary policy and global growth prospects, as well as falling oil prices.

Market conditions over the last several years have impacted our business in several ways:

•

Volatility in the markets since the financial crisis in 2008 increased the importance of maintaining sufficient liquidity without relying upon additional infusions of capital from the equity and debt markets. Based on cash balances, committed financing and short-term operating cash flows, in the judgment of management we have sufficient liquidity in the current market environment. The maintenance of sufficient liquidity may limit our ability to make investments, distributions, or engage in other strategic transactions.

•

Improved economic conditions over the last several years, including relatively low interest rates, have benefited our business in a number of ways, including, but not limited to, a financing environment that has enabled our private equity funds and their portfolio companies to secure long-term financing, refinance debt at attractive levels, raise public and private equity capital and improve portfolio company profitability. Improving economic conditions and higher valuations in private equity funds have also contributed to our ability to raise capital for new investment vehicles and realize investments in existing funds. While improved conditions have created a more challenging environment for identifying new investments, we continue to deploy meaningful amounts of new capital. Recent market conditions, especially in the second half of 2015, however, have negatively affected the terms on which some of our permanent capital vehicles and portfolio companies were able to raise debt and equity capital but, as a general matter, positively impacted the environment for making new investments.

•

Following a period of deleveraging, that resulted in significant opportunities for investors with sufficient capital to acquire assets at reduced prices, near-term investment opportunities have become more sporadic in nature given pricing and market dynamics. However, potential opportunities exist, particularly where access to capital is restricted and in Europe where economies may remain uncertain.


•	Despite the uncertain economic recovery, our funds continue to make investments on an opportunistic basis, and we continue to raise new funds as discussed above and illustrated in the AUM table below.

The strength of, and competitive dynamics within, the alternative asset management industry, including the amount of capital invested in, and withdrawn from, alternative investments.

The strength of the alternative asset management industry, and our competitive strength relative to our peers, are dependent upon several factors, including, among other things, (1) the investment returns alternative asset managers can provide relative to other investment options, (2) the amount of capital investors allocate to alternative asset managers, and (3) our performance relative to our competitors and the related impact on our ability to attract new capital.

The strength of the alternative asset management industry is dependent upon the investment returns alternative asset managers can provide relative to other investment options. This factor depends, in part, on returns available from traditional investment products, and to a lesser extent on interest rates and credit spreads (which represent the yield demanded on financial instruments by the market in comparison to a benchmark rate, such as the relevant U.S. Treasury rate or LIBOR) available on other investment products. This is because as interest rates rise and/or spreads widen, returns available on such investments would tend to increase and, therefore, become more attractive relative to the returns of investment products offered by alternative asset managers.

Solving for funding gaps and low interest rates have caused pension plans and other institutional investors to look to alternative investments in order to increase the yield on their investments. As a result, the amount of capital being invested into the alternative investment industry appears to have increased during the year ended December 31, 2015 and the outlook for 2016 remains generally positive, though the pace of growth may be decreasing. In addition, weaker performance of certain asset classes within the alternative investment industry may temper positivity in the industry. In addition, certain investors appear to have become increasingly focused on the liquidity and redemption terms of alternative investment funds and have expressed a desire to have the ability to redeem or otherwise liquidate their investments in a more rapid time frame than what is permitted under the terms of many existing funds. Investors in long-term, locked-up (i.e., “private equity style”) funds have engaged in longer, more intensive and detailed due diligence procedures prior to making commitments to invest in such funds, which has led to the general perception across the alternative asset management industry that capital raising for long-term capital will require longer time periods, a greater commitment of capital raising resources and will generally be more difficult overall than it was previously. Moreover, some investors are increasingly shifting to managed accounts with fee structures that are less favorable to us.

The factor which most directly impacts our results is our investment performance relative to our competitors, including products offered by other alternative asset managers. As illustrated in “- Performance of Our Funds” below, we have generated positive returns in some funds and weaker returns in others. As illustrated in “- Assets Under Management” herein, we have been able to raise additional capital in our funds, including the permanent capital vehicles. However, our ongoing ability to raise capital for new and existing funds will be a function of investors' assessment of our investment performance relative to that of our competition in the current market environment, as well as market conditions and other factors.

The strength of the industries or sectors in which our funds have concentrated investments.

Our private equity funds, as well as certain of our managed accounts and permanent capital vehicles, currently have significant investments in companies whose assets are concentrated in the following industries and sectors: financial services (particularly loan servicing and consumer finance), transportation and infrastructure, gaming, real estate (including Florida commercial real estate), and senior living. The overall performance of our funds may be affected by market conditions and trends related to these industries and sectors. Within the financial services industry, the regulatory pressure on banks in the U.S. after the financial crisis contributed to a positive market for the expansion of non-bank financial institutions. This development has recently led to increased regulatory focus on non-bank financial institutions, resulting in slower growth and increased costs within some of our financial servicing investments. See “Item 1. Business-Regulatory and Compliance Matters.” With respect to mortgage servicing rights, excess mortgage servicing rights and other servicing related investments, the timing, size and potential returns of future investments may be less attractive than prior investments due to a number of factors including interest rates and increased competition. In addition, regulatory and government sponsored entity approval processes have been more extensive and taken longer, which has increased the time and effort required to complete transactions. Worldwide growth in trade and transportation continued to expand albeit at a more modest pace than in the previous years, with growing demand for both cargo and passenger-related transportation infrastructure and equipment. The senior living sector continues to benefit from a favorable consolidation and supply/demand dynamics as well as an appreciation of related real estate values, though market conditions became more challenging toward the end of the year. European markets have presented opportunities for distressed investments in country specific markets such as Italy. In addition, our credit PE funds, from time to time, may have significant investments in particular companies, industries or sectors. The credit PE funds have significant investments in certain sectors including commercial real estate, wireless spectrum and energy.

Assets Under Management

We measure AUM by reference to the fee paying assets we manage. Our AUM has changed as a result of the factors set forth in the table below (in millions):



	Private Equity (J)						Credit (J)
	Funds			Permanent Capital Vehicles			Hedge Funds (K)			PE Funds			Liquid Hedge Funds (K)			Logan Circle			Total
2013
AUM January 1, 2013	$	10,510		$	3,761		$	5,665		$	7,749		$	5,060		$	20,685		$	53,430
Capital raised (A)	—			1,398			505			—			2,546			—			4,449
Increase in invested capital	444			97			—			2,236			3			—			2,780
Redemptions (B)	—			—			(83		)	—			(850		)	—			(933		)
RCA distributions (C)	—			—			(1,020		)	—			—			—			(1,020		)
Return of capital distributions (D)	(985		)	(23		)	(20		)	(2,150		)	(122		)	—			(3,300		)
Adjustment for capital reset (E)	—			(1,492		)	—			(6		)	—			—			(1,498		)
Crystallized incentive income (F)	—			—			(168		)	—			(87		)	—			(255		)
Net client flows (traditional)	—			—			—			—			—			4,753			4,753
Income (loss) and foreign exchange (G)	1,892			(19		)	977			(302		)	848			(52		)	3,344
AUM December 31, 2013	$	11,861		$	3,722		$	5,856		$	7,527		$	7,398		$	25,386		$	61,750

2014
Capital raised (A)	—			483			561			122			2,817			—			3,983
Increase in invested capital	231			543			46			1,858			2			—			2,680
Redemptions (B)	—			—			(37		)	—			(1,767		)	—			(1,804		)
RCA distributions (C)	—			—			(616		)	—			—			—			(616		)
Return of capital distributions (D)	(3,455		)	(115		)	(78		)	(1,799		)	(160		)	—			(5,607		)
Adjustment for capital reset (E)	—			—			—			(614		)	—			—			(614		)
Crystallized incentive income (F)	—			—			(169		)	—			(130		)	—			(299		)
Net client flows (traditional)	—			—			—			—			—			5,420			5,420
Income (loss) and foreign exchange (G)	729			(66		)	610			(139		)	(32		)	1,536			2,638
AUM December 31, 2014	$	9,366		$	4,567		$	6,173		$	6,955		$	8,128		$	32,342		$	67,531

2015
Capital raised (A)	—			2,441			254			978			333			—			4,006
Increase in invested capital (H)	419			296			46			3,003			—			—			3,764
Redemptions (B)	—			—			(265		)	—			(3,063		)	—			(3,328		)
RCA distributions (C)	—			—			(361		)	—			—			—			(361		)
Return of capital distributions (D)	(560		)	(200		)	(50		)	(1,547		)	(175		)	—			(2,532		)
Adjustment for capital reset (E)	—			(168		)	—			—			—			—			(168		)
Crystallized incentive income (F)	—			—			(120		)	—			—			—			(120		)
Equity buyback	—			(14		)	—			—			—			—			(14		)
Change in AUM of Affiliated Managers and co-managed funds	—			—			2,853			—			501			—			3,354
Net client flows (traditional)	—			—			—			—			—			(121		)	(121		)
Income (loss) and foreign exchange (G)	(234		)	(106		)	269			(81		)	(315		)	(1,043		)	(1,510		)
AUM December 31, 2015 (I)	$	8,991		$	6,816		$	8,799		$	9,308		$	5,409		$	31,178		$	70,501


(A)	Includes offerings of shares by our publicly traded permanent capital vehicles, if any.


(B)	Excludes redemptions which reduced AUM subsequent to December 31, as of each respective year end. Redemptions are further detailed below.


(C)	Represents distributions from (i) assets held within redeeming capital accounts (“RCA”) in our Drawbridge Special Opportunities Funds, which represent accounts where investors have provided withdrawal notices and are subject to payout as underlying fund investments are realized, and (ii) the Value Recovery Funds.

(D)

For private equity funds, the private permanent capital vehicle through IPO in May 2015 and credit PE funds, return of capital distributions are based on realization events. Such distributions include, in the case of private equity funds, the private permanent capital vehicle through IPO in May 2015 and credit PE funds that are in their capital commitment periods, recallable capital distributions. For certain hedge funds, represents distributions from special investments to investors who fully redeemed their capital from the fund. For credit hedge funds, return of capital distributions include income distributions from Fortress Japan Income Fund. For publicly traded permanent capital vehicles, return of capital distributions represent the portion of dividends paid and categorized as return of capital.

(E)

The reset date of certain private equity or credit PE funds is an event determined by the earliest occurrence of (i) the first day following the expiration of the capital commitment period of a fund, (ii) a successor fund or entity draws capital contributions or charges management fees (not applicable to credit PE funds) or (iii) the date on which all unpaid capital obligations have been canceled. For the period commencing with the initial closing of or contribution to the fund and ending on the last day of the semi-annual or quarterly period ending on or after the reset date, certain funds generate management fees as a percentage of the fund's capital commitments and certain funds generate management fees as a percentage of the fund's aggregate capital contributions. Thereafter, such funds generally generate management fees as a percentage of the aggregate capital contributed adjusted for the fair value of each investment that is below the associated investment's contributed capital.

In April 2013, Eurocastle announced a restructuring process and new investment focus. As part of that restructuring, Fortress entered into an amended management agreement with Eurocastle that reduced the AUM used to compute Eurocastle's management fees and in doing so also reduced the earnings threshold required for Fortress to earn incentive income from Eurocastle. In April 2015, Fortress entered into an amended management agreement with Eurocastle to further adjust the AUM used to compute management fees and to reset the earnings threshold for Fortress to earn incentive income.

Effective January 1, 2016, Fortress no longer earns management fees from Fund III and Fund III Coinvestment which had AUM of $0.7 billion as of December 31, 2015.


(F)	Represents the transfer of value from investors (fee paying) to Fortress (non-fee paying) related to realized hedge fund incentive income.


(G)	Represents the change in AUM resulting from realized and unrealized changes in the reported value of the funds. For certain private equity funds, also includes the impact of a change in AUM basis from invested capital to fair value for certain portfolio companies which became publicly traded.


(H)	Includes $1.1 billion of credit PE fund commitments raised in the prior period which became fee paying AUM in 2015.

(I)

AUM is presented mainly in reference to Fortress's ability to generate management fees. Note 3 to our consolidated financial statements, included in Item 8, provides further information regarding incentive income, and Note 4 provides further information regarding Fortress's investments in the funds, including gains and losses therein. The percentage of capital invested by Fortress across different funds varies.


(J)	As of December 31, 2015, the private equity funds and credit funds had approximately $0.6 billion and $6.9 billion of uncalled and recallable capital, respectively, that will become assets under management if deployed/called, of which an aggregate of $2.9 billion is only available for follow-on investments, management fees and other fund expenses.


(K)	In January 2015, the Fortress Asia Macro Funds and related managed accounts transitioned to Graticule under Affiliated Managers. As of December 31, 2015, liquid hedge funds AUM included $4.5 billion related to Affiliated Managers and credit hedge funds AUM included $2.9 billion related to co-managed funds.

Redemptions

The credit hedge funds generally provide for annual return of capital terms. Return of capital requests must be received at least 90 days prior to a calendar year end, and related payments are made subsequent to year end. For instance, the 2015 return of capital request notice date was October 2, 2015 for capital to be returned after December 31, 2015. Such returns of capital may be paid over time as the underlying fund investments are realized, in accordance with the governing terms of the applicable funds. During the period prior to the return of capital for which a return request has been submitted, such amounts continue to be subject to management fees and, as applicable, incentive income. In particular, return of capital requests within the flagship credit hedge fund for 2009 through 2015 (onshore only except for 2015 which included offshore) are being paid over time as the underlying fund investments are realized. In such a case, pending payment, this capital is referred to as a redeeming capital account or “RCA.” The Mount Kellett Funds which are co-managed by Fortress are not subject to redemptions.

Fortress's liquid hedge funds, other than the Fortress Partners Funds, are subject to varying redemption terms based on investor classes, but generally offer monthly or quarterly redemption terms. Redemption notices generally must be received in the period prior to payment.

The Fortress Partners Funds provide for annual redemption terms. Redemption notices must be received at least 180 days prior to a calendar year end, and related payments are made subsequent to year end. For instance, the 2015 redemption notice date was July 5, 2015 for redemptions to be paid in the first quarter of 2016.

In certain cases, redemption notices may be subject to cancellation after receipt and prior to payment.

Redemption notices and return of capital requests received from fee-paying investors, and related payments which are made in periods after notices are received, are shown in the table below. The table below does not include redemptions related to funds managed by Affiliated Managers:

Redemption Notices / Return of Capital Requests Received and Outstanding through December 31, 2015 (in thousands):



Notice Receipt Period	Credit Hedge Fund Return of Capital Requests Received		Payments Made with Respect to those Requests - Inception to Date (C)		Credit Hedge Fund Remaining Outstanding Notices			Liquid Hedge Fund Redemption Notices Received		Payments Made with Respect to those Notices - Inception to Date		Liquid Hedge Fund Remaining Outstanding Notices
2015	$	773,268	$	211,179	$	562,089		$	2,610,903	$	2,335,887	$	275,016
2014	220,185		104,768		123,825			2,160,974		2,160,721		—
2013	157,251		131,388		33,521			957,414		981,914		—
Prior					211,922		(A)					—		(A)
					$	931,357	(B)					$	275,016	(B)


(A)	Includes all prior periods with notices / requests that are still outstanding as of period end.

(B)

For credit hedge funds, reflects $917.1 million in RCAs to be paid as the underlying investments are realized and $14.3 million to be paid primarily in the first quarter of 2016. For liquid hedge funds, reflects $275.0 million to be paid primarily in the first quarter of 2016 which includes $219.3 million related to the Fortress Partners Funds, $27.5 million related to the Convex Asia Funds and $28.2 million related to the Fortress Centaurus Global Funds. Excludes any notices received from investors whose status has changed from fee-paying to non-fee-paying.


(C)	RCA payments are reflected in the AUM rollforward table as RCA distributions rather than as redemptions.

In the fourth quarter of 2015, Fortress closed the Fortress Macro Funds and related managed accounts.

We note that performance between the notice / request date and the payment date may result in differences between the amount of redemption notices / return of capital requests received and the ultimate payments. The table above reflects the actual notices / requests received, the actual payments made, and the actual remaining NAV of related investors. Therefore, the aggregate notices / requests received will not equal the total payments made plus the remaining outstanding notices / requests, due primarily to post-notice performance and redemption cancellations.

Performance of Our Funds

The performance of our funds has been as follows (dollars in millions):



			AUM			Returns (B)
	Inception	Maturity Date (A)	December 31,			Inception to December 31,
Name of Fund	Date	Maturity Date (A)	2015	2014	2013	2015		2014		2013
Private Equity
Private Equity Funds that Report IRR’s
Fund I	Nov-99	Closed May-13	$ N/A	$ N/A	$ N/A	25.7	%	25.7	%	25.7	%
Fund II	Jul-02	Closed Dec-15	N/A	—	—	35.5	%	35.5	%	35.5	%
Fund III (E)	Sep-04	In Liquidation	616	765	1,099	1.3	%	4.8	%	6.9	%
Fund III Coinvestment (E)	Nov-04	In Liquidation	34	41	90	0.9	%	1.5	%	1.8	%
Fund IV	Mar-06	Jan-17	1,543	2,171	2,859	(1.5	)%	1.6	%	3.1	%
Fund IV Coinvestment	Apr-06	Jan-17	298	361	460	(2.6	)%	(0.9	)%	(0.7	)%
Fund V	May-07	Feb-18	4,371	3,998	4,069	7.0	%	6.2	%	4.1	%
Fund V Coinvestment	Jul-07	Feb-18	408	408	515	(5.6	)%	(6.1	)%	(7.2	)%
GAGACQ Coinvestment Fund (GAGFAH)	Sep-04	Closed Dec-14	N/A	N/A	—	19.4	%	19.4	%	19.4	%
FRID (GAGFAH)	Mar-05	Closed Nov-14	N/A	N/A	652	(0.3	)%	(0.3	)%	(0.9	)%
FRIC (Brookdale)	Mar-06	Closed Dec-14	N/A	N/A	164	(1.6	)%	(1.6	)%	(3.7	)%
FICO (Intrawest)	Aug-06	Jan-17	—	—	—	(100.0	)%	(100.0	)%	(100.0	)%
FHIF (Holiday)	Dec-06	Jan-17	581	763	1,083	3.2	%	6.7	%	6.8	%
FECI (Florida East Coast Railway/Florida East Coast Industries)	Jun-07	Feb-18	408	433	436	(0.9	)%	(0.1	)%	(0.3	)%
MSR Opportunities Fund I A	Aug-12	Aug-22	163	216	255	14.9	%	16.6	%	(C)
MSR Opportunities Fund I B	Aug-12	Aug-22	41	54	64	14.8	%	16.4	%	(C)
MSR Opportunities Fund II A	Jul-13	Jul-23	125	45	36	9.1	%	(C)		(C)
MSR Opportunities Fund II B	Jul-13	Jul-23	2	1	—	8.7	%	(C)		(C)
MSR Opportunities MA I	Jul-13	Jul-23	29	10	8	9.2	%	(C)		(C)
Italian NPL Opportunities Fund	Dec-13	Sep-24	225	25	—	(C)		(C)		(C)
Fortress Equity Partners	Mar-14	Mar-24	147	75	N/A	(C)		(C)		N/A

Continued on next page.



			AUM			Returns (B)
	Inception	Maturity Date (A)	December 31,			Inception
Name of Fund	Date	Maturity Date (A)	2015	2014	2013	to Date (D)		2015		2014		2013
Publicly Traded Permanent Capital Vehicles
Newcastle Investment Corp.	Jun-98	Permanent	680	768	1,795	N/A		11.8	%	10.7	%	7.0	%
New Residential Investment Corp.	May-13	Permanent	2,689	1,367	1,196	N/A		15.1	%	11.9	%	10.5	%
Eurocastle Investment Limited	Oct-03	Permanent	567	488	556	N/A		7.0	%	6.9	%	6.7	%
New Media Investment Group Inc.	Feb-14	Permanent	637	487	N/A	N/A		6.8	%	4.6	%	N/A
New Senior Investment Group Inc.	Nov-14	Permanent	1,076	812	N/A	N/A		10.5	%	5.6	%	N/A
Fortress Transportation and Infrastructure Investors LLC (F)	May-15	Permanent	1,167	645	175	N/A		11.7	%	N/A		N/A

Liquid Hedge Funds
Drawbridge Global Macro Funds (A)	Jun-02	PE style redemption	101	229	284	5.9	%	(18.2	)%	(1.8	)%	13.7	%
Fortress Macro Funds (A)	May-09	Closed Nov-15	N/A	1,552	1,546	2.8	%	(17.6	)%	(1.6	)%	14.1	%
Fortress Macro MA1 (A)	Nov-11	Closed Dec-15	N/A	287	359	5.6	%	(4.6	)%	(3.1	)%	14.7	%
Fortress Redwood Fund LTD (A)	Aug-13	Closed Dec-15	N/A	759	613	(3.5	)%	(10.2	)%	(1.6	)%	(C)
Fortress Partners Fund LP (A)	Jul-06	Redeemable	308	456	566	1.6	%	(5.0	)%	(0.1	)%	4.8	%
Fortress Partners Offshore Fund LP (A)	Nov-06	Redeemable	165	457	669	1.9	%	(5.1	)%	0.4	%	6.7	%
Fortress Centaurus Global Funds	Jun-14	Redeemable	204	33	N/A	0.2	%	1.4	%	(C)		N/A
Fortress Asia Macro Funds (J)	Mar-11	(J)	(J)	3,217	1,697	(J)		(J)		(1.2	)%	17.1	%
Fortress Convex Asia Funds	May-12	Redeemable	134	197	96	(4.4	)%	(2.8	)%	(4.9	)%	(3.3	)%

Credit Hedge Funds
Drawbridge Special Opp’s Fund LP (G)	Aug-02	PE style redemption	4,339	4,335	3,898	10.8	%	5.8	%	10.0	%	18.5	%
Drawbridge Special Opp’s Fund LTD (G)	Aug-02	PE style redemption	1,156	1,328	1,317	9.8	%	0.6	%	6.0	%	15.7	%
Worden Fund	Jan-10	PE style redemption	224	225	201	9.7	%	1.2	%	6.5	%	13.7	%
Worden Fund II	Aug-10	PE style redemption	35	37	31	7.8	%	(0.3	)%	4.5	%	12.4	%
Japan Income Fund (Yen only)	Dec-13	Redeemable	88	44	—	(B)		(B)		(B)		N/A
Value Recovery Funds and related assets (A)	(H)	Non-redeemable	102	200	402	(H)		(H)		(H)		(H)

Continued on next page.



			AUM			Returns (B)
	Inception		December 31,			Inception to December 31,
Name of Fund	Date	Maturity Date (A)	2015	2014	2013	2015		2014		2013
Credit PE Funds
Credit Opportunities Fund	Jan-08	Oct-20	592	521	692	24.2	%	25.6	%	25.8	%
Credit Opportunities Fund II	Jul-09	Jul-22	467	511	745	16.9	%	18.2	%	18.3	%
Credit Opportunities Fund III	Sep-11	Mar-24	1,723	1,995	1,400	10.5	%	(C)		(C)
Credit Opportunities Fund IV	Feb-15	Feb-27	484	N/A	N/A	(C)		N/A		N/A
FCO Managed Accounts (I)	Sep-08 to Jun-12	Apr-22 to Dec-24	1,762	1,106	1,172	15.7	%	18.8	%	20.0	%
FCO Managed Accounts (I)	Mar-15 to Jun-15	Mar-25 to Feb-28	304	714	457	(C)		(C)		(C)
Long Dated Value Fund I	Apr-05	Apr-30	129	163	185	5.3	%	5.3	%	5.0	%
Long Dated Value Fund II	Nov-05	Nov-30	118	121	142	3.7	%	4.1	%	3.7	%
Long Dated Value Fund III	Feb-07	Feb-32	64	74	87	6.3	%	7.2	%	8.6	%
LDVF Patent Fund	Nov-07	Nov-27	4	3	3	8.3	%	11.4	%	12.7	%
Real Assets Fund	Jun-07	Jun-17	24	66	77	6.4	%	7.4	%	8.5	%
Japan Opportunity Fund (Yen only)	Jun-09	Jun-19	154	267	364	32.9	%	31.2	%	22.2	%
Japan Opportunity Fund II (Dollar)	Dec-11	Dec-21	417	388	713	23.4	%	21.0	%	(C)
Japan Opportunity Fund II (Yen)	Dec-11	Dec-21	431	408	696	25.9	%	21.7	%	(C)
Japan Opportunity Fund III (Dollar)	Dec-14	Dec-24	470	N/A	N/A	(C)		(C)		N/A
Japan Opportunity Fund III (Yen)	Dec-14	Dec-24	649	N/A	N/A	(C)		(C)		N/A
Net Lease Fund I	Jan-10	Closed Dec-15	N/A	—	33	21.2	%	22.1	%	22.8	%
Global Opportunities Fund	Sep-10	Sep-20	189	195	255	8.3	%	11.3	%	(C)
Global Opportunities Fund II	Jul-15	Jul-26	60	N/A	N/A	(C)		N/A		N/A
Life Settlements Fund	Dec-10	Dec-22	92	88	261	(C)		(C)		(C)
Life Settlements Fund MA	Dec-10	Dec-22	8	8	23	(C)		(C)		(C)
Real Estate Opportunities Fund	May-11	Sep-24	121	157	187	16.5	%	15.5	%	(C)
Real Estate Opportunities Fund II	May-14	May-27	1,000	122	N/A	(C)		(C)		N/A
Real Estate Opportunities REOC Fund	Oct-11	Oct-23	40	41	29	11.8	%	12.5	%	(C)
Subtotal - all funds			31,965	34,237	34,712
Managed accounts (J)			9	952	1,652
Affiliated Managers and Co-managed Funds (J)			7,349	N/A	N/A
Total - Alternative Investments			39,323	35,189	36,364
Logan Circle			31,178	32,342	25,386
Total (K)			70,501	67,531	61,750

(A)

For funds with a contractual maturity date, maturity date represents the final contractual maturity date including the assumed exercise of extension options, which in some cases require the approval of the applicable fund advisory board. Fund III and Fund III Coinvestment have passed their contractual maturity date and are in the process of an orderly wind down. The publicly traded permanent capital vehicles are considered to have permanent equity as they have an indefinite life and no redemption terms. Investor capital in the liquid hedge funds is generally redeemable at the option of the fund investors; however, a substantial portion of the Drawbridge Global Macro Funds' and Fortress Partner Funds' investor capital is not redeemable by its investors and such capital will only be distributed as underlying assets are realized, in accordance with their governing documents. The Drawbridge Special Opportunities Funds and Worden Funds may pay redemptions over time, as the underlying investments are realized, in accordance with their governing documents (“PE style redemption”). The Value Recovery Funds generally do not allow for redemptions, but are in the process of realizing their remaining investments in an orderly liquidation. Management notes that funds which had a term of three years or longer at inception, funds which have permanent equity, funds which have a PE style redemption and funds which do not allow for redemptions aggregated approximately 86% of our alternative investment AUM as of December 31, 2015.

In the fourth quarter of 2015, Fortress closed the Fortress Macro Funds (which includes Fortress MA I and Fortress Redwood Fund LTD) and related managed accounts.


(B)	Represents the following:

For the private equity funds and credit PE funds, returns represent net annualized internal rates of return to limited partners after management fees and incentive allocations, and are computed on an inception to date basis consistent with industry standards. Incentive allocations are computed based on a hypothetical liquidation of the net assets of each fund as of the balance sheet date. Returns are

calculated for the investors as a whole. The computation of such returns for an individual investor may vary from these returns based on different management fee and incentive arrangements, and the timing of capital transactions.

For publicly traded permanent capital vehicles, returns represent the current dividend yield which is calculated by annualizing the most recently declared base dividend and dividing the result by the closing stock price for the period. Excludes the impact of special dividends declared in connection with REIT compliance, which may increase returns. There can be no assurance regarding the publicly traded permanent capital vehicles' respective dividend yields, which may fluctuate meaningfully as a result of changes in the amount of dividends paid in the future and/or changes in their respective stock prices.

For credit hedge funds and liquid hedge funds, returns represent net returns after taking into account any fees borne by the funds for a “new issue eligible,” single investor class as of the close of business on the last date of the relevant period. Specific performance may vary based on, among other things, whether fund investors are invested in one or more special investments. No return is shown for Japan Income Fund, returns are not an accurate performance metric for this fund.

For funds that are closed, the return(s) that are disclosed for the periods subsequent to closing represents the fund's return through its closing date.


(C)	Generally, these funds had no successor fund formed and either (a) were in their investment or commitment periods and had capital, other than recallable capital, remaining to invest, or (b) had less than one year elapsed from their inception, through the end of these periods.


(D)	For credit hedge funds and liquid hedge funds, reflects a composite of monthly returns presented on an annualized net return basis.


(E)	Effective January 1, 2016, Fortress no longer earns management fees from Fund III and Fund III Coinvestment.


(F)	WWTAI was a private fund formed in July 2011 and formerly managed by Fortress. All of the capital of WWTAI was contributed to FTAI which completed its initial public offering in May 2015.


(G)	The returns for Drawbridge Special Opportunities Funds exclude the performance of special investments and the performance of the redeeming capital accounts (i.e., investors who requested redemptions in prior periods and who are being paid out as investments are realized).


(H)	Fortress began managing the third party originated Value Recovery Funds in June 2009. Their returns are not comparable since we are only managing the realization of existing investments within these funds which were acquired prior to Fortress becoming their manager.


(I)	AUM and returns shown for prior periods have not been adjusted for funds which no longer fall within the description of Note (C) above for the current period.


(J)	In January 2015, the Fortress Asia Macro Funds and related managed accounts were transferred to Graticule as part of our Affiliated Managers. In July 2015, Fortress became co-manager of the Mount Kellett Funds.

(K)

In addition to the funds listed, Fortress manages CFT Co-invest Fund (CAD and USD), NIH (closed June 2015), FPRF and Mortgage Opportunities Funds I and II (closed May 2014). Such funds are excluded from the table because they did not include any management fee paying assets at the end of the periods presented. Fund I, Fund II, GAGACQ Coinvestment Fund (GAGFAH) and FICO (Intrawest) had no AUM or were closed as of December 31, 2015, 2014 and 2013, but for purposes of continuity of presentation, the returns of these funds have been left in the table.

Results of Operations

The following is a discussion of our results of operations as reported under GAAP. For a detailed discussion of distributable earnings, revenues and expenses from each of our segments, see “— Segment Analysis” below.



	Year Ended December 31,									Variance
	2015			2014			2013			2015/2014			2014/2013
Revenues
Management fees: affiliates	$	547,109		$	539,600		$	520,283		$	7,509		$	19,317
Management fees: non-affiliates	59,480			68,948			62,795			(9,468		)	6,153
Incentive income: affiliates	345,052			362,578			419,828			(17,526		)	(57,250		)
Incentive income: non-affiliates	813			1,734			44,383			(921		)	(42,649		)
Expense reimbursements: affiliates	237,158			213,048			206,452			24,110			6,596
Expense reimbursements: non-affiliates	11,005			13,429			7,209			(2,424		)	6,220
Other revenues	13,239			6,243			4,033			6,996			2,210
Total Revenues	1,213,856			1,205,580			1,264,983			8,276			(59,403		)

Expenses
Compensation and benefits	743,862			795,361			741,761			(51,499		)	53,600
General, administrative and other expense (including depreciation and amortization)	203,437			192,942			150,460			10,495			42,482
Interest expense	4,579			3,443			5,382			1,136			(1,939		)
Transfer of interest in Graticule	101,000			—			—			101,000			—
Total Expenses	1,052,878			991,746			897,603			61,132			94,143

Other Income (Loss)
Gains (losses)	(18,919		)	(11,757		)	53,933			(7,162		)	(65,690		)
Tax receivable agreement liability adjustment	(6,141		)	(33,116		)	(8,787		)	26,975			(24,329		)
Earnings (losses) from equity method investees	(32,915		)	78,199			136,866			(111,114		)	(58,667		)
Gain on transfer of Graticule	134,400			—			—			134,400			—
Total Other Income (Loss)	76,425			33,326			182,012			43,099			(148,686		)

Income Before Income Taxes	237,403			247,160			549,392			(9,757		)	(302,232		)
Income tax expense	(55,788		)	(6,947		)	(65,801		)	(48,841		)	58,854
Net Income	$	181,615		$	240,213		$	483,591		$	(58,598	)	$	(243,378	)

Allocation of Net Income (Loss):
Principals’ and Others’ Interests in Income of Consolidated Subsidiaries	$	103,129		$	139,956		$	283,144		$	(36,827	)	$	(143,188	)
Redeemable Non-controlling Interests in Income (Loss) of Consolidated Subsidiaries	(6		)	(709		)	—			703			(709		)
Net Income Attributable to Class A Shareholders	78,492			100,966			200,447			(22,474		)	(99,481		)
	$	181,615		$	240,213		$	483,591		$	(58,598	)	$	(243,378	)

Factors Affecting Our Results

During the periods discussed herein, the following are significant factors that materially impacted our results of operations:


•	changes in our AUM;


•	level of performance of our funds; and


•	changes in the size of our fund management and investment platform and our related compensation structure.

Each of these factors is described below.

Average Management Fee Paying AUM

Average management fee paying AUM represents the reference amounts upon which our management fees are based. The reference amounts for management fee purposes are: (i) capital commitments or invested capital (or NAV, on an investment by investment basis, if lower) for the private equity funds, private permanent capital vehicle through IPO in May 2015 and credit PE funds, which in connection with private equity funds raised after March 2006 includes the mark-to-market value on public securities held within the fund, (ii) contributed capital or book equity (as defined) for the publicly traded permanent capital vehicles, (iii) the NAV for hedge funds and the NAV or fair value for managed accounts (including Logan Circle), (iv) or the AUM for Affiliated Managers and co-managed funds.

Average fee paying AUM for the Fortress Funds, based on a simple quarterly average, was as follows (in millions):



	Private Equity				Credit Hedge Funds (C)
Year Ended	Funds (A)		Permanent Capital Vehicles (B)		Credit Hedge Funds (C)		Credit PE Funds		Liquid Hedge Funds (D)		Logan Circle		Total
December 31, 2015	$	9,464	$	5,970	$	7,311	$	8,086	$	3,261	$	32,789	$	66,881
December 31, 2014	10,606		4,090		6,044		7,088		7,732		28,910		64,470
December 31, 2013	11,144		3,459		5,714		7,191		6,266		22,597		56,371

(A)

Effective January 1, 2016, Fortress no longer earns management fees from Fund III and Fund III Coinvestment. These funds had average fee paying AUM, based on a simple quarterly average, of $0.8 billion, $1.0 billion and $1.3 billion for the years ended December 31, 2015, 2014 and 2013, respectively. Total management fees from these funds were $9.9 million, $13.8 million and $17.3 million for the years ended December 31, 2015, 2014 and 2013, respectively.


(B)	In December 2015 and January 2016, certain publicly traded permanent capital vehicles announced share repurchase programs to purchase up to $330.0 million of common stock over the next twelve months which will reduce fee paying AUM upon repurchase.


(C)	In July 2015, Fortress became co-manager of the Mount Kellett Funds.

(D)

We note that, in certain cases, there are timing differences between an event's impact on average AUM and its impact on management fees earned. For instance, AUM is adjusted upon the occurrence of a private equity fund's reset date, but management fees are not impacted until the next contractual management fee calculation date (generally semi-annual).

Management Fees

Changes in average AUM have an effect on our management fee revenues. Depending on the timing of capital contributions in a given period, the full economic benefits of an increase in AUM may not be recognized until the following period.

Fortress's senior living property management subsidiary, FHC Property Management ("Blue Harbor"), has agreements to manage certain senior living properties, most of which are owned by New Senior Investment Group Inc. ("New Senior"). For these services, Fortress receives management fees based on a percentage of revenues from the properties.

Incentive Income

Incentive income is calculated as a percentage of returns (or in some cases taxable income) or operating results earned by the Fortress Funds. Incentive income that is not subject to contingent repayment is recorded as earned. Incentive income received from funds that continues to be subject to contingent repayment is deferred and recorded as a deferred incentive income liability until the related contingency is resolved. The contingencies related to a portion of the incentive income we have received from certain private equity Fortress Funds have been resolved.

In determining our segment measure of operations, distributable earnings, we generally recognize private equity style incentive income when gains are realized and hedge fund incentive income based on current returns, and we recognize our employees' share of this income as compensation expense at the same time. In contrast, GAAP requires that we likewise recognize the compensation when incurred, but we must defer the recognition of the revenue until all contingencies, primarily minimum returns over the lives of the private equity style funds and annual performance requirements of the hedge funds, are resolved - regardless of the probability of such returns being met. As a result, when we have significant private equity style realizations or positive returns in interim periods in our hedge funds, which we regard as positive events, the related incentive income impact improves our segment distributable earnings while reducing our GAAP results for the same period.

As of December 31, 2015, we had $21.9 billion of incentive eligible NAV in the Fortress Funds above their incentive income threshold which is eligible to generate future incentive income and thus potentially contribute to our earnings. As of December 31, 2014, we had $21.3 billion of incentive eligible NAV in the Fortress Funds above their incentive income threshold. The increase in the incentive eligible NAV in the Fortress Funds above their incentive income threshold was primarily related to positive performance in the private equity funds, permanent capital vehicles and Logan Circle businesses, as well as incentive eligible NAV from new credit PE funds. These increases were partially offset by a decrease in the liquid hedge funds business as a result of the transition of the Fortress Asia Macro Funds and related managed accounts to Graticule in January 2015 and the closing of the Fortress Macro Funds and related managed accounts in the fourth quarter of 2015. Additionally, the December 31, 2015 incentive eligible NAV increased from the September 30, 2015 incentive eligible NAV of $20.6 billion, also primarily related to positive performance in the private equity funds, credit PE funds and Logan Circle businesses.

As of December 31, 2014 and 2013, we had $21.3 billion and $21.7 billion, respectively, of incentive eligible NAV in the Fortress Funds above their incentive income threshold. The decrease in incentive eligible NAV in the Fortress Funds above their incentive income threshold was primarily related to negative performance and redemptions in our liquid hedge funds business and partially offset by positive performance in our credit hedge funds, credit PE funds and permanent capital vehicles businesses.

Incentive eligible NAV is dependent on the performance of our funds which in turn is dependent on a number of factors, including but not limited to investment specific and overall market conditions, and historical performance of our funds may not be indicative of future results.

Fund Management and Investment Platform

In order to accommodate the demands of our funds’ investment portfolios, we have created investment platforms, which are comprised primarily of our people, financial and operating systems and supporting infrastructure. Our investment platform historically required changes in headcount, including changes in the number of investment professionals and support staff, as well as changes to leases and associated improvements to corporate offices to house the changes in the number of employees, and related augmentation of systems and infrastructure. Our headcount included 1,172, 1,186 and 1,074 asset management employees as of December 31, 2015, 2014 and 2013, respectively. Additionally, we had 1,868 employees as of December 31, 2015 at the senior living properties that we manage (whose compensation expense is reimbursed to us by the owners of the facilities) compared to 1,674 and 1,250 such employees as of December 31, 2014 and 2013, respectively.

Revenues

Year Ended December 31, 2015 compared to the Year Ended December 31, 2014

Total revenues were $1,213.9 million for the year ended December 31, 2015, a net increase of $8.3 million, compared to $1,205.6 million for the year ended December 31, 2014.

The increase in revenues of $8.3 million was primarily attributable to (i) an increase of $24.1 million in expense reimbursements from affiliates, (ii) an increase of $7.5 million in management fees from affiliates and (iii) an increase of $7.0 million in other revenues. These increases were partially offset by (i) a decrease in incentive income from affiliates of $17.5 million, (ii) a decrease in management fees from non-affiliates of $9.5 million, (iii) a decrease in expense reimbursements from non-affiliates of $2.4 million and (iv) a decrease in incentive income from non-affiliates of $0.9 million.

The increase in expense reimbursements from affiliates of $24.1 million was primarily related to an increase in operating expenses eligible for reimbursement from our private equity funds, permanent capital vehicles and credit hedge funds businesses for the year ended December 31, 2015 as compared with the prior period.

The increase in management fees from affiliates of $7.5 million was primarily due to (i) an increase of $53.2 million in management fees primarily related to our permanent capital vehicles, credit PE funds, credit hedge funds and Logan Circle as a result of increases in the average management fee paying AUM, based on a simple quarterly average, of $4.8 billion, (ii) a net increase of $18.8 million related to an increase of permanent capital vehicle options granted to Fortress during the year ended December 31, 2015 as compared to the prior period, (iii) $16.3 million of fees related to our Affiliated Managers which started in January 2015 and (iv) $14.5 million of management fees related to a co-management agreement which began in July 2015. These increases were partially offset by (i) a $53.1 million decrease in management fees as a result of a decrease of $2.6 billion in average fee paying AUM relating to the Fortress Asia Macro Funds which transitioned to Graticule in January 2015 and (ii) a $42.2 million decrease in management fees as a result of a decrease in the average management fee paying AUM of $2.2 billion in our private equity funds and liquid hedge funds.

The increase in other revenues of $7.0 million was primarily attributable to (i) an increase of $4.4 million of distributions from other investments during the year ended December 31, 2015, (ii) an increase of $1.4 million of services fees and (iii) an increase of $1.2 million of dividend and interest income.

The decrease in incentive income from affiliates of $17.5 million was primarily attributable to (i) a decrease of $41.7 million in crystallized incentive income earned from our credit hedge funds primarily due to lower returns from non-redeeming capital accounts, (or “non-RCA”), which represents accounts where investors have not provided withdrawal notices and decreased redeeming capital accounts (“RCA”), (ii) a decrease of $21.4 million in incentive income recognized in the prior period from Fund II as a result of a realization event during the year ended December 31, 2014, which resulted in the recognition of revenue as certain contingencies for repayment were resolved, (iii) a decrease of $15.0 million in crystallized incentive income earned from our liquid hedge funds primarily due to the transfer of the Fortress Asia Macro Funds to Graticule in January 2015 and the closing of the Fortress Macro Funds and related managed accounts (iv) a net decrease of $2.3 million in incentive income recognized from our permanent capital vehicles. These increases were partially offset by a net increase of $62.7 million in incentive income earned from our credit PE funds, primarily as a result of non-clawbackable tax distributions and an increase in crystallized incentive income as a result of realization events during the year ended December 31, 2015 which resulted in the recognition of revenue as certain contingencies for repayment were resolved.

The decrease in management fees from non-affiliates of $9.5 million was primarily related to (i) a decrease of $10.0 million due to the closing of our liquid hedge fund managed accounts, (ii) a $4.9 million decrease as a result of a transfer of $0.3 billion in average management fee paying AUM relating to the Fortress Asia Macro Funds and managed accounts which transitioned to Graticule in January 2015 and (iii) a decrease of $1.1 million earned from certain investments in one of our permanent capital vehicles. These decreases were partially offset by an increase of $6.9 million related to Logan Circle as a result of an increase in average management fee paying AUM of $3.2 billion.

Year Ended December 31, 2014 compared to the Year Ended December 31, 2013

Total revenues were $1,205.6 million for the year ended December 31, 2014, a net decrease of $59.4 million, compared to $1,265.0 million for the year ended December 31, 2013.

The decrease in revenues of $59.4 million was primarily attributable to decreases of $57.3 million and $42.6 million in incentive income from affiliates and non-affiliates, respectively. These decreases were partially offset by (i) increases of $19.3 million and $6.2 million in management fees from affiliates and non-affiliates, respectively, (ii) an increase of $6.6 million and $6.2 million in expense reimbursements from non-affiliates, respectively, and (iii) an increase of $1.9 million in other revenues.

The decrease in incentive income from affiliates of $57.3 million was primarily attributable to (i) a net decrease of $91.6 million in incentive income earned from our liquid hedge funds primarily as a result of a decrease in crystallized incentive due to lower returns in the year ended December 31, 2014, as compared to the prior period, (ii) a decrease of $70.3 million in incentive income earned from our credit hedge funds primarily due to lower returns from non-redeeming capital accounts (or "non-RCA"), which represents accounts where investors have not provided withdrawal notices, decreased redeeming capital accounts ("RCA") and a decrease in crystallized distribution from incentive income from our Worden Funds and (iii) a decrease of $4.9 million of incentive income recognized in the prior period from the liquidation of Fund I in May 2013. These decreases were partially offset by (i) an increase of $69.6 million in incentive income from our credit PE funds, primarily due to an increase in deemed tax distributions, which are not subject to clawback and (ii) an increase of $40.8 million in crystallized incentive income recognized from the permanent capital vehicles, primarily related to New Residential.

The $42.6 million decrease in incentive income from non-affiliates was primarily related to a net decrease in crystallized incentive income of $43.0 million from our liquid hedge fund managed accounts due to lower returns, as compared with the prior period.

The increase in management fees from affiliates of $19.3 million was mainly due to (i) an increase of $43.2 million in management fees from our liquid hedge funds, credit hedge funds, and Logan Circle primarily as a result of increases in average fee paying AUM, based on a simple quarterly average, of $2.3 billion, (ii) an increase of $2.1 million of management fees from our private equity funds primarily as a result of an net increase in the market values of certain portfolio companies and (iii) a net increase of $9.4 million of management fees from our permanent capital vehicles of which approximately $21.0 million was primarily due to an increase in the average AUM of New Residential, New Media and WWTAI and properties managed offset by a decrease of $7.0 million in Newcastle management fees due to the distribution of common shares of New Residential, New Media and New Senior and a $4.9 million decrease in Eurocastle management fees primarily due to a decrease in average AUM as a result of their restructuring process and amended management agreement in April 2013. This increase was partially offset by a decrease of $36.2 million in management fees resulting from publicly traded permanent capital vehicle options granted to Fortress during the year ended December 31, 2014 as compared to the prior period.

The increase in management fees from non-affiliates of $6.2 million was primarily related to a $10.7 million increase in management fees from non-affiliates from Logan Circle due to an increase in average fee paying AUM, based on a simple quarterly average, of $5.8 billion, partially offset by net decreases of $3.5 million and $0.9 million in management fees from non-affiliates from our liquid hedge fund managed accounts and permanent capital vehicles, respectively.

The increase in expense reimbursement from affiliates of $6.6 million was primarily related to an increase in operating expenses eligible for reimbursement from our funds and an increase in expense reimbursements related to our senior living property manager for the year ended December 31, 2014 as compared to the prior comparative period.

The increase in expense reimbursements from non-affiliates of $6.2 million was primarily related to an increase in operating expenses eligible for reimbursements from our managed accounts.

Expenses

Year Ended December 31, 2015 compared to the Year Ended December 31, 2014

Expenses were $1,052.9 million, including a non-cash expense of $101.0 million relating to the transfer of an interest in Graticule, for the year ended December 31, 2015, a net increase of $61.1 million, compared to $991.7 million for the year ended December 31, 2014. Excluding the Graticule transfer, expenses were $951.9 million for the year ended December 31, 2015, a net decrease of $39.9 million, compared to $991.7 million for the year ended December 31, 2014. The decrease in expenses was primarily due to a decrease in compensation and benefits of $51.5 million, partially offset by an increase in general, administrative and other expenses (including depreciation and amortization) of $10.5 million.

Total compensation and benefits decreased primarily due to a $77.3 million decrease in profit-sharing expenses primarily related to our liquid hedge funds, credit hedge funds, credit PE funds and permanent capital vehicles, as a result of changes in the performance of relevant funds and the amount of profit-sharing interests held by employees in the respective periods. This decrease was partially offset by (i) a $14.0 million increase in other payroll, taxes and benefits as a result of an increase in headcount and (ii) a $12.0 million increase in profit-sharing expenses primarily related to Principal Performance Payments in our private equity and credit businesses, as a result of changes in the performance of relevant funds and the amount of profit sharing interests held by employees in the respective periods.

The increase in general, administrative and other expenses was primarily due to an increase of $19.4 million in depreciation and amortization expenses, of which $18.2 million was related to the impairment of certain technology and software related assets in the liquid hedge fund business for the year ended December 31, 2015. This increase was partially offset by a $3.9 million decrease in professional fees and a $5.0 million decrease in general and other expenses.

Year Ended December 31, 2014 compared to the Year Ended December 31, 2013

Expenses were $991.7 million for the year ended December 31, 2014, a net increase of $94.1 million, compared to $897.6 million for the year ended December 31, 2013. The increase was primarily attributable to (i) an increase in compensation and benefits of $53.6 million and (ii) an increase in general, administrative and other expenses (including depreciation and amortization) of $42.5 million. These increases were partially offset by a decrease in interest expense of $1.9 million.

Total compensation and benefits increased primarily due to (i) a $70.7 million increase in profit sharing expenses related to our credit PE funds and permanent capital vehicles as a result of changes due to realization events and the amount of profit sharing interests held by employees in the respective periods, and (iii) a $29.5 million increase in other payroll, taxes and benefits as a result of an increase in headcount, (ii) a $19.4 million increase in discretionary bonus accruals. These increases were, partially offset by a $65.0 million decrease in profit-sharing expenses primarily related to our liquid hedge funds, credit hedge funds, private equity funds and Principal Performance Payments, as a result of changes in the performance of relevant funds.

The increase in general, administrative and other expenses was primarily due to (i) an increase of $18.4 million in general and other expenses primarily related to increased market data expenses, information technology expenses and general office expenses, (ii) an increase of $17.0 million in professional fees for consultants and other service providers and (iii) an increase of $6.1 million in depreciation and amortization expenses primarily related to technology related assets acquired in 2014.

The decrease in interest expense of $1.9 million primarily relates to a decrease in the average outstanding debt balance and average interest rate for the year ended December 31, 2014, as compared to the prior period.

Current and Future Compensation Expense

We seek to compensate our employees in a manner that aligns their compensation with the creation of long-term value for our shareholders. We aim to reward sustained financial and operational performance for all of our businesses and to motivate key employees to remain with us for long and productive careers. We must achieve our goals of alignment, motivation, and retention within the confines of current performance and liquidity. Aside from base salary, there are three significant components in our compensation structure.

Discretionary bonuses are awarded annually based on performance and on our estimation of market compensation. We note that while the payment of discretionary bonuses is optional, it is important for us to maintain a certain level of discretionary bonuses, based on the level of market compensation, even in periods of weaker performance, in order to retain and motivate employees.

Equity-based compensation awards, primarily RSUs, which are typically subject to service-based vesting conditions, are a key component of this compensation as they achieve all three goals. We set the level of our equity-based compensation each year based on performance (firm and individual) and our liquidity, as well as the number of shares available under our equity incentive plan and the dilutive impact they would have upon vesting.

In future periods, we will further recognize non-cash compensation expense on our non-vested equity-based awards outstanding as of December 31, 2015 of $79.4 million with a weighted average recognition period of 4.1 years.

Profit-sharing compensation is awarded, generally upon fund formation and, in certain cases, subject to vesting, based on certain employees' roles within the fund businesses, and serves to motivate these employees and align their interests with both our and our funds' investors. Private equity and credit PE profit-sharing expense is generally based on a percentage of realized fund incentive income when it becomes probable and reasonably estimable that incentive income will be received. Credit hedge fund and liquid hedge fund profit sharing expense may be based on a percentage of fund incentive income, a percentage of fund “net management fees” (management fees less related expenses), or a percentage of the incentive income generated by an individual trader (regardless of overall fund performance). The actual expense is based on actual performance within the funds and is detailed by segment in Note 8 to our consolidated financial statements included in Item 8.

Profit-sharing expenses can vary greatly by fund, depending on the compensation packages negotiated with key traders and investment officers within these funds. Therefore, the overall profit-sharing percentage of a given hedge fund segment will vary from year to year depending on which funds and which employees generate the most profits within the segment.

As of December 31, 2015, we have $965.3 million of gross undistributed incentive income. If this incentive income were realized, we would also recognize an additional $481.7 million of compensation expense.

From time to time, senior management engages a compensation consultant to provide management with surveys to help us understand how the compensation we offer to our employees compares to the compensation our peers offer to their employees.

Other Income (Loss)

Year Ended December 31, 2015 compared to the Year Ended December 31, 2014

Other Income (Loss) was $76.4 million, including a non-cash gain of $134.4 million relating to the transfer of Graticule, for the year ended December 31, 2015, a net increase of $43.1 million, compared to $33.3 million for the year ended December 31, 2014. Excluding the Graticule transfer, Other Income (Loss) was $(58.0) million for the year ended December 31, 2015, a net decrease of $91.3 million, compared to $33.3 million for the year ended December 31, 2014. The net decrease of $91.3 million was primarily related to (i) a net decrease of $111.1 million in earnings from equity method investees primarily with respect to our investments in our private equity funds, credit hedge funds, credit PE funds, liquid hedge funds and Affiliated Managers for the year ended December 31, 2015 as compared to the prior comparative period and (ii) a net decrease in realized and unrealized gains of $24.9 million in the fair value of the derivatives held, primarily Japanese Yen foreign exchange contracts for the year ended December 31, 2015 as compared to the prior period. These decreases were partially offset by (i) a decrease of $27.0 million associated with the tax receivable agreement for the year ended December 31, 2015, as compared to the prior period and (ii) a decrease in net realized and unrealized losses of $11.6 million in the fair value of options and common stock held in our publicly traded permanent capital vehicles and publicly traded private equity portfolio companies for the year ended December 31, 2015 as compared to the prior period.

Year Ended December 31, 2014 compared to the Year Ended December 31, 2013

Other Income (Loss) was $33.3 million for the year ended December 31, 2014, a net decrease of $148.7 million, compared to $182.0 million for the year ended December 31, 2013. This decrease is primarily related to (i) decreases of $28.6 million in the fair value of options and common stock held in our publicly traded permanent capital vehicles and publicly traded private equity portfolio companies for the year ended December 31, 2014 as compared to an increase of $46.4 million in the prior comparative period, resulting in a net decrease of $75.0 million, (ii) a net decrease of $58.7 million in earnings from equity method investees primarily with respect to our investments in our private equity funds, credit hedge funds, credit PE funds and liquid hedge funds for the year ended December 31, 2014 relative to the prior comparative period, (iii) an increase of $24.3 million in the tax receivable agreement liability expense, (iv) an increase of $5.8 million in losses associated with our holdings of digital currency for the year ended December 31, 2014 as compared to the prior period, (v) a $1.6 million decrease relating to our trading securities and (vi) a $1.6 million loss from other investments. These decreases were partially offset by an increase of $18.3 million in the fair value of the derivatives held, primarily Japanese Yen foreign exchange contracts, for the year ended December 31, 2014 as compared to the prior period.

Income Taxes

Fortress has recorded a significant deferred tax asset. A substantial portion of this asset is offset by a liability associated with the tax receivable agreement with our Principals. This deferred tax asset is further discussed under “— Critical Accounting Policies” below and the tax receivable agreement is discussed in our consolidated financial statements included herein.

For the years ended December 31, 2015, 2014 and 2013 Fortress recognized income tax expense of $55.8 million, $6.9 million and $65.8 million respectively. The primary reasons for changes in income tax expense are (i) changes in annual taxable income and related foreign and state income taxes, (ii) changes in the mix of businesses producing income, which may be subject to tax at different rates, and related changes in our structure, and (iii) the tax impact of stock-based compensation awards that vested and were delivered at varying stock prices.

Factors that impacted the period-over-period increase (decrease) in income taxes are detailed as follows:



	Comparative Years
	2015 vs. 2014			2014 vs. 2013
Change in pre-tax income applicable to Class A Shareholders (A)	$	8,140		$	(56,265	)
Change in foreign and state income taxes (B)	9,966			(21,762		)
Change in mix of business (C)	646			16,893
Change in deferred tax asset-impact of equity compensation vesting and other adjustments (D)	(15,105		)	(7,292		)
Change in deferred tax asset valuation allowance and related adjustments (E)	57,607			(2,353		)
Tax receivable agreement liability adjustment (F)	(9,442		)	8,515
Change in tax credits and other deductions	(2,971		)	3,410
Total change	$	48,841		$	(58,854	)


(A)	Changes in pre-tax income applicable to Class A shareholders are caused by changes in the pre-tax income of Fortress Operating Group and by changes in the Class A shareholders’ ownership interest in Fortress Operating Group.


(B)	Primarily related to enacted legislative changes to New York City and New York State corporate taxation in 2015 and 2014, respectively, which increased the value of certain future tax benefits. The increase in benefits were greater in 2014 than in 2015.


(C)	For the year ended December 31, 2015, the amount of income passed through to shareholders was comparable to the year ended December 31, 2014. For the year ended December 31, 2014, the amount of income passed through to shareholders was lower when compared to the year ended December 31, 2013, increasing taxable income in 2014 attributable to our tax paying corporate subsidiary.

(D)

The decrease in 2015 was primarily attributable to the impact of the 2014 write-off of deferred tax assets relating to the public offering basis differences. For 2013, write off of deferred tax assets relates to the tax shortfall created by the vesting of RSUs and RPUs. This factor changes based on the amount of equity-based compensation delivered in a given year and the stock price on the date of delivery. To the extent the actual tax benefit is greater than previously estimated, excess tax benefits are credited to stockholders' equity, which was the case in 2014 and 2015.

(E)

In 2015, the increase was primarily related to the change in the portion of the deferred tax asset that would be realized only in connection with future capital gains and therefore required a full valuation allowance. In 2014 and 2013, the change was primarily related to the reversal of the valuation allowance on previously fully reserved deferred tax assets associated with funds that were in the process of liquidation.


(F)	Relates to the tax receivable agreement (discussed in Note 6 to our consolidated financial statements included in Item 8) which is not tax deductible and represents a significant permanent tax/GAAP difference.

Principals’ and Others’ Interests in Income of Consolidated Subsidiaries

Year Ended December 31, 2015 compared to the Year Ended December 31, 2014

Principals’ and Others’ Interests in Income of Consolidated Subsidiaries decreased from $140.0 million to $103.1 million, a decrease of $36.8 million, primarily attributable to (i) a decrease of $21.0 million in the amount of consolidated net income allocable to the FOG units held by the principals and a former senior employee, (ii) an $11.5 million decrease resulting primarily from the dilution of non-controlling interests in Fortress Operating Group related to the delivery of restricted stock and the purchase of Fortress Operating Group units from a principal and (iii) a $4.3 million decrease in Others’ interests in the net income of consolidated subsidiaries of Fortress Operating Group during the year ended December 31, 2015, as compared to the year ended December 31, 2014. The $21.0 million decrease in the amount of consolidated net income allocable to the FOG units held by the principals and a former senior employee was primarily a result of a $40.2 million decrease in Fortress's shareholders' net income in Fortress Operating Group during the year ended December 31, 2015, as compared to the year ended December 31, 2014.

Year Ended December 31, 2014 compared to the Year Ended December 31, 2013

Principals’ and Others’ Interests in Income of Consolidated Subsidiaries decreased from $283.1 million to $140.0 million, a decrease of $143.2 million, primarily attributable to (i) a decrease of $143.9 million resulting from a $280.4 million decrease in Fortress Operating Group consolidated net income during the year ended December 31, 2014 as compared to the year ended December 31, 2013, (ii) a decrease of $1.5 million resulting from Others’ interests in the net income of consolidated subsidiaries of Fortress Operating Group offset by (iii) an increase of $2.2 million resulting from the dilution of non-controlling interests in Fortress Operating Group related to the delivery of restricted stock and restricted partnership awards.

Redeemable Non-controlling Interests in Income (Loss)

Redeemable Non-controlling Interests in Income (Loss) of Consolidated Subsidiaries represent the share of income (loss) attributable to equity interests which are redeemable and not owned by Fortress.

Segment Analysis

Fortress conducts its management and investment business through the following primary segments: (i) private equity funds, (ii) permanent capital vehicles, (iii) credit hedge funds, (iv) credit PE funds, (v) liquid hedge funds and (vi) Logan Circle. These segments are differentiated based on their varying strategies and, secondarily, on fund investor terms. Because of such differences in our segments' strategies and investor terms, each segment requires different types of management focus and those segments are managed separately.

For segment results of operations, the amounts not allocated to a segment consist primarily of interest expense, foreign currency translation and interest income. Assets not allocated to a segment consist primarily of cash and net deferred tax assets.

Discussed below are our results of operations for each of our reportable segments. They represent the separate segment information available and utilized by our management committee, which consists of our principals and certain key officers, and which functions as our chief operating decision maker ("CODM") to assess performance and to allocate resources. Management evaluates the performance of each segment based on its distributable earnings.

Management assesses our segments on a Fortress Operating Group and pre-tax basis, and therefore adds back the non-controlling interests in consolidated subsidiaries related to Fortress Operating Group units (held by the principals and a former senior employee) and income tax expense.

Distributable earnings is described in Note 11 to Part II, Item 8, “Financial Statements and Supplementary Data — Segment Reporting,” which includes a complete discussion of distributable earnings basis impairment and reserves, including the methodology used in estimating the amounts as well as the amounts incurred in the relevant periods.

“Distributable earnings” attributable to the Fortress businesses is equal to net income (loss) attributable to Fortress's Class A shareholders adjusted as follows:

Incentive Income

(i) a. for Fortress Funds which are private equity funds, the private permanent capital vehicle through IPO in May 2015 and credit PE funds, adding (a) incentive income paid (or declared as a distribution) to Fortress, less an applicable reserve for potential future clawbacks if the likelihood of a clawback is deemed greater than remote by Fortress’s CODM (net of the reversal of any prior such reserves that are no longer deemed necessary), less (b) incentive income recorded in accordance with GAAP,

b. for other Fortress Funds, at interim periods, adding (a) incentive income on an accrual basis as if the incentive income from these funds were earned on a quarterly basis, less (b) incentive income recorded in accordance with GAAP,


c.	adding the receipt of cash or proceeds from the sale of shares received (a) as incentive income from the publicly traded permanent capital vehicles and (b) pursuant to the exercise of options in the publicly traded permanent capital vehicles, if any, in excess of their strike price,


d.	adding incentive income received from third parties which is subject to contingent repayment less incentive income from third parties that is no longer subject to contingent repayment,

Other Income


(ii)	with respect to income from certain investments in the Fortress Funds and certain other interests or assets that cannot be readily transferred or redeemed:

a. for equity method investments in the private equity funds, private permanent capital vehicle through IPO in May 2015 and credit PE funds as well as indirect equity method investments in hedge fund special investment accounts (which generally have investment profiles similar to private equity funds), treating these investments as cost basis investments by adding (a) realizations of income, primarily dividends, from these funds, less (b) impairment with respect to these funds, if necessary, less (c) equity method earnings (or losses) recorded in accordance with GAAP,

b. subtracting gains (or adding losses) on options held in the publicly traded permanent capital vehicles,

c. subtracting unrealized gains (or adding unrealized losses) on derivatives, direct investments in publicly traded portfolio companies and in the publicly traded permanent capital vehicles,


(iii)	subtracting management fee income recorded in accordance with GAAP in connection with the receipt of options from the publicly traded permanent capital vehicles, if any,


(iv)	for 2015, subtracting the gain on transfer of Graticule,

Expenses


(v)	adding or subtracting, as necessary, the employee profit sharing portion of incentive income described in (i) above to match the timing of the expense with the revenue,


(vi)	adding back equity-based compensation expense (including options in the publicly traded permanent capital vehicles assigned to employees, RSUs (including the portion of related dividend and distribution equivalents recorded as compensation expense), and restricted shares),


(vii)	adding back the amortization of intangible assets and any impairment of goodwill or intangible assets recorded under GAAP,


(viii)	for 2015, adding back the expense related to the transfer of interest in Graticule,


(ix)	adding the income (or subtracting the loss) allocable to the interests in consolidated subsidiaries attributable to Fortress Operating Group units, and


(x)	adding back income tax benefit or expense and any income or expense recorded in connection with the tax receivable agreement (see Note 6 to our consolidated financial statements included in Item 8).

Private Equity Funds

The following table presents our results of operations for our private equity funds segment:



	Year Ended December 31,						Variance
	2015		2014		2013		2015/2014			2014/2013
Segment revenues
Management Fees	$	115,627	$	136,110	$	134,176	$	(20,483	)	$	1,934
Incentive Income	691		2,854		13,211		(2,163		)	(10,357		)
Segment revenues - total	$	116,318	$	138,964	$	147,387	$	(22,646	)	$	(8,423	)
Pre-tax distributable earnings	$	72,146	$	183,078	$	109,089	$	(110,932	)	$	73,989

Year Ended December 31, 2015 compared to the Year Ended December 31, 2014

Pre-tax distributable earnings decreased by $110.9 million primarily due to:

Revenues

Management fees were $115.6 million for the year ended December 31, 2015, a net decrease of $20.5 million, compared to $136.1 million for the year ended December 31, 2014. Management fees decreased by $20.5 million primarily due to (i) a decrease of $21.3 million in management fees primarily from Fund III, Fund III Co, Fund IV, Fund IV Co, FHIF and Fund V Co as a result of return of capital distributions and a decrease in the market values of certain portfolio companies, some of which were below their invested capital, which impacted the computation of management fees for the year ended December 31, 2015 as compared to the prior period and (ii) a decrease of $6.6 million due to the liquidation of FRIC and FRID, which both substantially liquidated their respective investments during the second quarter of 2014. These decreases were partially offset by (i) an increase of $6.3 million in management fees primarily from Fund V as a result of an increase in the market value of certain portfolio companies which impacted the computation of fees for the year ended December 31, 2015 as compared to the prior period and (ii) an increase of $1.5 million from Fortress Equity Partners and Italian NPL Opportunities Fund.

Incentive income was $0.7 million for the year ended December 31, 2015, a decrease of $2.2 million compared to $2.9 million of incentive income recognized for the year ended December 31, 2014. During the year ended December 31, 2015, the incentive income earned was due to a realization event of $0.7 million that occurred as a result of the liquidation of Fund II. The incentive income earned during the year ended December 31, 2014 of $2.9 million was due to a $2.0 million reversal of Fund II clawback reserve, as well as $0.9 million in incentive income earned from a realization event in Fund II.

Expenses

Expenses were $44.5 million for the year ended December 31, 2015, a net decrease of $6.4 million, compared to $50.9 million for the year ended December 31, 2014. The net decrease of $6.4 million in expenses was primarily attributable to (i) a net decrease of $3.5 million in general and administrative and corporate allocable expenses for the year ended December 31, 2015, as compared to the prior period, (ii) a net decrease of $2.1 million in compensation and benefits expense for the year ended December 31, 2015, as compared to the prior period and (iii) a decrease of $0.8 million in profit sharing compensation expense.

Net Investment Income

Net investment income was $0.3 million for the year ended December 31, 2015, a net decrease of $94.7 million, compared to $95.0 million for the year ended December 31, 2014. Net investment income for the year ended December 31, 2015 was primarily attributable to $0.2 million in distributions from realization events from our private equity funds. Net investment income for the

year ended December 31, 2014 was primarily attributable to (i) $50.3 million in distributions from realization events primarily from FRIC, FRID and the Mortgage Opportunities Funds I and II and (ii) a $45.9 million gain related to the sale of our GAGFAH stock. These amounts were partially offset by a $1.4 million realized loss on foreign currency hedges related to the Euro for the year ended December 31, 2014.

Year Ended December 31, 2014 compared to the Year Ended December 31, 2013

Pre-tax distributable earnings increased by $74.0 million primarily due to:

Revenues

Management fees were $136.1 million for the year ended December 31, 2014, a net increase of $1.9 million, compared to $134.2 million for the year ended December 31, 2013. Management fees increased by $1.9 million due to (i) a net increase of $9.6 million in management fees primarily from Fund IV, Fund IV Co and Fund V as a result of an increase in the market values of certain portfolio companies, some of which were below their invested capital in the prior period, which impacted the computation of fees for the year ended December 31, 2014 as compared to the prior period and (ii) an increase of $1.2 million in management fees from the MSR Opportunities Funds which called initial capital in January 2013. These increases were partially offset by a decrease of (i) $4.3 million in management fees related to Fund III, Fund III Co and Fund V Co primarily as a result of return of capital distributions and a decrease in the market values of certain portfolio companies, some of which were below their invested capital and (ii) a decrease of $4.7 million related to FRIC and FRID which both substantially liquidated their respective investments during the second quarter of 2014.

Incentive income was $2.9 million for the year ended December 31, 2014, a net decrease of $10.4 million, compared to $13.2 million of incentive income recognized for the year ended December 31, 2013. Incentive income decreased by $10.4 million primarily as a result of (i) a decrease of $4.9 million in the amount of incentive income earned from realization events that occurred as a result of the liquidation of Fund I during the year ended December 31, 2013 and (ii) a decrease of $5.4 million primarily due to a decrease of clawback reserve reversal related to Fund II during the year ended December 31, 2014 as compared to the prior period.

Expenses

Expenses were $50.9 million for the year ended December 31, 2014, a net decrease of $0.9 million, compared to $51.8 million for the year ended December 31, 2013. The net decrease of $0.9 million in expenses was primarily attributable to decrease of $4.8 million in profit sharing compensation expense associated with the decrease in incentive income described above for the year ended December 31, 2014 as compared to the prior period. This decrease was partially offset by a (i) a net increase of $2.9 million in general and administrative and corporate allocable expenses and (ii) an increase of $0.9 million in compensation and benefits expense due to an increase in average headcount.

Net Investment Income

Net investment income was $95.0 million for the year ended December 31, 2014, a net increase of $81.5 million, compared to $13.5 million for the year ended December 31, 2013. Net investment income increased by $81.5 million primarily due to (i) an increase of $47.6 million in distributions from realization events primarily from FRIC, FRID and the Mortgage Opportunities Funds I and II and (ii) an increase of $34.7 million in gain related to the sale of our GAGFAH common stock for the year ended December 31, 2014 as compared to the prior period. These increases were partially offset by a $1.0 million increase in realized losses on foreign currency hedges related to the Euro.

Permanent Capital Vehicles

The following table presents our results of operations for our permanent capital vehicles segment:



	Year Ended December 31,						Variance
	2015		2014		2013		2015/2014		2014/2013
Segment revenues
Management Fees	$	96,263	$	69,360	$	61,200	$	26,903	$	8,160
Incentive Income	105,603		65,448		18,101		40,155		47,347
Segment revenues - total	$	201,866	$	134,808	$	79,301	$	67,058	$	55,507
Pre-tax distributable earnings	$	104,529	$	40,976	$	31,319	$	63,553	$	9,657

Year Ended December 31, 2015 compared to the Year Ended December 31, 2014

Pre-tax distributable earnings increased by $63.6 million primarily due to:

Revenues

Management fees were $96.3 million for the year ended December 31, 2015, a net increase of $26.9 million, compared to $69.4 million for the year ended December 31, 2014. Management fees increased by $26.9 million primarily due to (i) a $13.8 million increase related to an increase in New Residential average AUM as a result of equity raised, (ii) a $12.4 million increase due to a new management agreement with New Senior which was spun off by Newcastle in November 2014 as well as an increase in the New Senior average AUM as a result of equity raised, (iii) a $9.6 million increase due to an increase in AUM as a result of capital called from investors in WWTAI and a new management agreement as a result of the FTAI IPO, (iv) a $3.8 million increase due to an increase in New Media average AUM as a result of equity raised during 2015 and the end of 2014, (v) a $1.6 million increase in Blue Harbor management fees due to an increase in the number of properties managed by Blue Harbor. These increases were partially offset by (i) a decrease of $10.3 million in Newcastle management fees primarily related to its decrease in AUM due to the spin-off of New Senior and (ii) a $4.0 million decrease in Eurocastle management fees primarily related to an amendment to its management agreement and changes to the foreign exchange rate.

Incentive income was $105.6 million for the year ended December 31, 2015, a net increase of $40.2 million, compared to $65.4 million of incentive income recognized for the year ended December 31, 2014. Incentive income increased by $40.2 million as a result of an increase of (i) $52.4 million related to the exercise of our options and sale of resulting shares in New Residential, (ii) $29.4 million related to New Media for the year ended December 31, 2015 and (iii) $2.9 million related to Eurocastle for the year ended December 31, 2015. These increases were partially offset by (i) a decrease of $41.7 million in incentive income related to New Residential for the year ended December 31, 2015 and (ii) a decrease of $3.4 million related to the exercise our options and sale of resulting shares in Newcastle.

Expenses

Expenses were $99.2 million for the year ended December 31, 2015, a net increase of $3.4 million, compared to $95.8 million for the year ended December 31, 2014. The increase of $3.4 million in expenses was primarily attributable to (i) a $13.8 million increase in accruals for Principal Performance Payments as compared to the prior period and (ii) a $3.1 million net increase in compensation and benefits expense, as compared to the prior period. This increase was partially offset by (i) a decrease of $10.5 million in profit sharing compensation expense and (ii) a net decrease of $3.2 million in general and administrative and corporate allocable expenses for the year ended December 31, 2015.

Net Investment Income

Net investment income was $1.8 million primarily related to dividends from our direct investments in our permanent capital vehicles for the year ended December 31, 2015, a net decrease of $0.2 million, compared to $2.0 million for the year ended December 31, 2014.

Year Ended December 31, 2014 compared to the Year Ended December 31, 2013

Pre-tax distributable earnings increased by $9.7 million primarily due to:

Revenues

Management fees were $69.4 million for the year ended December 31, 2014, a net increase of $8.2 million, compared to $61.2 million for the year ended December 31, 2013. Management fees increased by $8.2 million primarily as a result of (i) a $8.4 million increase due to an increase in average AUM for New Residential which was spun off by Newcastle in May 2013, (ii) a $5.6 million increase due to a new management agreement with New Media which was spun off by Newcastle in February 2014, as well as an increase in average AUM as a result of equity raised by New Media during the third quarter of 2014, (iii) an increase of $3.2 million in management fees primarily due to an increase in WWTAI average AUM as a result of net capital inflows, (iv) a $1.6 million increase in management fees generated by Blue Harbor due to an increase in properties managed compared to prior period and (v) an increase of $1.9 million in fees due to a new management agreement with New Senior which was spun off by Newcastle in November 2014. These increases were partially offset by (i) a $7.0 million decrease in Newcastle management fees primarily due to the distribution of common shares of New Residential, New Media and New Senior as described above resulting in a decrease in average AUM, and (ii) a $5.5 million decrease in Eurocastle management fees primarily due to a decrease in average AUM as a result of their restructuring process and amended management agreement in April 2013.

Incentive income was $65.4 million for the year ended December 31, 2014, an increase of $47.3 million, compared to $18.1 million of incentive income recognized for the year ended December 31, 2013. Incentive income increased by $47.3 million primarily as a result of (i) an increase of $40.6 million of incentive income related to New Residential for the year ended December 31, 2014 as compared to the prior period and (ii) an increase of $6.8 million due to the exercise of a portion of our publicly traded permanent capital vehicle options.

Expenses

Expenses were $95.8 million for the year ended December 31, 2014, a net increase of $46.3 million, compared to $49.5 million for the year ended December 31, 2013. The increase of $46.3 million in expenses was primarily attributable to (i) a $18.0 million increase in compensation and benefits expense primarily due to an increase in average headcount assigned to the permanent capital vehicles segment, (ii) a net increase of $8.3 million in general and administrative and corporate allocable expenses, (iii) an increase of $16.8 million in profit sharing expense related to the net operating results of certain permanent capital vehicles including the recognition of the incentive income discussed above (which includes a $6.8 million increase related to the exercise of our publicly traded permanent capital vehicle options allocated to employees) and (iv) an increase of $3.2 million in accruals for Principal Performance Payments as compared to the prior period.

Net Investment Income

Net investment income was $2.0 million for the year ended December 31, 2014, a net increase of $0.5 million, compared to $1.5 million for the year ended December 31, 2013. Net investment income increased by $0.5 million primarily due to (i) an increase of $0.2 million in dividend income primarily from our direct investments in New Residential, Eurocastle, New Media and New Senior common stock and (ii) an increase of $0.4 million in other investment income. These increases were offset by a decrease of $0.1 million in distribution of earnings from WWTAI.

Credit Hedge Funds

The following table presents our results of operations for our credit hedge funds segment:



	Year Ended December 31,						Variance
	2015		2014		2013		2015/2014			2014/2013
Segment revenues
Management Fees	$	134,054	$	113,825	$	101,890	$	20,229		$	11,935
Incentive Income	84,588		121,768		190,846		(37,180		)	(69,078		)
Segment revenues - total	$	218,642	$	235,593	$	292,736	$	(16,951	)	$	(57,143	)
Pre-tax distributable earnings	$	84,934	$	85,988	$	127,450	$	(1,054	)	$	(41,462	)

Year Ended December 31, 2015 compared to the Year Ended December 31, 2014

Pre-tax distributable earnings decreased by $1.1 million primarily due to:

Revenues

Management fees were $134.1 million for the year ended December 31, 2015, a net increase of $20.2 million, compared to $113.8 million for the year ended December 31, 2014. Management fees increased by $20.2 million primarily due to (i) $16.0 million in fees related to a co-management agreement which began in July 2015, (ii) a $4.7 million net increase from the Drawbridge Special Opportunities Funds due to an increase in average AUM and (iii) a $1.0 million increase from the Fortress Japan Income Fund. These increases were partially offset by a $1.5 million decrease in management fees from the Value Recovery Funds.

Incentive income, which is determined on a fund-by-fund basis, was $84.6 million for year ended December 31, 2015, a net decrease of $37.2 million, compared to $121.8 million for the year ended December 31, 2014. Incentive income decreased by $37.2 million primarily due to decreases of $39.5 million and $2.6 million in incentive income generated by the Drawbridge Special Opportunities Funds and Worden Funds, respectively, primarily due to lower returns for the year ended December 31, 2015 as compared to the prior period. These decreases were partially offset by (i) a $4.5 million increase in incentive income from other investments and (ii) $0.4 million in incentive income from Fortress Japan Income Fund for the year ended December 31, 2015.

Expenses

Expenses were $135.8 million for the year ended December 31, 2015, a net decrease of $12.5 million, compared to $148.3 million for the year ended December 31, 2014. The decrease of $12.5 million in expenses was primarily attributable to (i) a decrease of $23.5 million in profit sharing compensation expense related to the decrease of incentive income described above and (ii) a $3.7 million decrease in accruals for Principal Performance Payments. These decreases were partially offset by (i) an $11.2 million net increase in compensation and benefits expense, as a result of an increase in headcount, for the year ended December 31, 2015 as compared to the prior period and (ii) an increase of $3.5 million in general and administration expenses and corporate allocable expenses.

Net Investment Income

Net investment income (loss) was $2.1 million for the year ended December 31, 2015, a net increase of $3.4 million, compared to $(1.3) million for the year ended December 31, 2014. Net investment income increased by $3.4 million primarily due to a $4.3 million decrease related to the impairment on Fortress’s holdings of digital currencies for the year ended December 31, 2015, as compared to the prior period. This increase was partially offset by a decrease of $1.0 million in earnings from our investments in our credit hedge funds for the year ended December 31, 2015, as compared to the prior period.

Year Ended December 31, 2014 compared to the Year Ended December 31, 2013

Pre-tax distributable earnings decreased by $41.5 million primarily due to:

Revenues

Management fees were $113.8 million for the year ended December 31, 2014, a net increase of $11.9 million, compared to $101.9 million for the year ended December 31, 2013. Management fee increased by $11.9 million primarily due to an increase of $11.4 million in management fees from the Drawbridge Special Opportunities Funds as a result of an increase in AUM.

Incentive income, which is determined on a fund-by-fund basis, was $121.8 million for year ended December 31, 2014, a net decrease of $69.1 million, compared to $190.8 million for the year ended December 31, 2013. Incentive income decreased by $69.1 million primarily due to (i) a decrease of $64.3 million in incentive income generated by the Drawbridge Special Opportunities Funds due to relatively lower returns and a decrease in crystallizations due to lower RCA distributions in 2014 and (ii) a decrease of $6.0 million in incentive income generated by the Worden Funds mainly due to lower returns for the year ended December 31, 2014 as compared to the prior period. These decreases were partially offset by a $1.2 million increase in incentive income from other investments for the year ended December 31, 2014 as compared to the prior period.

Expenses

Expenses were $148.3 million for the year ended December 31, 2014, a net decrease of $23.5 million, compared to $171.9 million for the year ended December 31, 2013. The decrease of $23.5 million in expenses was primarily attributable to (i) a decrease of $31.6 million in profit sharing compensation expense related to the decrease of incentive income discussed above and (ii) a net decrease of $4.4 million in general and administrative expenses and corporate allocable expenses for the year ended December 31, 2014 as compared to the prior period. These decreases were partially offset by (i) a $11.9 million increase in compensation and benefits expense and (ii) an increase of $0.6 million in accruals for Principal Performance Payments for the year ended December 31, 2014 as compared to the prior period.

Net Investment Income

Net investment income (loss) was $(1.3) million for the year ended December 31, 2014, a change of $7.8 million, compared to net investment income of $6.6 million for the year ended December 31, 2013. Net investment income changed by $7.8 million primarily due to (i) a $5.8 million impairment on Fortress’s holdings of digital currency, (ii) a decrease of $2.0 million in earnings from our investments in our credit hedge funds and (iii) a decrease of $0.2 million in dividend income from a private investment for year ended December 31, 2013.

Credit PE Funds

The following table presents our results of operations for our credit PE segment:



	Year Ended December 31,						Variance
	2015		2014		2013		2015/2014			2014/2013
Segment revenues
Management Fees	$	117,740	$	96,715	$	95,925	$	21,025		$	790
Incentive Income	244,308		254,461		120,137		(10,153		)	134,324
Segment revenues - total	$	362,048	$	351,176	$	216,062	$	10,872		$	135,114
Pre-tax distributable earnings	$	139,327	$	121,669	$	63,766	$	17,658		$	57,903

Year Ended December 31, 2015 compared to the Year Ended December 31, 2014

Pre-tax distributable earnings increased by $17.7 million primarily due to:

Revenues

Management fees were $117.7 million for the year ended December 31, 2015, a net increase of $21.0 million, compared to $96.7 million for the year ended December 31, 2014. Management fees increased by $21.0 million primarily due to (i) an increase of $12.8 million related to Real Estate Opportunities Fund II, which commenced in May 2014, (ii) an increase of $10.0 million from the Credit Opportunities Fund III and its managed accounts primarily due to net capital calls made after the third quarter of 2014, (iii) an increase of $5.3 million from Japan Opportunity Fund III, which commenced earning fees in February 2015 and (iv) $4.7 million in management fees from Credit Opportunities Fund IV and its managed accounts which commenced in 2015. These increases in management fees were partially offset by a decrease of $11.2 million related to Japan Opportunity Funds I and II, Global Opportunities Fund, Credit Opportunities Fund II and its related managed accounts, Long Dated Value Funds, Real Assets Fund and Credit Opportunities Fund I and its related managed accounts primarily due to net capital distributions made after the third quarter of 2014.

Incentive income was $244.3 million for the year ended December 31, 2015, a net decrease of $10.2 million, compared to $254.5 million for the year ended December 31, 2014. Incentive income decreased by $10.2 million primarily due to decreases of $36.4 million, $5.4 million, $1.4 million, $1.3 million and $0.7 million in incentive income generated by the Japan Opportunities Fund I, Net Lease Fund, Real Estate Opportunities Fund, Long Dated Value Funds and Global Opportunities Fund, respectively. These decreases were partially offset by increases of $20.1 million, $13.1 million and $1.9 million in incentive income generated by Credit Opportunities Funds and its related managed accounts, Japan Opportunities Fund II and Real Assets Fund, respectively.

Expenses

Expenses were $243.4 million for the year ended December 31, 2015, a net increase of $1.0 million, compared to $242.4 million for the year ended December 31, 2014. The increase of $1.0 million in expenses was primarily attributable to (i) a net increase of $4.6 million in compensation and benefits expense as a result of an increase in headcount, for the year ended December 31, 2015, as compared to the prior period, (ii) an increase of $4.3 million in accruals for Principal Performance Payments and (iii) and increase of $2.4 million in general and administrative expenses and certain corporate allocable expenses. These increases were offset by a decrease of $10.3 million in profit sharing compensation expenses related to the decrease of incentive income as described above.

Net Investment Income

Net investment income was $20.7 million for the year ended December 31, 2015, a net increase of $7.8 million, compared to $12.9 million for the year ended December 31, 2014. Net investment income increased by $7.8 million primarily due to (i) an increase of $6.3 million in distributions of earnings related to realization events in our credit PE funds and (ii) and increase of $1.4 million in interest income for the year ended December 31, 2015, as compared to the prior period.

Year Ended December 31, 2014 compared to the Year Ended December 31, 2013

Pre-tax distributable earnings increased by $57.9 million primarily due to:

Revenues

Management fees were $96.7 million for the year ended December 31, 2014, a net increase of $0.8 million, compared to $95.9 million for the year ended December 31, 2013. Management fees increased by $0.8 million primarily due to an increase of $14.2

million related to Credit Opportunities Fund III and its managed accounts and Real Estate Opportunities Funds attributable to net capital raised after the third quarter of 2013. This increase in management fees was partially offset by decreases of $3.8 million, $4.1 million, $2.0 million, $1.1 million, $0.9 million, $0.7 million and $0.6 million in management fees related to Credit Opportunities Fund and its managed account, Credit Opportunities Fund II and its managed accounts, Japan Opportunity Funds I and II, Life Settlement Fund and its managed account, Net Lease Fund, Long Dated Value Funds and Global Opportunities Fund, respectively, primarily due to net capital distributions made after the third quarter of 2013.

Incentive income was $254.5 million for the year ended December 31, 2014, a net increase of $134.3 million, compared to $120.1 million for the year ended December 31, 2013. Incentive income increased by $134.3 million primarily due to (i) an increase of $66.1 million in incentive income generated by the Japan Opportunity Funds I and II during the year ended December 31, 2014 as compared to the prior period, (ii) a net increase of $65.4 million in incentive income generated primarily by the Credit Opportunities Funds and FCO Managed Accounts as a result of an increase in distributions generated by realization events, (iii) a net increase of $2.0 million in incentive income generated primarily by Net Lease Fund and (iv) an increase of $2.0 million in incentive income generated by the Real Estate Opportunities Funds. These increases were partially offset by a decrease of $1.6 million in incentive income generated by the Real Assets Fund.

Expenses

Expenses were $242.4 million for the year ended December 31, 2014, a net increase of $82.5 million, compared to $159.9 million for the year ended December 31, 2013. The increase of $82.5 million in expenses was primarily attributable to (i) a $65.9 million increase in profit sharing compensation expense associated with the increase in incentive income described above, (ii) a $15.1 million net increase in general and administrative expenses and corporate allocable expenses and (iii) a $1.5 million increase in accruals for Principal Performance Payments during the year ended December 31, 2014 as compared to the prior period.

Net Investment Income

Net investment income was $12.9 million for the year ended December 31, 2014, a net increase of $5.2 million, compared to $7.7 million for the year ended December 31, 2013. Net investment income increased by $5.2 million primarily due to an increase in distribution of earnings from realization events in credit PE funds for the year ended December 31, 2014.

Liquid Hedge Funds

The following table presents our results of operations for our liquid hedge funds segment:



	Year Ended December 31,							Variance
	2015			2014		2013		2015/2014			2014/2013
Segment revenues
Management Fees	$	64,208		$	137,908	$	110,622	$	(73,700	)	$	27,286
Incentive Income	912			16,067		150,700		(15,155		)	(134,633		)
Segment revenues - total	$	65,120		$	153,975	$	261,322	$	(88,855	)	$	(107,347	)
Pre-tax distributable earnings (loss)	$	(3,410	)	$	22,371	$	116,488	$	(25,781	)	$	(94,117	)

Year Ended December 31, 2015 compared to the Year Ended December 31, 2014

Pre-tax distributable earnings decreased by $25.8 million primarily due to:

Revenues

Management fees were $64.2 million for the year ended December 31, 2015, a net decrease of $73.7 million, compared to $137.9 million for the year ended December 31, 2014. Management fees decreased by $73.7 million primarily due to a decrease of (i) $58.0 million from the Fortress Asia Macro Funds (including related managed accounts) as a result of the transfer to Graticule in January 2015, (ii) $28.6 million due to a decrease in average AUM primarily as a result of redemptions and the closing of the Fortress Macro Funds and its related managed accounts, which closed during the fourth quarter of 2015 and (iii) $5.5 million primarily related to the Fortress Partners Funds due to a decrease in average AUM. These decreases were partially offset by an increase of (i) $16.3 million in fees related to our affiliated manager platform and (ii) $2.2 million in management fees primarily related to the Fortress Centaurus Global Funds and Fortress Convex Asia Funds.

Incentive income, which is determined on a fund-by-fund basis, was $0.9 million for the year ended December 31, 2015, a net decrease of $15.2 million, compared to $16.1 million for the year ended December 31, 2014. Incentive income decreased by $15.2 million primarily due to decreases of $9.1 million, $3.8 million, $1.5 million and $1.3 million in incentive income generated by the Fortress Asia Macro Funds (including related managed accounts) as a result of the transfer to Graticule in January 2015, Fortress Macro Funds (including related managed accounts), Drawbridge Global Macro Funds and Fortress Partners Funds. These decreases were partially offset by an increase of $0.6 million of incentive fees related to Fortress Centaurus Global Funds and Fortress Convex Asia Funds.

Expenses

Expenses were $84.5 million for the year ended December 31, 2015, a net decrease of $45.6 million, compared to $130.1 million for the year ended December 31, 2014. The decrease of $45.6 million in expenses was primarily attributable to (i) a decrease of $30.2 million in net compensation and benefits expense due to the transfer of the Fortress Asia Macro Funds (including related managed accounts) to Graticule in January 2015 and other decreases in headcount related to the closing of the Fortress Macro Funds and related managed accounts, (ii) a decrease of $28.1 million in profit sharing compensation expense primarily due to the transfer of the Fortress Asia Macro Funds (including related managed accounts) to Graticule in January 2015 and a decrease in operating results of our liquid hedge funds business for the year ended December 31, 2015 as compared to the prior period and (iii) a decrease of $1.6 million in accruals for Principal Performance Payments. These decreases were partially offset by a net increase of $14.3 million in general and administrative expenses and corporate allocable expenses. General and administrative expenses and corporate allocable expenses increased primarily due to an impairment of $18.2 million of certain software and technology-related assets for the year ended December 31, 2015.

Earnings from Affiliated Managers

Earnings from Affiliated Managers were $8.6 million for the year ended December 31, 2015, related to our interests in Affiliated Managers which commenced during January 2015.

Net Investment Income

Net investment income (loss) was $7.4 million for the year ended December 31, 2015, an increase of $8.9 million, compared to $(1.5) million for the year ended December 31, 2014. Net investment income increased by $8.9 million primarily due to (i) an increase of $6.6 million in distribution of earnings from realization events in special investments in our liquid hedge funds, primarily Fortress Partners Funds, for the year ended December 31, 2015, as compared to the prior period, (ii) a $4.3 million decrease in the impairment on Fortress's holdings of digital currencies for the year ended December 31, 2015, as compared to the prior period and (iii) a $1.8 million net decrease in losses from our liquid hedge funds for the year ended December 31, 2015, as compared to the prior period. The increase in net investment income was partially offset by a $3.6 million increase in impairment charges with respect to our special investments in our liquid hedge funds.

Year Ended December 31, 2014 compared to the Year Ended December 31, 2013

Pre-tax distributable earnings decreased by $94.1 million primarily due to:

Revenues

Management fees were $137.9 million for the year ended December 31, 2014, a net increase of $27.3 million, compared to $110.6 million for the year ended December 31, 2013. Management fees increased by $27.3 million primarily due to (i) a $31.7 million increase in management fees earned from the Fortress Asia Macro Funds (including related managed accounts) as a result of an increase in net capital inflows and (ii) a $5.5 million increase in management fees related to Fortress Redwood Fund (which launched in August 2013). These increases were partially offset by a $9.9 million net decrease in management fees from certain of our other liquid hedge funds and managed accounts primarily as a result of net capital outflows.

Incentive income, which is determined on a fund-by-fund basis, was $16.1 million for the year ended December 31, 2014, a net decrease of $134.6 million, compared to $150.7 million for the year ended December 31, 2013. Incentive income decreased by $134.6 million primarily due to decreases of $86.2 million, $36.4 million, $8.5 million, $2.8 million, and $2.2 million in the incentive income generated by the Fortress Macro Funds (including related managed accounts), the Fortress Asia Macro Funds (including related managed accounts), Fortress Macro MA I Fund, Fortress Redwood Fund and Drawbridge Global Macro Funds respectively, due to lower returns during the year ended December 31, 2014 as compared to the prior period. These decreases were partially offset by a $1.4 million increase in incentive income from the Fortress Partners Funds for the twelve months ended December 31, 2014 as compared to the prior period.

Expenses

Expenses were $130.1 million for the year ended December 31, 2014, a net decrease of $18.3 million, compared to $148.4 million for the year ended December 31, 2013. The decrease of $18.3 million in expenses was primarily attributable to (i) a decrease of $22.5 million in profit sharing compensation expense related to the recognition of incentive income discussed above and (ii) a decrease of $11.0 million in accruals for Principal Performance Payments. These decreases were partially offset by an increase of $10.1 million in compensation and benefits expense primarily due to an increase in average headcount and by a net increase of $5.1 million in general and administrative expenses and corporate allocable expenses.

Net Investment Income

Net investment income (loss) was $(1.5) million for the year ended December 31, 2014, a change of $5.1 million, compared to net investment income of $3.6 million for the year ended December 31, 2013. Net investment income changed by $5.1 million primarily due to (i) a $5.8 million impairment on Fortress’s holdings of digital currency, (ii) an increase of $1.3 million in losses attributable to investments in our liquid hedge funds and (iii) an increase of $1.7 million in recorded impairments with respect to our special investments in our liquid hedge funds as compared to the prior period. These increases in losses were partially offset by an increase of $3.7 million in distribution of earnings from realization events in special investments in liquid hedge funds for the year ended December 31, 2014 as compared to the prior period.

Logan Circle

The following table presents our results of operations for our Logan Circle segment:



	Year Ended December 31,									Variance
	2015			2014			2013			2015/2014		2014/2013
Segment revenues
Management Fees	$	53,995		$	46,996		$	35,833		$	6,999	$	11,163
Incentive Income	211			106			—			105		106
Segment revenues - total	$	54,206		$	47,102		$	35,833		$	7,104	$	11,269
Pre-tax distributable earnings (loss)	$	(2,120	)	$	(5,267	)	$	(8,542	)	$	3,147	$	3,275

Year Ended December 31, 2015 compared to the Year Ended December 31, 2014

Pre-tax distributable loss decreased by $3.1 million primarily due to:

Revenues

Management fees were $54.0 million for the year ended December 31, 2015, a net increase of $7.0 million, compared to $47.0 million for the year ended December 31, 2014. Management fees increased by $7.0 million due to an increase in average AUM.

Incentive income was $0.2 million for the year ended December 31, 2015, a net increase of $0.1 million, compared to $0.1 million for the year ended December 31, 2014. Incentive income increased by $0.1 million primarily as a result of increased returns for a certain fund.

Expenses

Expenses were $55.4 million for the year ended December 31, 2015, a net increase of $1.7 million, compared to $53.7 million for the year ended December 31, 2014. The increase of $1.7 million in expenses was primarily attributable to an increase of $1.8 million in general and administrative expenses and corporate allocable expenses, partially offset by a decrease of $0.1 million in compensation and benefits expense.

Net Investment Income

Net investment income (loss) was $(1.0) million for the year ended December 31, 2015, a decrease of $2.3 million, compared to net investment income of $1.3 million for the year ended December 31, 2014. Net investment income decreased by $2.3 million primarily due to losses from our investments in certain Logan Circle funds.

Year Ended December 31, 2014 compared to the Year Ended December 31, 2013

Pre-tax distributable loss decreased by $3.3 million primarily due to:

Revenues

Management fees were $47.0 million for the year ended December 31, 2014, a net increase of $11.2 million, compared to $35.8 million for the year ended December 31, 2013. Management fees increased $11.2 million due to an increase in average AUM as a result of net client inflows.

Incentive income was $0.1 million for the year ended December 31, 2014, a net increase of $0.1 million, compared to no incentive income for the year ended December 31, 2013. Incentive income increased by $0.1 million primarily as a result of returns exceeding performance thresholds for a certain managed account during the year ended December 31, 2014 as compared to the prior period.

Expenses

Expenses were $53.7 million for the year ended December 31, 2014, a net increase of $6.0 million, compared to $47.7 million for the year ended December 31, 2013. The increase of $6.0 million in expenses was primarily attributable to (i) an increase of $2.3 million in compensation and benefits expense as a result of an increase in average headcount within Logan Circle during the year ended December 31, 2014 as compared to the prior period and (ii) an increase of $3.7 million in general and administrative expenses and corporate allocable expenses.

Net Investment Income

Net investment income was $1.3 million for the year ended December 31, 2014, a net decrease of $1.9 million, compared to $3.2 million for the year ended December 31, 2013. Net investment income decreased by $1.9 million primarily due to decrease in net realized and unrealized gains on equity securities managed by Logan Circle’s startup growth equities investment strategy.

Unallocated



	Year Ended December 31,									Variance
	2015			2014			2013			2015/2014			2014/2013
Pre-tax distributable earnings (loss)	$	(4,581	)	$	(2,757	)	$	(5,184	)	$	(1,824	)	$	2,427

The amounts not allocated to a segment consist primarily of interest expense, foreign currency translation and interest income.

Year Ended December 31, 2015 compared to the Year Ended December 31, 2014

Pre-tax distributable loss increased by $1.8 million, primarily due to (i) an increase of $1.0 million in foreign currency translation losses for the year ended December 31, 2015 and (ii) an increase of $0.9 million in interest expense due to an increase in the average debt balance and average interest rate for the year ended December 31, 2015, as compared to the prior period.

Year Ended December 31, 2014 compared to the Year Ended December 31, 2013

Pre-tax distributable loss decreased by $2.4 million, primarily as a result of (i) a decrease of $2.0 million in interest expense due to a decrease in the average debt balance and average interest rate for the year ended December 31, 2014 as compared to the prior period, (ii) an increase of $0.4 million in foreign currency translation gains for the year ended December 31, 2014 as compared to the prior period.

Embedded Gains (Losses)

The following table reflects all of our investments which are not marked to market through distributable earnings for segment reporting purposes as of December 31, 2015:



Fund	Fortress Share of NAV (A)		Fortress Segment Cost Basis (B)		Excess (C)		(Deficit) (C)
Main Funds
Fund III and Fund III Coinvestment	4,702		—		4,702		N/A
Fund IV and Fund IV Coinvestment	67,326		27,821		39,505		N/A
Fund V and Fund V Coinvestment	196,286		10,517		185,769		N/A
Long Dated Value Funds	18,219		8,421		9,798		N/A
Real Assets Funds	5,684		—		5,684		N/A
Credit Opportunities Funds	112,726		65,612		47,132		(18		)
Asia Funds (Japan Opportunity Funds, Global Opportunities Fund)	28,505		13,988		14,521		(4		)
Real Estate Opportunities Funds	11,240		8,539		2,701		N/A
MSR Opportunities Funds	2,685		2,294		391		N/A
Italian NPL Opportunities Fund	3,530		3,371		159		N/A
Other Funds (combined)
Private investment #1	266,747		207,349		59,398		N/A
Private investment #2	56,270		8,425		47,845		N/A
Permanent capital vehicles
Eurocastle (EURONEXT: ECT)	1,916		78		1,838		N/A
Newcastle (NYSE: NCT)	705		60		645		N/A
New Residential (NYSE: NRZ)	6,306		413		5,893		N/A
New Media (NYSE: NEWM)	1,457		54		1,403		N/A
New Senior (NYSE: SNR)	1,704		229		1,475		N/A
FTAI (NYSE: FTAI) (D)	4,554		6,283		N/A		(1,729		)
Other
Hedge fund sidepocket investments	42,892		19,384		23,590		(82		)
Direct investments- Other	67,127		33,057		36,528		(2,458		)
Total	$	900,581	$	415,895	$	488,977	$	(4,291	)


(A)	Represents the net asset value (“NAV”) of Fortress’s investment in each fund. This is generally equal to its GAAP and segment carrying value.


(B)	Represents Fortress’s cost basis in each investment for segment reporting purposes, which is net of any prior impairments taken for distributable earnings.


(C)	Represents the difference between NAV and segment cost basis. If negative (a deficit), this represents potential future impairment. If positive (an excess), this represents unrealized gains which, if realized, will increase future distributable earnings.


(D)	All of the capital of WWTAI was contributed to FTAI which completed its initial public offering ("IPO") in May 2015. Excludes the FTAI shares received at IPO as incentive income, with a fair value of $3.9 million as of December 31, 2015.

Sensitivity

For an analysis of the sensitivity of segment revenues to changes in the estimated fair value of the Fortress Fund investments, see Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk.”

Liquidity and Capital Resources

Liquidity is a measurement of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain investments, including our capital commitments (and clawback obligations, if any) to our funds, pay compensation, and satisfy our other general business needs including our obligation to pay U.S. federal income tax. In addition, we may use cash to make distributions, particularly the distributions we are required to make to our principals in connection with tax obligations, which can be material. Our primary sources of funds for liquidity consist of cash flows provided by operating activities, primarily the management fees and incentive income paid to us from the Fortress Funds, borrowings under loans, and the potential issuance of debt and equity securities, as well as the investment returns on our investments in these funds. The cash received from these investment returns is limited based on the liquidity terms of the respective funds; for instance, private equity funds generally only distribute cash upon investment realization events. Our primary uses of liquidity include operating expenses (which include compensation, rent and interest, among others), payments under our credit agreement and other debt, capital commitments to our funds and tax and tax-related payments and distributions.

The receipt of management fees generally occurs on a fixed and fairly predictable schedule, subject to changes in the NAV of the Fortress Funds (due to performance or capital transactions). From time to time, we may elect, in our discretion, to defer the receipt of management or other fees or reimbursements, to which we are legally entitled, in order to optimize the operations of the underlying funds. As of December 31, 2015, amounts due from our funds included $38.6 million of past due management fees and $11.0 million of private equity general and administrative expenses advanced on behalf of a certain Fortress Fund. Although such fund is currently experiencing a liquidity issue, the past due amounts represent less than 5% of such fund's NAV and we believe these fees and reimbursable expenses will ultimately be collected. As of December 31, 2015, we also had past due amounts of $12.2 million in management fees and $6.8 million in private equity general and administrative expenses due from another Fortress Fund which Fortress has fully reserved. The amount of deferred management fees and reimbursements may increase in the future. Also, while we still believe that we will receive these amounts, if these deferrals continue or increase, they could meaningfully constrain our liquidity in the future.

The timing of receipt of cash flows from other operating activities is in large part dependent on the timing of distributions from our private equity funds and credit PE funds, which are subject to restrictions and to management's judgment regarding the optimal timing of the monetization of underlying investments, and to dates specified in our hedge funds' operating documents, which outline the determination and payment of our incentive income, if any. The timing of capital requirements to cover fund commitments is subject to management's judgment regarding the acquisition of new investments by the funds, as well as the ongoing liquidity requirements of the respective funds. The timing of capital requirements and the availability of liquidity from operating activities may not always coincide, and we may make short-term, lower-yielding investments with excess liquidity or fund shortfalls with short-term debt or other sources of capital.

We expect that our cash on hand and our cash flows from operating activities, capital receipts from balance sheet investments and available financing will be sufficient to satisfy our liquidity needs with respect to expected current commitments relating to investments and with respect to our debt obligations over the next twelve months. We estimate that our expected management fee receipts over the next twelve months, a portion of which may be deferred, will be sufficient (along with our cash on hand of $339.8 million at December 31, 2015, our available draws under our credit facility and capital receipts from our balance sheet investments) to meet our operating expenses (including compensation and lease obligations), required debt payments, tax distribution requirements, incentive income clawback obligations (if any), and fund capital commitments, in each case to be funded during the next twelve months (see obligation tables below). In January 2016, we entered into a new $275.0 million senior unsecured revolving credit facility with a $15.0 million letter of credit subfacility and repaid our existing $150.0 million senior secured revolving credit facility. After giving effect to the initial extensions of credit thereunder of $75.0 million, and a subsequent borrowing of $100.0 million in February 2016, approximately $97.3 million was available to be drawn. The new revolving credit facility matures in January 2021. From time to time, we evaluate alternative uses for excess cash resources, including debt prepayments, payment of recurring or special dividends, funding investments or share repurchases, which may be subject to approval by our board of directors and will depend on various factors. In February 2016, our board of directors authorized the company to repurchase up to $100.0 million of our shares, either through open market repurchases, tender offers or other means, and we announced the commencement of a modified "Dutch auction" self-tender offer to repurchase up to $100.0 million in cash of our Class A shares, at a price per share within the range of $4.25 to $4.75, less applicable withholding taxes and without interest. These uses of cash would not (barring changes in other relevant variables, such as EBITDA and Consolidated EBITDA, as defined in our credit agreement) cause us to violate any of our financial covenants under our credit agreement. We believe that the compensation we will be able to pay from these available sources will be sufficient to retain key employees and maintain an effective workforce. We may elect, if we deem it appropriate, to defer certain payments due to our principals and affiliates or raise capital to enable us to make payments required under our credit agreement or for other working capital needs.

We expect to meet our long-term liquidity requirements, including the repayment of our debt obligations and any new commitments or increases in our existing commitments (and clawback obligations, if any) to our funds, through the generation of operating income (including management fees, a portion of which may be deferred), capital receipts from balance sheet investments and, potentially, additional borrowings and equity offerings. Our ability to execute our business strategy, particularly our ability to form new funds and increase our AUM, depends on our ability to raise additional investor capital within our funds and on our ability to monetize our balance sheet investments. Furthermore, strategic initiatives and the ability to make investments in our funds may be dependent on our ability to raise capital at the Fortress level. Decisions by counterparties to enter into transactions with us will depend upon a number of factors, such as our historical and projected financial performance and condition, compliance with the terms of our credit arrangements, industry and market trends and performance, the availability of capital and our counterparties' policies and rates applicable thereto, the rates at which we are willing to borrow, and the relative attractiveness of alternative investment or lending opportunities. Furthermore, raising equity capital could be dilutive to our current shareholders and issuing debt obligations could result in significant increases to operating costs. The level of our share price may also limit our ability to use our equity as currency in the potential acquisition of businesses, other companies or assets.

We are a publicly traded partnership and have established a wholly owned corporate subsidiary (“FIG Corp.”). Accordingly, a substantial portion of our income earned by the corporate subsidiary is subject to U.S. federal income taxation and taxed at prevailing rates. The remainder of our income is allocated directly to our shareholders and is not subject to any corporate level of taxation.

As of December 31, 2015, our most significant cash commitments and contractual cash requirements are our lease obligations, debt obligations, tax receivable agreement obligation and capital commitments to our funds. Furthermore, our potential liability for the contingent repayment of incentive income is discussed under “— Contractual Obligations” below.

Capital Commitments

We determine whether to make capital commitments to our private equity funds and credit PE funds in excess of the minimum required amounts based on a variety of factors, including estimates regarding our liquidity over the estimated time period during which commitments will have to be funded, estimates regarding the amounts of capital that may be appropriate for other funds which we are in the process of raising or are considering raising, and our general working capital requirements.

We generally fund our investments in the Fortress Funds with cash, either from working capital or borrowings, and not with carried interest. We do not hold any investments in our funds other than through the Fortress Operating Group entities. Our principals do not own any portion of the carried interest in any fund personally. Accordingly, their personal investments in the funds are funded directly with cash.

Our outstanding capital commitments as of December 31, 2015 consisted of the following.



	Outstanding Commitment
Private Equity Funds
Fund III Coinvestment	$	2
Fund IV	4,053
Fund IV Coinvestment	3
Fund V	6,143
Fund V Coinvestment	2
FHIF (Holiday)	8,089
FECI (Florida East Coast Railway/ Florida East Coast Industries)	1,551
MSR Opportunities Fund I A	5
MSR Opportunities Fund I B	5
MSR Opportunities Fund II A	274
MSR Opportunities Fund II B	2
MSR Opportunities MA I	66
Italian NPL Opportunities Fund	6,500
A&K Global Health	39
Starcastle	416

Credit PE Funds
Credit Opportunities Fund	4,579
Credit Opportunities Fund II	2,284
Credit Opportunities Fund III	4,695
Credit Opportunities Fund IV	5,011
FCO Managed Accounts	46,766
Long Dated Value Fund I	1,960
Long Dated Value Fund II	3,140
Long Dated Value Fund III	265
LDVF Patent Fund	68
Real Assets Fund	11,068
Japan Opportunity Fund	4,275
Japan Opportunity Fund II	14,918
Japan Opportunity Fund III	10,237
Global Opportunities Fund	667
Global Opportunities Fund II	763
Life Settlements Fund	57
Life Settlements Fund MA	37
Real Estate Opportunities Fund	782
Real Estate Opportunities Fund II	11,898
Real Estate Opportunities REOC Fund	62
CFT Co-invest Fund	248
Karols Development Co	2,575
Other	211
Total	$	153,716

Lease Obligations

Minimum future rental payments (excluding expense escalations) under our operating leases are as follows:



Year Ending December 31,
2016	$	26,549
2017	17,121
2018	24,200
2019	22,749
2020	21,614
Thereafter	265,755
Total	$	377,988

Debt Obligations

As of December 31, 2015, our debt obligations consisted of our credit agreement and promissory note, as described below.

In February 2013, we entered into a $150.0 million revolving credit facility (the “2013 Credit Agreement”) with a $15.0 million letter of credit subfacility. The 2013 Credit Agreement generally bears interest at an annual rate equal to LIBOR plus an applicable rate that fluctuates depending upon our credit rating, and a commitment fee on undrawn amounts that fluctuates depending upon our credit rating, as well as other customary fees. In connection with the closing of the 2013 Credit Agreement, approximately $2.4 million of fees and expenses were incurred. In January 2014, in connection with the launch of the affiliated manager platform with the Fortress Asia Macro Funds, we entered into an amendment, consent, and waiver to the 2013 Credit Agreement. Pursuant to the amendment, the required lenders under the 2013 Credit Agreement consented to the Fortress Asia Macro Funds transaction and conforming amendments, primarily certain definitions relating to the financial covenants in order to account for the portion of the business in which we will retain an economic interest.

The following table presents information regarding our debt obligations:

Contractual

Final

December 31, 2015

Face Amount and Carrying Value

Interest

Stated

Amount

Debt Obligation

December 31, 2015

December 31, 2014

Rate

Maturity

Available for Draws

Revolving credit agreement (A) (B)

75,000

LIBOR+2.50% (C)

Feb 2016

72,332

Promissory note (D)

155,677

—

5.00%

Nov 2017

N/A

Total

230,677

75,000


(A)	Collateralized by substantially all of Fortress Operating Group’s assets as well as Fortress Operating Group’s rights to fees from the Fortress Funds and its equity interests therein, other than fees from Fortress's senior living property manager.


(B)	The $150.0 million revolving debt facility includes a $15.0 million letter of credit subfacility of which $2.7 million was utilized as of December 31, 2015.


(C)	Subject to unused commitment fees of 0.4% per annum.


(D)	Issued to a principal in exchange for his Fortress Operating Group units and Class B shares in Fortress.

During the year ended December 31, 2015, the average face amount of our outstanding debt was approximately $91.2 million and the highest face amount outstanding at one time during this period was $230.7 million.

In January 2016, we entered into a new $275.0 million senior unsecured revolving credit facility (the "2016 Credit Agreement") with a $15.0 million letter of credit subfacility and repaid the 2013 Credit Agreement. The 2016 Credit Agreement is not collateralized by the assets of Fortress Operating Group. After giving effect to the initial extensions of credit thereunder of $75.0 million, and a subsequent borrowing of $100.0 million in February 2016, approximately $97.3 million was available to be drawn. The 2016 Credit Agreement generally bears interest at an annual rate equal to LIBOR plus an applicable rate that fluctuates depending upon the credit rating of the borrower's senior unsecured long-term debt and a commitment fee on undrawn amounts that fluctuates depending upon such credit rating, as well as other customary fees. The 2016 Credit Agreement matures in January 2021. Based upon the current credit rating, the interest rate is equal to LIBOR plus 1.75% per annum and the unused commitment fee is 0.25% per annum. Increases in the interest rate on our debt obligations under the 2016 Credit Agreement, whether through amendments, refinancings, increases in LIBOR, or a downgrade of the credit rating, may result in a direct reduction in our earnings and cash flow from operations and, therefore, impact our liquidity.

In November 2015, Fortress purchased 56.8 million Fortress Operating Group units and corresponding Class B shares at $4.50 per share, or an aggregate purchase price of $255.7 million, from Michael Novogratz, a principal, officer and director of Fortress who retired effective January 2016. In connection with this purchase, Fortress paid $100.0 million of cash in November 2015 and issued a $155.7 million promissory note, of which one-half of the principal amount matures in November 2016 and the remainder in November 2017. In addition, Fortress entered into a consent and waiver with the lenders under the 2013 Credit Agreement for their consent to this transaction.

On December 21, 2012, one of our Principals retired and we agreed to purchase all of his 2,082,684 Class A shares and his 49,189,480 Fortress Operating Group units at $3.50 per share, or an aggregate of $179.5 million. In connection with this purchase, we paid $30.0 million of cash and issued a $149.5 million promissory note to the former Principal, which bore interest at 5%. In July 2013, Fortress repaid the promissory note in full, plus accrued interest. As such, this note is no longer outstanding.

As a result of our initial public offering and related transactions, secondary public offerings, and other transactions, FIG Asset Co. LLC lent aggregate excess proceeds of approximately $802.3 million to FIG Corp., pursuant to a demand note, as amended. As of December 31, 2015, the outstanding balance was approximately $667.7 million, including unpaid interest. This intercompany debt is eliminated in consolidation.

Covenants

2013 Credit Agreement

The borrower and the guarantors are required to prepay any amounts outstanding under the 2013 Credit Agreement upon the occurrence of certain events.

The 2013 Credit Agreement contains customary representations and warranties and affirmative and negative covenants that, among other things, restrict the ability of Fortress to create or incur certain liens, incur or guarantee additional indebtedness, merge or consolidate with other companies or transfer all or substantially all of their respective assets, transfer or sell assets, make restricted payments, engage in transactions with affiliates and insiders, and incur restrictions on the payment of dividends or other distributions and certain other contractual restrictions. These covenants are subject to a number of limitations and exceptions set forth in the 2013 Credit Agreement. In addition, the borrower must not:


•	Permit AUM (as defined as Management Fee Earning Assets in the 2013 Credit Agreement) to be less than $25.0 billion as of the end of any calendar month;


•	Permit the Consolidated Leverage Ratio (a measure of Adjusted Net Funded Indebtedness compared to Consolidated EBITDA, each such term as defined in the 2013 Credit Agreement) to be greater than 2.00 to 1.0 as of the end of any fiscal quarter for the four quarter period ending on such date; or


•	Permit the Consolidated Interest Coverage Ratio (a measure of Consolidated EBITDA compared to Consolidated Interest Charges, each such term as defined in the 2013 Credit Agreement) to be less than 4.00 to 1.0 as of the end of any fiscal quarter for the four quarter period ending on such date.

The following table sets forth the financial covenant requirements under the 2013 Credit Agreement as of December 31, 2015.



	December 31, 2015
	(dollars in millions)
	Requirement			Actual		Notes
AUM, as defined	≥	$	25,000	$	46,563	(A)
Consolidated Leverage Ratio	≤	2.00		0.59		(B)
Consolidated Interest Coverage Ratio	≥	4.00		86.73		(B)


(A)	Impacted by capital raised in funds, redemptions from funds, and valuations of fund investments. The AUM presented here is based on the definition of Management Fee Earning Assets contained in the 2013 Credit Agreement.

(B)

The Consolidated Leverage Ratio is equal to Adjusted Net Funded Indebtedness, as defined, divided by the trailing four quarters’ Consolidated EBITDA, as defined. The Consolidated Interest Coverage Ratio is equal to the quotient of (A) the trailing four quarters' Consolidated EBITDA, as defined, divided by (B) the trailing four quarters' interest charges as defined in the 2013 Credit Agreement. Adjusted Net Funded Indebtedness and Consolidated EBITDA are computed as shown below. Consolidated EBITDA, as defined, is impacted by the same factors as distributable earnings, except Consolidated EBITDA is not impacted by changes in clawback reserves or gains and losses, including impairment, on investments.



	December 31, 2015
	(in millions)
Outstanding debt	$	230.7
Plus: Outstanding letters of credit	2.7
Less: Cash (up to $50 million)	—
Adjusted Net Funded Indebtedness	$	233.4



	Year Ended December 31, 2015
	(in millions)
Fortress Investment Group LLC net income	$	181.6
Depreciation and amortization, interest expense and income taxes	99.6
Extraordinary or non-recurring gains and losses	100.9
Incentive Income Adjustment	85.2
Other Income Adjustment	(112.4		)
Compensation expenses recorded in connection with the assignment of certain publicly traded permanent capital vehicle Options and Stock Based Compensation	34.3
Non-controlling interest and tax receivable agreement adjustments	5.5
(Income) loss of excluded entities (as defined in the 2013 Credit Agreement)	1.1
Consolidated Fortress Fund adjustment	—
Consolidated EBITDA	$	395.8
Interest charges	$	4.6

2016 Credit Agreement

The borrower and the guarantors under the 2016 Credit Agreement are required to prepay any amounts outstanding under the 2016 Credit Agreement upon the occurrence of certain events.

The events of default under the 2016 Credit Agreement are typical of such agreements and include payment defaults, failure to comply with credit agreement covenants, cross-defaults to material indebtedness, bankruptcy and insolvency, and change of control. A default under the 2016 Credit Agreement would likely have a material, adverse impact on our liquidity.

The 2016 Credit Agreement contains customary representations and warranties and affirmative and negative covenants that, among other things, restrict the ability of the borrower, the guarantors and certain of their subsidiaries to create or incur certain liens, incur or guarantee additional indebtedness, merge or consolidate with other companies or transfer all or substantially all of their respective assets, transfer or sell assets, make restricted payments, and incur restrictions on the payment of dividends or other distributions.

These covenants are subject to a number of limitations and exceptions set forth in the 2016 Credit Agreement. In addition, the borrower must not:


•	Permit AUM (as defined as Management Fee Earning Assets in the 2016 Credit Agreement) to be less than $30.0 billion as of the end of any fiscal quarter;


•	Permit the Consolidated Leverage Ratio (a measure of Adjusted Net Funded Indebtedness compared to Consolidated EBITDA, each such term as defined in the 2016 Credit Agreement) to be greater than 2.50 to 1.0 as of the end of any fiscal quarter for the four-quarter period ending on such date; or


•	Permit the Consolidated Interest Coverage Ratio (a measure of Consolidated EBITDA compared to Consolidated Interest Charges, each such term as defined in the 2016 Credit Agreement) to be less than 4.00 to 1.0 as of the end of any fiscal quarter for the four-quarter period ending on such date.

If the 2016 Credit Agreement had been in effect as of December 31, 2015, Fortress would have been in compliance with the covenant requirements thereunder.

The foregoing summary is not complete and is qualified in its entirety by references to the 2013 Credit Agreement and 2016 Credit Agreement, which are filed as exhibits hereto.

Dividends / Distributions

2015

On February 24, 2016 Fortress declared a base quarterly cash dividend of $0.08 per Class A share for the fourth quarter of 2015. This dividend is payable on March 21, 2016 to holders of record of our Class A shares on March 16, 2016.

On October 28, 2015, Fortress declared a base quarterly cash dividend of $0.08 per Class A share for the third quarter of 2015. The dividend was payable on November 13, 2015 to holders of record of Class A shares on November 10, 2015. The aggregate amount of this dividend payment, including dividend equivalent payments paid to holders of restricted Class A share units, was $18.2 million.

On July 29, 2015, Fortress declared a base quarterly cash dividend of $0.08 per Class A share for the second quarter of 2015. The dividend was payable on August 14, 2015 to holders of record of Class A shares on August 11, 2015. The aggregate amount of this dividend payment, including dividend equivalent payments paid to holders of restricted Class A share units, was $18.2 million.

On May 6, 2015, Fortress declared a base quarterly cash dividend of $0.08 per Class A share for the first quarter of 2015. The dividend was payable on May 21, 2015 to holders of record of Class A shares on May 18, 2015. The aggregate amount of this dividend payment, including dividend equivalent payments paid to holders of restricted Class A share units, was $18.2 million.

During the year ended December 31, 2015, Fortress Operating Group declared distributions of $182.0 million to the principals and a former senior employee.

2014

On February 26, 2015 Fortress declared a base quarterly cash dividend of $0.08 per Class A share and a special cash dividend of $0.30 per share resulting in total dividends of $0.38 for the fourth quarter of 2014. This dividend is payable on March 17, 2015 to holders of record of our Class A shares on March 12, 2015. The aggregate amount of this dividend payment, including dividend equivalent payments paid to holders of restricted Class A share units, was $86.4 million.

On October 30, 2014, Fortress declared a base quarterly cash dividend of $0.08 per Class A share. The dividend is payable on November 17, 2014 to holders of record of Class A shares on November 12, 2014. The aggregate amount of this dividend payment, including dividend equivalent payments paid to holders of restricted Class A share units, was $17.2 million.

On July 30, 2014, Fortress declared a base quarterly cash dividend of $0.08 per Class A share and a special cash dividend of $0.18 per Class A share resulting in total dividends of $0.26 per Class A share for the second quarter of 2014. The dividend was payable on August 15, 2014 to holders of record of Class A shares on August 12, 2014. The aggregate amount of this dividend payment, including dividend equivalent payments paid to holders of restricted Class A share units, was $56.0 million.

On April 30, 2014, Fortress declared a first quarter cash dividend of $0.08 per Class A share. The dividend was payable on May 16, 2014 to holders of record of Class A shares on May 13, 2014. The aggregate amount of this dividend payment, including dividend equivalent payments paid to holders of restricted Class A share units, was $17.2 million.

During the year ended December 31, 2014, Fortress Operating Group declared distributions of $136.7 million to the principals and a former senior employee.

2013

On February 26, 2014 Fortress declared a fourth quarter cash dividend of $0.08 per Class A share. This dividend is payable on March 14, 2014 to holders of record of our Class A shares on March 11, 2014. The aggregate amount of this dividend payment, including dividend equivalent payments paid to holders of restricted Class A share units, was $15.3 million.

On October 30, 2013, Fortress declared a third quarter cash dividend of $0.06 per Class A share. The dividend was payable on November 15, 2013 to holders of record of our Class A shares on November 12, 2013. The aggregate amount of this dividend payment, including dividend equivalent payments paid to holders of restricted Class A share units, was $14.8 million.

On July 31, 2013, we declared a second quarter cash dividend of $0.06 per Class A share. The dividend was payable on August 16, 2013 to shareholders of record of our Class A shares on August 13, 2013. The aggregate amount of this dividend payment, including dividend equivalent payments paid to holders of restricted Class A share units, was $14.7 million.

On May 1, 2013, we declared a first quarter cash dividend of $0.06 per Class A share. The dividend was payable on May 17, 2013 to holders of record of our Class A shares on May 14, 2013. The aggregate amount of this dividend payment, including dividend equivalent payments paid to holders of restricted Class A share units, was $14.5 million.

During the year ended December 31, 2013, Fortress Operating Group declared distributions of $77.9 million to the principals and a former senior employee.

Cash Flows

Our primary cash flow activities are: (i) generating cash flow from operations, (ii) making investments to and receiving distributions from the Fortress Funds, (iii) meeting financing needs through, and making required payments under, our credit agreement and other debt, and (iv) distributing cash flow to equity holders, as applicable.

As described above in ''— Results of Operations,'' our AUM has changed throughout the periods reflected in our financial statements included in this Annual Report on Form 10-K. This change is a result of the Fortress Funds raising and investing capital, and generating gains from investments, offset by redemptions, capital distributions and losses.

Our dividend policy has certain risks and limitations, particularly with respect to liquidity. Although we may pay dividends in accordance with our stated dividend policy, we may not pay the amount of dividends suggested by our policy, or at all, if, among other things, we do not have the cash necessary to pay the intended dividends, if such payment would violate the terms of our credit agreement, or if our board of directors determines it would be prudent to reduce or eliminate future dividend payments. To the extent we do not have cash on hand sufficient to pay dividends, we may borrow funds to pay dividends, but we are not obligated to do so. By paying cash dividends rather than investing that cash in our future growth, we risk slowing the pace of our growth, or not having a sufficient amount of cash to fund our operations or unanticipated capital expenditures, should the need arise.

Operating Activities

Our net cash flow provided by (used in) operating activities was $243.1 million, $267.6 million and $432.9 million during the years ended December 31, 2015, 2014 and 2013, respectively.

Operating Activities — Comparative — 2015 vs. 2014

Cash received for affiliate and non-affiliate management fees decreased by $8.6 million in 2015 from 2014. Management fees are based on average fee paying AUM, which, based on a simple quarterly average, increased within our alternative and traditional investment businesses from 2014 to 2015 (private equity funds decreased by $1.1 billion, permanent capital vehicles increased by $1.9 billion, credit hedge funds increased by $1.3 billion, credit PE funds increased by $1.0 billion, liquid hedge funds decreased by $4.5 billion and Logan Circle increased by $3.9 billion) as a result of capital raising, including new fund formation, and returns, offset by redemptions, capital distributions, and losses. The average management fee rate earned by Logan Circle is significantly lower than that earned by Fortress's alternative asset management businesses.

Incentive income is calculated as a percentage of returns, or profits, earned by the Fortress Funds and non-affiliates or is based primarily on profitable realization events within private equity funds and credit PE funds. A $26.1 million increase in cash incentive income received was mainly due to incentive related to the publicly traded permanent capital vehicles partially offset by a decrease in the liquid hedge fund managed accounts incentive income.

Cash received as Distributions of Earnings from Equity Method Investments decreased $67.1 million from 2014 as a result of a decrease of realization events within certain funds.

Cash paid for compensation decreased by $32.6 million from the twelve months ended December 31, 2014 to December 31, 2015. Bonuses and profit sharing payments are generally paid in the first quarter of the year following the year in which they are earned, so the amounts paid in 2015 and 2014 primarily related to bonuses and profit sharing earned in 2014 and 2013, respectively.

Cash paid for taxes increased $6.6 million for the twelve months ended December 31, 2015 as compared to the twelve months ended December 31, 2014.

Cash collected, net of cash distributed, from affiliates decreased by $16.8 million for the twelve months ended December 31, 2015 compared to the twelve months ended December 31, 2014.

Net cash used in operating activities by consolidated funds decreased by $15.6 million for the twelve months ended December 31, 2015 compared to the twelve months ended December 31, 2014.

Operating Activities — Comparative - 2014 vs. 2013

Cash received for affiliate and non-affiliate management fees increased by $50.5 million in 2014 from 2013. Management fees are based on average fee paying AUM, which, based on a simple quarterly average, increased within our alternative and traditional investment businesses from 2013 to 2014 (private equity funds decreased by $0.5 billion, permanent capital vehicles increased by $0.6 billion, credit hedge funds increased by $0.3 billion, credit PE funds decreased by $0.1 billion, liquid hedge funds increased by $1.5 billion and Logan Circle increased by $6.3 billion) as a result of capital raising, including new fund formation, and returns, offset by redemptions, capital distributions, and losses. The average management fee rate earned by Logan Circle is significantly lower than that earned by Fortress's alternative asset management businesses. In addition to changes in AUM, management fee receipts were impacted by the collection of approximately $4.4 million of previously past due fees.

Incentive income is calculated as a percentage of returns, or profits, earned by the Fortress Funds and non-affiliates or is based primarily on profitable realization events within private equity funds and credit PE funds. A $110.4 million increase in cash incentive income received was mainly due to the crystallization of incentive related to liquid hedge fund managed accounts in 2013 and paid in 2014.

Cash received as Distributions of Earnings from Equity Method Investments increased $26.4 million from 2013 as a result of realization events within certain funds.

Cash paid for compensation increased by $303.0 million from the twelve months ended December 31, 2013 to December 31, 2014. Bonuses and profit sharing payments are generally paid in the first quarter of the year following the year in which they are earned, so the amounts paid in 2014 and 2013 primarily related to bonuses and profit sharing earned in 2013 and 2012, respectively. However, a portion (approximately $176.2 million) of the bonuses and profit sharing earned in 2012 were also paid in 2012.

In addition, Fortress made a payment of $24.1 million under the tax receivable agreement, including interest, during the twelve months ended December 31, 2014, compared to $21.8 million during the twelve months ended December 31, 2013.

During a period in the year ended December 31, 2014 we consolidated a liquid hedge fund. During the period we consolidated the liquid hedge fund, cash flow (used in) operating activities from the liquid hedge fund was $(74.3) million, consisting primarily of purchases and proceeds of sales of investments and payments to cover securities sold not yet purchased, and receivables from brokers and counterparties.

Investing Activities

Our net cash flow provided by (used in) investing activities was $238.6 million, $361.6 million and $211.7 million during the years ended December 31, 2015, 2014 and 2013 respectively. Our investing activities primarily included: (i) contributions to equity method investees of $(33.9) million, $(36.1) million and $(37.1) million during the years ended December 31, 2015, 2014 and 2013, respectively, (ii) distributions of capital from equity method investees of $235.3 million, $379.9 million and $281.5 million during the years ended December 31, 2015, 2014 and 2013, respectively, (iii) purchases of fixed assets of $(31.6) million, $(12.4) million and $(11.5) million during the years ended December 31, 2015, 2014 and 2013, respectively, (iv) the purchase of $(0.9) million, $(16.7) million and $(20.0) million of securities during the years ended December 31, 2015, 2014 and 2013, respectively, (v) proceeds of $18.1 million, $84.9 million and $18.8 million from the sale of securities during the years ended December 31, 2015, 2014 and 2013, respectively, (vi) proceeds of $51.5 million from the exercise of options during the year ended December 31, 2015, (vii) the purchase of $(26.0) million of software and technology related assets during the year ended December 31, 2014, (viii) $(12.0) million related to the existing cash balance of the consolidated liquid hedge fund on the date we deconsolidated that fund during the year end ended December 31, 2014 and (ix) the purchase of $(20.0) million of digital currency during the year ended December 31, 2013.

Financing Activities

Our net cash flow provided by (used in) financing activities was $(532.9) million, $(602.7) million and $(384.3) million during the years ended December 31, 2015, 2014 and 2013, respectively. Our financing activities primarily included (i) distributions made to principals and a former senior employee, including those classified within “principals’ and others’ interests in consolidated subsidiaries,” of $(174.3) million, $(141.9) million and $(104.7) million during the years ended December 31, 2015, 2014 and 2013, respectively, (ii) distributions to employees and others related to their interests in consolidated subsidiaries of $(112.5) million, $(103.6) million and $(70.2) million during the years ended December 31, 2015, 2014 and 2013, respectively, (iii) contributions from employees and others related to their interests in consolidated subsidiaries of $1.3 million, $0.9 million and $0.4 million during the years ended December 31, 2015, 2014 and 2013, respectively, (iv) dividend and dividend equivalent payments of $(140.8) million, $(105.9) million and $(57.9) million, during the years ended December 31, 2015, 2014 and 2013,

respectively, (v) our net borrowing and debt repayment, including payments for deferred financing costs, (vi) payments to repurchase 60,568,275 Class A shares from Nomura of $(9.7) million and $(363.4) million during the years ended December 31, 2015 and 2014, respectively, (vii) payments of $(100.0) million to purchase 56,817,035 Fortress Operating Group units and corresponding Class B shares from one principal during the year ended December 31, 2015 and the issuance of 23,202,859 Class A shares for $186.6 million all of which was used to purchase an equivalent number of Class B shares from the Principals during the year ended December 31, 2014, (viii) excess tax benefits from delivery of RSUs, (ix) withholding tax paid on behalf of employees with respect to the delivery of RSUs, effectively repurchasing Class A shares, of $(3.6) million during the year ended December 31, 2014 and (x) capital (distributions) contributions relating to redeemable non-controlling interests of $(1.7) million and $36.3 million during the years ended December 31, 2015 and 2014, respectively.

Critical Accounting Policies

General

Consolidation

The determination of whether or not to consolidate entities under GAAP requires significant judgment. To make these judgments, management performs an entity-by-entity analysis with consideration of 1) whether Fortress has a variable interest in the entity, 2) whether the entity is a VIE, and 3) whether Fortress consolidates the entity.

When determining whether Fortress has a variable interest in entities it evaluates for consolidation, Fortress considers interests in the entities and fees it receives to act as a decision maker or service provider to the entity being evaluated. If Fortress determines that it does not have a variable interest in an entity, no further consolidation analysis is performed as Fortress would not be required to consolidate the entity. Fees received by Fortress are not variable interests if (i) the fees are compensation for services provided and are commensurate with the level of effort required to provide those services, (ii) the service arrangement includes only terms, conditions, or amounts that are customarily present in arrangements for similar services negotiated at arm’s length and (iii) Fortress's other economic interests in the VIE held directly and indirectly through its related parties, as well as economic interests held by related parties under common control, where applicable, would not absorb more than an insignificant amount of the entity’s losses or receive more than an insignificant amount of the entity’s benefits. If fees paid to Fortress were determined to be a variable interest, it could result in Fortress being the primary beneficiary of and thus consolidating the entity being evaluated. Evaluation of these criteria requires judgment.

For those entities in which it has a variable interest, Fortress performs an analysis to first determine whether the entity is a VIE. This determination includes considering whether the entity’s equity investment at risk is sufficient, whether the voting rights of an investor are not proportional to its obligation to absorb the income or loss of the entity and substantially all of the entity’s activities either involve or are conducted on behalf of that investor and its related parties, and whether the entity’s at-risk equity holders have the characteristics of a controlling financial interest.

Fortress is the general partner/manager of and has a variable interest in certain limited partnerships and similar entities. One of the factors that Fortress considers in evaluating whether these entities are VIEs is whether a simple majority (or lower threshold) of limited partners with equity at risk are able to exercise substantive kick-out rights. Kick-out rights are generally defined as the ability to remove the general partner/manager or to dissolve the entity without cause. If the limited partners with equity at risk are not able to exercise substantive kick-out rights, then the entity is a VIE. Fortress is also the manager of and has a variable interest in certain entities other than limited partnerships. One of the factors that Fortress considers in evaluating whether these entities are VIEs is whether the investors have power through voting rights or similar rights (such as those of a common shareholder in a corporation); and if not, whether a single equity holder has the unilateral ability to exercise substantive kick-out rights. If investors do not have power through voting rights or similar rights or a single equity holder does not have the unilateral ability to exercise substantive kick-out rights, then the entity is a VIE. These analyses require judgment.

A VIE must be consolidated by its primary beneficiary. The primary beneficiary of a VIE is generally defined as the party who has a controlling financial interest in the VIE. Fortress shall be deemed to have a controlling financial interest in a VIE if it and its related parties under common control as a group, where applicable, have (i) the power to direct the activities of the VIE that most significantly affect the VIE’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. For purposes of evaluating (ii) above, fees paid to Fortress are excluded if the fees are compensation for services provided commensurate with the level of effort required to be performed and the arrangement includes only customary terms, conditions or amounts present in arrangements for similar services negotiated at arm’s length. This analysis requires judgment. The primary beneficiary evaluation is generally performed qualitatively. However, quantitative information may also be considered in the analysis, as appropriate. Changes in the economic interests (either by Fortress, affiliates of Fortress or third parties) or amendments to the governing documents of the VIE could affect an entity's status as a VIE or the determination of the primary beneficiary. The primary beneficiary evaluation is updated continuously.

For voting interest entities ("VOEs"), Fortress shall consolidate the entity if it has a controlling financial interest. Fortress has a controlling financial interest in a VOE if (i) for legal entities other than limited partnerships, Fortress owns a majority voting interest in the VOE or, for limited partnerships and similar entities, Fortress owns a majority of the entity’s kick-out rights through voting limited partnership interests and (ii) non-controlling shareholders or partners do not hold substantive participating rights and no other conditions exist that would indicate that Fortress does not control the entity.

For entities over which Fortress exercises significant influence but which do not meet the requirements for consolidation, Fortress uses the equity method of accounting whereby it records its share of the underlying income of these entities. These entities include the Fortress Funds. The evaluation of whether Fortress exerts control or significant influence over the financial and operational policies of an entity requires judgment based on the facts and circumstances surrounding each individual entity.

The analysis as to whether to consolidate an entity is subject to a significant amount of judgment. Some of the criteria considered are the determination as to the degree of control over an entity by its various equity holders, the design of the entity, how closely related the entity is to each of its equity holders, the relation of the equity holders to each other and a determination of the primary beneficiary in entities in which we have a variable interest. These analyses involve estimates, based on the assumptions of management, as well as judgments regarding significance and the design of the entities. If, as a result of such analysis, Fortress was required to consolidate an entity, it could have a material impact on our gross revenues, expenses, net income, assets, liabilities and total equity. However, we would not expect it to materially impact our net income, or equity, attributable to Class A shareholders.

As of December 31, 2015 and 2014 the investment vehicles in which Fortress held a variable interest were comprised of 67 VIEs and 95 voting interest entities and 62 VIEs and 99 voting interest entities, respectively. For additional discussion about our VIEs and other unconsolidated entities see Note 4 to Part II, Item 8, “Financial Statements and Supplementary Data - Investments and Fair Value.”

Revenue Recognition on Incentive Income

Incentive income is calculated as a percentage of the returns, or profits, earned by the Fortress Funds subject to the achievement of performance criteria. Incentive income from certain of the private equity funds and credit PE funds we manage is subject to contingent repayment (or clawback) and may be paid to us as particular investments made by the funds are realized. If, however, upon liquidation of a fund the aggregate amount paid to us as incentive income exceeds the amount actually due to us based upon the aggregate performance of the fund, the excess is required to be returned by us (i.e. ''clawed back'') to that fund. We have elected to adopt the preferred method of recording incentive income subject to contingencies. Under this method, we do not recognize incentive income subject to contingent repayment (or clawback) until all of the related contingencies have been resolved. Deferred incentive income related to a particular private equity fund or credit PE fund, each of which has a limited life, would be recognized upon the termination of the private equity fund or credit PE fund, or when distributions from a fund exceed the point at which a clawback of a portion or all of the historic incentive income distributions could no longer occur. Recognition of incentive income allocated to us prior to that date is deferred and recorded as a deferred incentive income liability. For GAAP purposes, the determination of when incentive income is recognized as income is formulaic in nature, resulting directly from each fund's governing documents. For certain funds, a portion (or all) of any incentive income distribution may be deemed a “tax distribution.” Tax distributions are not subject to contingencies. The determination of the amount of a distribution which represents a tax distribution is based on an estimate of both the amount of taxable income generated and the applicable tax rate. Estimates of taxable income are subject to significant judgment.

Profit Sharing Arrangements

Pursuant to employment arrangements, certain of Fortress's employees are granted profit sharing interests and are thereby entitled to a portion of the incentive income realized from certain Fortress Funds. Accordingly, incentive income resulting from a realization event within a fund gives rise to the incurrence of a profit sharing obligation and amounts payable under these profit sharing plans are recorded as compensation expense when they become probable and reasonably estimable.

For profit sharing plans related to hedge funds and permanent capital vehicles, compensation expense related to incentive income is accrued in the period to which it relates regardless of when incentive income is recognized. In addition, certain of Fortress's employees are granted rights in options it holds in the publicly traded permanent capital vehicles (the "tandem options"). The fair value of the tandem options are recorded as profit sharing compensation expense at the grant date. Subsequent to the grant date, the related liability, included in accrued compensation and benefits, is marked to fair value through compensation expense until such time as the rights are exercised or expire.

For profit sharing plans related to private equity funds and credit PE funds, where incentive income is received as investments are realized but is subject to clawback (see “— Revenue Recognition on Incentive Income” above), although Fortress defers the recognition of incentive income until all contingencies are resolved, accruing expense for employee profit sharing is based upon

when it becomes probable and reasonably estimable that incentive income will be received and therefore a profit sharing liability has been incurred. Based upon this policy, the recording of an accrual for profit sharing expense to employees generally precedes the recognition of the related incentive income revenue. As a result, incentive income realization events for the private equity funds and credit PE funds, which benefit Fortress economically, cause our GAAP earnings to decline in the short term as expense is recognized before the corresponding revenue. Such profit sharing expense may be reversed upon determination that the expense is no longer probable of being incurred based on the performance of the fund.

Our determination of the point at which it becomes probable and reasonably estimable that incentive income will be earned and therefore a corresponding profit sharing expense should be recorded is based upon a number of factors, including the level of realized gains generated by the underlying funds which ultimately give rise to incentive income payments. A realization event has occurred when an investment within a fund generates proceeds in excess of its related invested capital, such as when an investment is sold at a gain. Changes in the judgments and estimates made in arriving at the appropriate amount of profit sharing expense accrual could materially impact net income.

For further information on amounts paid and payable in the future under our profit sharing arrangements, please see Note 3 to Part II, Item 8, “Financial Statements and Supplementary Data — Management Agreements and Fortress Funds.”

Valuation of Investments

Our investments in the Fortress Funds are recorded based on the equity method of accounting. The Fortress Funds, excluding the permanent capital vehicles, themselves apply specialized accounting principles for investment companies. As such, our results are based on the reported fair value of the investments held by the funds as of the reporting date with our pro rata ownership interest (based on our investment in each fund) in the changes in each fund's NAV reflected in our results of operations. Fair value generally represents the amount at which an investment could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. We are the manager or co-manager of these funds and in certain cases participate in the valuation of underlying investments, many of which are illiquid and/or without a public market. The fair value of these investments is generally estimated based on either values provided by independent valuation agents, who use their own proprietary valuation models, or proprietary models developed by us, which include discounted cash flow analyses, public market comparables, and other techniques and may be based, at least in part, on independently sourced market parameters. The material estimates and assumptions used in these models include the timing and expected amount of cash flows, the appropriateness of discount rates used, and, in some cases, the ability to execute, timing of, and estimated proceeds from expected financings. Significant judgment and estimation goes into the selection of an appropriate valuation methodology as well as the assumptions which generate these models, and the actual values realized with respect to investments could be materially different from values obtained based on the use of those estimates. The valuation methodologies applied impact the reported value of our investments in the Fortress Funds in our consolidated financial statements.

With respect to valuation information provided by independent valuation agents, or pricing services, Fortress performs procedures to verify that such information is reasonable and determined in accordance with GAAP, and that the information is properly classified in the valuation hierarchy. Depending on the circumstances, these procedures generally include the following: (i) using established procedures to assess and approve agents, and their valuation methodologies, prior to their selection, (ii) obtaining a report from an independent auditing firm regarding the reliability of the internal controls of the pricing service providers, if available, (iii) performing due diligence on the agent's processes and controls, including developing an understanding of the agent's methodologies, (iv) obtaining broker quotations and/or performing an internal valuation in order to gauge the reasonableness of the information provided by the agent, (v) challenging the information provided, as appropriate, and (vi) performing back-testing of valuation information against actual prices received in transactions.

In addition, our investments in our publicly traded permanent capital vehicles, including options, are held at fair value. The assumptions used in valuing the options include volatility, which is subject to judgment and estimation. We base this assumption on historical experience, current expectations, the market environment, and other factors.

Private Equity Funds

Under the valuation policies and guidelines of our private equity funds, investments are categorized into two types of securities: those for which there is a market quotation and those for which there is no market quotation. Securities for which there is a market quotation are valued at their quoted market price. A discount may be applied to those securities with sale restrictions. Securities for which there is no market quotation are referred to as private securities and are valued at fair value. Our guidelines state that the fair values of private securities are generally based on the following methods:


1.	Public market transactions of similar securities


2.	Private market transactions of similar or identical securities


3.	Analytical methods

Our private equity funds have not to date based a valuation of a private security solely upon public or private market transactions in a similar security. There have been no circumstances to date in which a security in a public market transaction, or a private market transaction of which we were aware, has been considered to be sufficiently similar to a private security owned by one of our private equity funds to be used as the measure of valuation for such private security investment.

Our private equity funds have used the price of private market transactions in identical securities as a valuation method for investments. In cases in which there has been a significant private transaction in a private security held by our private equity funds, the value of private equity fund investments in the private security are based upon the price of such recent private transaction in that security and no sensitivity analysis is used.

If the fair value of private security investments held by our private equity funds cannot be valued by reference to a public or private market transaction, then the primary analytical methods used to estimate the fair value of such private securities are the discounted cash flow method, by reference to performance statistics of similar public companies (for example, EBITDA multiples) or the use of third party valuations. Sensitivity analysis is applied to the estimated future cash flows using various factors depending on the investment, including assumed growth rates (in cash flows), capitalization rates (for determining terminal values) and appropriate discount rates based on the investment to determine a range of reasonable values. The valuation based on the inputs determined to be the most probable is used as the fair value of the investment.

Credit Hedge Funds

In our credit hedge funds, investments are valued using quoted market prices, to the extent available. Independent valuation agents are used by our credit hedge funds to provide estimates of the fair value of investments, other than investments in other funds, for which quoted market prices are not available. For these investments, we understand that the independent valuation agents use some or all of the following methods and techniques to estimate the fair value of the relevant type of investments:

Private loans - The most common method used to value private loans is a discounted cash flow analysis. In this method, the estimated future payments to be made by the borrower under the loan agreement are discounted to the present using a discount rate appropriate to the risk level of the borrower and current market interest rates.

If it is likely that a borrower will not be able to repay a loan in full, the loan may be valued by a recoverability analysis, which values the total amount of assets of the borrower that might be sold to raise proceeds to repay the loan (and debt, if any, that has a higher claim against assets) if necessary. Under this method, all assets of the borrower must be analyzed and valued. If the total value is less than the total payments due under the loan (and debt, if any, that has a higher claim against assets), the fair value of the loan will be reduced.

Asset-backed securities and collateralized debt obligations for which there are no quoted market prices are valued using a discounted cash flow analysis based on the estimated cash flows to be generated by the relevant underlying assets and the appropriate interest rate based on the nature of the underlying assets.

Real estate is usually valued based on sales of comparable property and/or the discounted cash flow method. The value of real estate which is net leased is also influenced by the credit quality of major tenants, as their ability to make lease payments is relevant to the value of the property under lease.

Other investments valued using methods, including internal models, with significant unobservable market parameters consist primarily of investments in other funds and certain illiquid investments.

Credit PE Funds

Investments held within these funds are valued in a consistent manner with either the private equity funds or credit hedge funds, as applicable depending on the nature of the investment.

Liquid Hedge Funds

A substantial portion of the investments in our liquid hedge funds are valued based on quoted market prices. Investments valued based on other observable market parameters in our liquid hedge funds include equity swaps and foreign exchange swaps which are verified by the independent fund administrator using models with significant observable market parameters. The fair value of interest rate swaps and swaptions is calculated using the current market yield of the relevant interest rate durations and an appropriate discount rate to determine a present value. The fair value of equity swaps and foreign exchange swaps is calculated using the market price of the underlying stock or foreign exchange pair, plus the financing cost of carrying the transaction. The fair value of these investments is also confirmed independently with the counterparty to the transaction. Investments valued using methods,

including internal models, with significant unobservable market parameters consist primarily of investments in other funds and certain illiquid securities. Counterparty risk is also considered.

Investments in other funds are valued primarily based on the net asset values provided by the fund managers of those funds.

Traditional Asset Management Business

Investments made within this business are valued in a consistent manner with our funds' policies as described above.

Sensitivity

Changes in the fair value of our funds’ investments would impact our results of operations as described in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk.”

As discussed above, the determination of investment fair values involves management's judgments and estimates. The degree of judgment involved is dependent upon the availability of quoted market prices or observable market parameters. The following table summarizes the investments held by the Fortress Funds by valuation methodology as of December 31, 2015. As of December 31, 2015, revenues from our traditional asset management business are not material to our operations and are therefore not included in the analysis below.

The categories displayed below correspond directly with the disclosures which are required under fair value accounting guidance.



							Liquid Hedge Funds (B)
	Private Equity		Credit Hedge		Credit PE		Fortress Partners		Other Funds				Total Fund
Basis for Determining Fair Value	Funds		Funds		Funds		Funds		Long		Short		Holdings
1. Quoted market prices	3	%	2	%	3	%	6	%	66	%	89	%	4	%
2. Other observable market parameters	31	%	8	%	2	%	1	%	10	%	11	%	13	%
3. Significant unobservable market parameters (A)	66	%	90	%	95	%	93	%	24	%	—	%	83	%
Total	100	%	100	%	100	%	100	%	100	%	100	%	100	%


(A)	A substantial portion of our funds’ level 3 investment valuations are based on third party pricing services, broker quotes, or third party fund manager statements, in addition to internal models. In particular, approximately, 97% and 75% of our credit hedge funds’ and credit PE funds', respectively, level 3 valuations were based on such sources.


(B)	The level 3 investments within the “other funds” in the liquid hedge funds segment are primarily related to the illiquid SPV and sidepocket investments within the Drawbridge Global Macro Funds. Liquid hedge funds excludes Affiliated Managers.

As of December 31, 2015, $7.3 billion of investments in our private equity funds, $9.6 billion of investments in our credit hedge funds, $10.8 billion of investments in our credit PE funds and $0.4 billion of investments in our liquid hedge funds are valued with significant unobservable market parameters. A 10% increase or decrease in the value of investments held by the Fortress Funds valued at level 3 would have had the following effects on our results of operations on an unconsolidated basis for the year ended December 31, 2015, consistent with the table above:



	Private Equity Funds	Credit Hedge Funds	Credit PE Funds	Liquid Hedge Funds
Management fees, per annum on a prospective basis	$2.1 million or ($2.3 million) (A)	$17.4 million or ($17.4 million)	$0.3 million or ($1.1 million) (A)	$0.7 million or ($0.7 million)

Incentive income	N/A (B)	$90.4 million or ($48.2 million)	N/A (B)	$0.0 million or ($0.0 million)

Earnings from equity method investees	$43.0 million or ($43.0 million)	$7.4 million or ($7.4 million)	$17.7 million or ($17.7 million)	$5.9 million or ($5.9 million)

Note: The tables above exclude non-investment assets and liabilities of the funds, which are not classified in the fair value hierarchy. Such net assets may be material, particularly within the hedge funds.

(A)

Private equity fund and credit PE fund management fees would be generally unchanged as, for investments in non-publicly traded securities, they are generally not based on the NAV of the funds, but rather on the amount of capital invested in the funds. However, if the value of a portfolio investment of certain private equity funds and credit PE funds is reduced below its invested capital, there would be a reduction in management fees. As of December 31, 2015, $2.4 billion of such portfolio investments valued at level 3 were carried

at or below their invested capital. Management fees are generally calculated as of certain reset dates. The amounts disclosed show what the estimated effects would be to management fees over the next year assuming December 31, 2015 is the current reset date.


(B)	Private equity fund and credit PE fund incentive income would be unchanged as it is not recognized until received and all contingencies are resolved. Furthermore, incentive income would be based on the actual price realized in a transaction, not based on a valuation.

Income Taxes

FIG Corp. has recorded a significant deferred tax asset, primarily in connection with our initial public offering and related transactions. These transactions resulted in the basis of Fortress Operating Group's net assets being in excess of its book basis, which will result in future tax deductions. A substantial portion of this asset is offset by a liability associated with the tax receivable agreement with our Principals.

The realization of the deferred tax assets is dependent on the amount of our future taxable income before deductions related to the establishment of the deferred tax asset. The deferred tax asset is comprised of a portion that would be realized in connection with future ordinary income and a portion that would be realized in connection with future capital gains.

We project that we will have sufficient future taxable ordinary income in the normal course of business without any projected significant change in circumstances to fully realize the portion of the deferred tax asset that would be realized in connection with future ordinary income. Our projections do not include material changes in AUM or incentive income from the current levels. However, the projections do contain an estimated marginal growth assumption. Based on our historical and projected taxable income, we have concluded that the realization of the portion of the deferred tax asset that would be realized in connection with future taxable ordinary income is more likely than not. If our estimates change in the future and it is determined that it is more likely than not that some portion, or all, of this portion of the deferred tax asset will not be realized, a valuation allowance would be recorded for that portion. However, in most cases, any tax expense recorded in connection with the establishment of a valuation allowance or the reversal of a deferred tax asset would be partially offset by other income recorded in connection with a corresponding reduction of a portion of the tax receivable agreement liability (see below). The following table sets forth our federal taxable income for historical periods before deductions relating to the establishment of the deferred tax assets, other than deferred tax assets arising from equity-based compensation, as well as the average of ordinary income needed over the approximate period of the deductibility (approximately 15 years from the date of establishment, based on the amortization period of the tax basis intangible assets recorded) in order to fully realize the portion of the deferred tax asset that would be realized in connection with future ordinary income (in millions):



2011	$	53.5
2012	80.9
2013	90.7
2014	150.9
2015: Estimated	143.9
2016 - 2023: Average Required	$	84.1

We have made an assessment of the realizability of the portion of the deferred tax asset that would only be realized in connection with future capital gains. We have established a full valuation allowance for this portion of the deferred tax asset as management does not believe that the projected generation of material taxable capital gains is sufficiently assured in the foreseeable future. The establishment of the valuation allowance resulted in a reduction of the obligations associated with the tax receivable agreement and a corresponding reduction of the deferred tax asset.

For further information on our effective tax rate, and the tax receivable agreement, see Note 6 to our financial statements in Part II, Item 8, “Financial Statements and Supplementary Data — Income Taxes and Tax Related Payments.” Our effective tax rate for GAAP reporting purposes may be subject to significant variation from period to period. In addition, legislation has been introduced in the United States, which, if enacted in its current or similar form, could cause us to incur a material increase in our tax liability. See Part I, Item 1A, “Risk Factors — Risks Related to Taxation — Several items of tax legislation are currently being considered which, if enacted, could materially affect us, including by preventing us from continuing to qualify as a partnership for U.S. federal income tax purposes. Our structure also is subject to potential judicial or administrative change and differing interpretations, possibly on a retroactive basis.”

Equity-Based Compensation

We currently have several categories of equity-based compensation which are described in Note 8 to Part II, Item 8, “Financial Statements and Supplementary Data — Equity-Based and Other Compensation.” The aggregate fair value of each of the RSU

grants that are subject to service conditions is reduced by an estimated forfeiture factor (that is, the estimated amount of awards which will be forfeited prior to vesting). The estimated forfeiture factor is based upon historic turnover rates within our company adjusted for the expected effects of the grants on turnover, if any, and other factors in the judgment of management. The estimated forfeiture factor is updated at each reporting date.

The risk-free discount rate assumptions used in valuing certain awards were based on the applicable U.S. Treasury rate of like term. The dividend yield assumptions used in valuing certain awards were based on our actual dividend rate at the time of the award; the dividend growth rate used with respect to one type of award was based on management's judgment and expectations.

The following elements of the accounting for equity-based compensation are subject to significant judgment and estimation:


•	the determination of the grant date;


•	the estimated forfeiture factor;


•	the discount related to RSUs which do not entitle the recipients to dividend equivalents prior to the delivery of Class A shares. This discount was based on the estimated present value of dividends to be paid during the service period, which in turn was based on an estimated initial dividend rate, an estimated dividend growth rate and a risk-free discount rate of like term.

Each of these elements, particularly the forfeiture factor and dividend growth rate used in valuing certain awards, are subject to significant judgment and variability and the impact of changes in such elements on equity-based compensation expense could be material. Increases in the assumed forfeiture factor would decrease compensation expense. Increases in the assumed dividend growth rate would (i) decrease compensation expense related to RSUs which do not entitle recipients to dividend equivalents since the estimated value of the foregone dividends would have increased, thereby increasing the discount related to their non-receipt, and (ii) decrease compensation expense related to RSUs with no service conditions since the discount for delayed delivery would have increased. Except for the forfeiture factor, changes in these assumptions will only affect awards made in the future and awards whose accounting is impacted by changes in their fair value (generally those to non-employees).

Recent Accounting Pronouncements

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10) (“ASU 2016-01”). ASU 2016-01 contains amendments intended to improve certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The new standard is effective for Fortress beginning January 1, 2018. Early adoption is permitted only for certain of the amendments. The standards requires a cumulative effect adjustment to the balance sheet as of the beginning of the period of adoption, with the exception of the amendments related to equity securities without readily determinable fair values (including disclosure requirements) which should be applied prospectively. The adoption of ASU 2016-01 is not expected to have a material impact on Fortress's consolidated financial statements.

In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”) which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a reduction from the carrying amount of that debt liability. However, ASU 2015-03 does not specifically address requirements for the presentation and subsequent measurement of debt issuance costs related to line-of-credit arrangements. In August 2015, the FASB issued ASU No. 2015-15, Interest - Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements - Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting (“ASU 2015-15”). ASU 2015-15 amends Subtopic 835-30 to include that the SEC would not object to the deferral and presentation of debt issuance costs as an asset and subsequent amortization of the deferred costs over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. ASU 2015-03 is effective for Fortress beginning January 1, 2016. The adoption of ASU 2015-03 is not expected to have a material impact on Fortress's consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09") which is a comprehensive new revenue recognition standard for contracts with customers that will supersede most current revenue recognition guidance, including industry-specific guidance. ASU 2014-09 contains principles that an entity will apply to determine the measurement of revenue and timing of when it is recognized. The entity will recognize revenue to reflect the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. In July 2015, the FASB deferred the effective date of the new revenue recognition standard. The new standard is effective for Fortress beginning January 1, 2018. Early adoption is permitted but not before the original public entity effective date (that is, annual periods beginning after December 15, 2016). ASU 2014-09 permits the use of either the retrospective or cumulative effect transition method. The adoption of ASU 2014-09 is not expected to have a material impact on Fortress's consolidated financial statements.

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In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810) - Amendments to the Consolidation Analysis ("ASU 2015-02"). ASU 2015-02 eliminates the deferral of Statement of Financial Accounting Standards No. 167, Amendments to FASB Interpretation No. 46 (R) previously provided to investment companies and certain other entities pursuant to ASC 810-10-65-2. ASU 2015-02 also amends the evaluation of whether (1) fees paid to a decision maker or service provider represent a variable interest, (2) a limited partnership or similar entity has the characteristics of a VIE and (3) a reporting entity is the primary beneficiary of a VIE. ASU 2015-02 eliminates certain conditions for evaluating whether a fee paid to a decision maker or a service provider represents a variable interest. Fees received by a decision maker or service provider are no longer considered variable interests and are now excluded from the evaluation of whether the reporting entity is the primary beneficiary of a VIE if the fees are both customary and commensurate with the level of effort required for the services provided and the decision maker or service provider does not hold other interests in the entity being evaluated that would absorb more than an insignificant amount of the expected losses or returns of the entity. If the reporting entity determines that it does not have a variable interest in an entity, no further consolidation analysis is performed as the reporting entity would not be required to consolidate the entity.

The effective date of ASU 2015-02 is for fiscal years and interim periods within those fiscal years, beginning after December 15, 2015 for public companies and early adoption is permitted. During the first quarter of 2015, Fortress elected to early adopt ASU 2015-02 on a retrospective basis as permitted, for all periods presented. The consolidated financial statements and related footnote disclosures have been adjusted for the impact of the adoption. The adoption did not result in a cumulative effect adjustment to the Company’s retained earnings (accumulated deficit).

The FASB has recently issued or discussed a number of proposed standards on such topics as financial statement presentation, leases and hedging. Some of the proposed changes are significant and could have a material impact on Fortress's financial reporting. Fortress has not yet fully evaluated the potential impact of these proposals, but will make such an evaluation as the standards are finalized.

Market Risks

Our predominant exposure to market risk is related to our role as investment manager for the Fortress Funds and the sensitivities to movements in the fair value of their investments on management fee and incentive income revenue, as well as on returns on our investments in such funds. For a discussion of the impact of market risk factors on our financial instruments refer to Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk'' and “— Critical Accounting Policies — Valuation of Investments” above.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

See Note 10 to Part II, Item 8 “Financial Statements and Supplementary Data” for a discussion of our commitments and contingencies.

Contractual Obligations

As of December 31, 2015, our most significant contractual obligations are our lease obligations, debt obligations, tax receivable agreement obligations and capital commitments to our funds. Furthermore, we have potential clawback obligations with respect to our private equity deferred incentive income received to date. Fixed and determinable payments due in connection with these obligations are as follows:



	Payments due by period
Contractual Obligations	Total		2016		2017 and 2018		2019 and 2020		Thereafter
Operating lease obligations (A)	$	377,988	$	26,549	$	41,321	$	44,363	$	265,755
Debt obligations payable (B)	241,959		160,634		81,325		—		—
Deferred incentive income (C)	66,903		66,903		—		—		—
Service contracts and other	76,548		43,579		32,651		177		141
Tax receivable agreement obligations (D)	264,625		36,574		52,169		56,956		118,926
Capital commitments to Fortress Funds (E)	153,716		153,716		—		—		—
Total	$	1,181,739	$	487,955	$	207,466	$	101,496	$	384,822


(A)	Excludes escalation charges which per our lease agreements are not fixed and determinable payments.

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(B)	Includes interest and commitment fees to be paid over the maturity of the debt obligation which has been calculated assuming no repayments are made and the debt is held until its contractual due date. The future interest payments are calculated using effective rates as of the reporting date.

(C)

Incentive income received from private equity funds and credit PE funds may be subject to contingent repayment or clawback upon termination of each fund, depending on the overall performance of each fund. The amounts presented herein represent the amount of clawback that would be due based on a liquidation of the fund at its net recorded asset value as of the reporting date, which we refer to as intrinsic clawback. The period of payment is based on the contractual maturities of the funds including all available extensions. Based on the accounting method we have adopted, which requires us to record incentive income revenue only when all related contingencies are resolved, the amounts accrued as a deferred incentive income liability on our balance sheet exceed the intrinsic clawback.

(D)

FIG Corp., a wholly owned subsidiary, entered into a tax receivable agreement with each of the principals that provides for the payment to an exchanging or selling principal of 85% of the amount of cash savings, if any, in U.S. federal, state, local and foreign income tax that the corporate taxpayers actually realize (or are deemed to realize in the case of an early termination payment by the corporate taxpayers or a change of control, as defined) as a result of an increase in the tax basis of the assets owned by Fortress Operating Group at the time of an exchange of a Fortress Operating Group limited partnership unit for one of the Class A shares. Such payments are expected to occur over approximately ten years.


(E)	These obligations represent commitments by us to provide capital funding to the Fortress Funds. These amounts are due on demand and are therefore presented in the less than one year category. However, the capital commitments are expected to be called substantially over the next three years.

In addition, we have entered into five-year employment agreements with our principals which were effective as of January 1, 2012. These agreements do not contain fixed and determinable payments, other than a base salary of $0.2 million per annum per principal, as all payments are performance based. Payments under these agreements may be material. Fortress customarily does not charge management or incentive fees on personal investments by employees, including principals, in its managed funds and accounts. In order to facilitate investments by the Fortress principals in our managed funds, the Fortress Board of Directors has agreed that such fees may not be charged on principals' investments after the termination of their employment.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The fair value of the financial assets and liabilities of the Fortress Funds may fluctuate in response to changes in the value of securities, foreign exchange, commodities and interest rates. Fluctuations in the fair value of the Fortress Funds will continue to directly affect the carrying value of our investments in the Fortress Funds and thereby our earnings (losses) from equity method investees, as well as the management fees and incentive income we record, to the extent that they are earned based on fair value or NAV. As of December 31, 2015, revenues from our traditional asset management business are not material to our operations and are therefore not included in the analysis below.

Risks are analyzed across funds from the ‘‘bottom up’’ and from the ‘‘top down’’ with a particular focus on asymmetric risk. Management gathers and analyzes data, monitors investments and markets in detail, and constantly strives to better quantify, qualify and circumscribe relevant risks.

Although the Fortress Funds share many common themes, each segment within the company has its own investment and risk management process and related infrastructure to address those risks.


•	the investment process of our private equity funds involves a detailed analysis of potential acquisitions, and asset management teams assigned to oversee the strategic development, financing and capital deployment decisions of each portfolio investment;

•

our credit hedge funds, credit PE funds and publicly traded permanent capital vehicles perform credit and cash-flow analysis of borrowers, tenants and credit-based assets, and have asset management teams that monitor covenant compliance by, and relevant financial data of, borrowers, tenants and other obligors, asset pool performance statistics, tracking of cash payments relating to investments, and ongoing analysis of the credit status of investments; and


•	our liquid hedge funds continuously monitor a variety of markets for attractive trading opportunities, applying various risk management techniques to analyze risk related to specific assets or portfolios, as well as fund-wide risks.

The following table summarizes our financial assets and liabilities that may be impacted by various market risks such as equity prices and exchange rates as of December 31, 2015 (in thousands):

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Assets:
Investments	$	1,055,789
Investments in options	$	30,427

Since Fortress’s investments in the various Fortress Funds are not equal, Fortress’s risks from a management fee and incentive income perspective (which mirror the funds’ investments) and its risks from an investment perspective are not proportional.

Fortress Funds’ Market Risk Impact on GAAP Management Fees

Our management fees are generally based on: (i) capital commitments to a Fortress Fund, (ii) capital invested in a Fortress Fund, (iii) the NAV of a Fortress Fund or (iv) the contributed capital or book equity (as defined) of a publicly traded permanent capital vehicle, as described in our consolidated financial statements. Management fees will only be impacted by changes in market risk factors to the extent they are based on NAV. These management fees will be increased (or reduced) in direct proportion to the impact of changes in market risk factors on the investments in the related funds and would occur only in periods subsequent to the change, as opposed to having an immediate impact. The proportion of our management fees that are based on NAV is dependent on the number and types of Fortress Funds in existence and the current stage of each fund’s life cycle. As of December 31, 2015, approximately 37% of the management fees earned from our alternative investment businesses (excluding fees based on senior living property revenues) were based on the NAV of the applicable funds.

•

For the private equity funds and certain credit PE funds, management fees are charged on committed capital during the investment period of a new fund, and then generally on invested capital after the investment or commitment period, with the exception of private equity funds formed after March 2006. For private equity funds formed after March 2006 that are no longer in the investment period, management fees are earned on NAV with respect to investments in publicly traded entities. Reductions in net asset value below invested capital for any fund investment will also cause reductions in management fees.


•	For the permanent capital vehicles, management fees are generally calculated based on the contributed capital or book equity (as defined) or on revenues for the senior living property management business.


•	For hedge funds, other than the Value Recovery Funds, management fees are based on their NAV, which in turn is dependent on the estimated fair values of their investments, and on the non-investment assets and liabilities of the funds. For the Value Recovery Funds, management fees are based on realizations, which are not dependent on current estimated fair value.

Changes in values of investments could also indirectly affect future management fees by, among other things, reducing the funds’ access to capital or liquidity and their ability to currently pay management fees.

Fortress Funds’ Market Risk Impact on GAAP Incentive Income

Our incentive income is generally based on a percentage of returns, or profits, of the various Fortress Funds subject to the achievement of performance criteria. Our incentive income will be impacted by changes in the values of the funds’ investments which, in turn, are impacted by changes in market risk factors. However, several major factors will influence the degree of impact: (i) the performance criteria for each individual fund in relation to how that fund’s results of operations are impacted by changes in the values of its investments, (ii) the period over which the Fortress Funds apply performance criteria (i.e. quarterly, annually or over the life of the fund), (iii) to the extent applicable, the previous performance of each fund in relation to its performance criteria, and (iv) whether each fund’s incentive income is subject to contingent repayment. As a result, the impact of changes in market risk factors on incentive income will vary significantly from fund to fund, as summarized below, and is heavily dependent on the prior performance of each fund, and is therefore not readily predicted or estimated.

•

Incentive income from our private equity funds and credit PE funds is not recorded as revenue but instead is deferred under GAAP until the related clawback contingency is resolved. Deferred incentive income, which is subject to contingencies, will be recognized as revenue to the extent it is received and all the associated contingencies are resolved. A change in the fair values of investments held by all of the private equity and credit PE funds would not impact incentive income under GAAP as it is not recognized until received and all contingencies are resolved. However, a 10% increase or decrease in the fair values of investments held by all of the private equity funds and credit PE funds where incentive income is subject to contingencies at December 31, 2015 would increase or decrease undistributed incentive income by $368.6 million or $(281.7) million, respectively; but, this would have no effect on our current reported financial condition or results of operations.


•	Incentive income from the publicly traded permanent capital vehicles is generally not impacted by changes in the fair values of their investments, except to the extent they represent impairment, since these changes generally do not impact

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the measure of current operating results in excess of specified returns to the company’s shareholders upon which the incentive income is calculated. Generally, operating results for purposes of computing incentive income excludes unrealized changes in the values of the publicly traded permanent capital vehicles’ investments (primarily real estate, loans, securities and other financial instruments), except for certain items (for example, the unrealized gain or loss on non-hedge derivatives).

•

Incentive income from our hedge funds is directly impacted by changes in the fair value of their investments. Incentive income from certain of our hedge funds is earned based on achieving annual performance criteria. For certain hedge funds, a 10% decrease in the NAV of the funds on December 31, 2015 would have resulted in a loss to investors for the quarter. In future periods, this loss could create, or cause a fund to fall further below, a “high water mark” (minimum future return to recover the loss to the investors) for our funds’ performance which would need to be achieved prior to any incentive income being earned by us. The Value Recovery Funds only pay incentive income if aggregate distributions exceed an agreed threshold and, therefore, this potential incentive income is not directly impacted by changes in fair value.

Fortress Funds’ Market Risk Impact on GAAP Investment Income

Our investments in the Fortress Funds, other than our publicly traded permanent capital vehicles and consolidated VIEs, are accounted for under the equity method. To the extent they are investment companies, our investments are directly affected by the impact of changes in market risk factors on the investments held by such funds, which could vary significantly from fund to fund.

Market Risk — Quantitative Analysis

The following table presents information on the impact to Fortress of a 10% change in the net asset values of the Fortress Funds at December 31, 2015 (in millions).



	10% Positive Change
	GAAP Revenues							Segment Revenues (A)
	Management Fees (B)		Incentive Income			Earnings from Equity Method Investees (C)		Management Fees (B)		Incentive Income			Investment Income (G)
Private Equity
Funds (D)	$	6.4	$ N/A		(E)	$	59.8	$	6.4	$ N/A		(E)	$ N/A
Permanent capital vehicles (F)	2.3		—			N/A		2.3		—			N/A
Credit
Hedge Funds	11.5		101.6			4.5		11.5		101.6			4.1
PE Funds	0.7		N/A		(E)	17.9		0.7		N/A		(E)	N/A
Liquid Hedge Funds	1.2		3.3		(H)	13.5		1.2		3.3		(H)	13.5
Total	$	22.1	$	104.9		$	95.7	$	22.1	$	104.9		$	17.6



	10% Negative Change
	GAAP Revenues										Segment Revenues (A)
	Management Fees (B)			Incentive Income				Earnings from Equity Method Investees (C)			Management Fees (B)			Incentive Income				Investment Income (G)
Private Equity
Funds (D)	$	(6.6	)	$ N/A		(E)		$	(59.8	)	$	(6.6	)	$ N/A		(E)		$ N/A
Permanent capital vehicles (F)	(2.3		)	—				N/A			(2.3		)	—				N/A
Credit
Hedge Funds	(11.5		)	(53.0			)	(4.5		)	(11.5		)	(53.0			)	(4.1		)
PE Funds	(1.7		)	N/A		(E)		(17.9		)	(1.7		)	N/A		(E)		N/A
Liquid Hedge Funds	(1.2		)	—		(H)		(13.5		)	(1.2		)	—		(H)		(13.5		)
Total	$	(23.3	)	$	(53.0		)	$	(95.7	)	$	(23.3	)	$	(53.0		)	$	(17.6	)

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(A)	See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Segment Analysis” for a discussion of the differences between GAAP and segment basis revenues.

(B)

Changes in management fees represent an annual change for the one year period following the measurement date assuming there is no change to the investments held by the funds during that period. For private equity funds and credit PE funds, it assumes that the management fees reset as of the reporting date. Private equity fund and credit PE fund management fees would be generally unchanged as, for investments in non-publicly traded securities, they are not based on the value of the funds, but rather on the amount of capital invested in the funds. However, if the NAV of a portfolio company of certain private equity funds and credit PE funds is reduced below its invested capital, there would be a reduction in management fees. As of the reporting date, $3.1 billion of such private equity fund or credit PE fund portfolio companies were carried at or below their invested capital.


(C)	For the private equity funds, the changes presented do not include any effect related to our direct investment in Penn or GLPI common stock. A 10% increase (decrease) in the equity prices of these common shares would affect our unrealized gains (losses) by $0.1 million and ($0.1) million, respectively.


(D)	The private equity Fortress Funds held concentrated positions in certain industries as of December 31, 2015, as illustrated in the following table:



	Percentage of
	Investments Based on
Industry	Fair Value
Financial Services and Assets	40	%
Transportation and Infrastructure	26	%
Senior Living	14	%
Real Estate	15	%
Other	5	%
	100	%

(E)

For GAAP Revenues, incentive income for private equity funds and credit PE funds would be unchanged as it is not recognized until received and all contingencies are resolved. Furthermore, incentive income would be based on the actual price realized in a transaction, not based on a valuation. For Segment Revenues, private equity fund and credit PE fund incentive income is based on realizations. However, a reduction in the fair value of investments could impact our conclusion regarding the potential segment basis incentive income reserve for our funds which are subject to clawback.

(F)

Our investments in the common shares of the publicly traded permanent capital vehicles are held at fair value, based on the market value of the shares we own. Gains (losses) on our shares in the publicly traded permanent capital vehicles and options granted to us by certain of the publicly traded permanent capital vehicles are affected by movements in the equity price of the shares. A 10% increase (decrease) in the share price would increase (decrease) unrealized gains (losses) by $15.6 million or ($12.4) million, respectively. Compensation and benefits expense would increase by $1.6 million or decrease by $1.3 million, respectively. Furthermore, management fees and incentive income for certain of the publicly traded permanent capital vehicles are generally not directly impacted by changes in the fair value of their investments (unless the changes are deemed to be impairment, which could impact incentive income).


(G)	For segment revenues, investment income for private equity funds, permanent capital vehicles, credit PE funds and hedge fund sidepocket investments would not be impacted as unrealized changes are not recorded through distributable earnings. However, a reduction in the fair value of investments could impact our conclusion regarding the potential impairment of our investments.


(H)	Incentive income is generally not charged on amounts invested by liquid hedge funds in funds managed by external managers.

Interest Rate Risk

Fortress Operating Group has debt obligations payable that accrue interest at variable rates. Interest rate changes may therefore impact the amount of interest payments, future earnings and cash flows. Based on debt obligations payable as of December 31, 2015, we estimate that interest expense relating to variable rate debt obligations payable would increase $0.8 million on an annual basis in the event interest rates were to increase by 100 basis points.

Exchange Rate Risk

Our investments in non-U.S. dollar denominated Fortress Funds and entities (including Eurocastle, the Global Opportunities Funds, Japan Opportunity Funds, the Italian NPL Opportunities Fund, investing vehicles in Japan and the CFT Co-invest Fund) are exposed to foreign exchange risk. As of December 31, 2015, we had a $6.7 million investment in Eurocastle (including options held), which is accounted for at fair value. We also had $20.1 million of investments in the Global Opportunities Funds, the Japan Opportunity Funds and investing vehicles, the Italian NPL Opportunities Fund and the CFT Co-invest Fund. In the event of a 10% change in the applicable foreign exchange rate against the U.S. dollar on December 31, 2015, we estimate the carrying value as of December 31, 2015 on these investments would increase by approximately $3.2 million or a decrease of approximately $3.2 million. Also, the impact of a 10% change in the applicable foreign exchange rate on foreign exchange option contracts, related to the Japanese Yen, used to economically hedge future revenues would cause an increase of approximately $23.0 million or a decrease of approximately $19.5 million in our unrealized gains and losses. In addition, we held $26.2 million of foreign-denominated cash as of December 31, 2015.

105

Item 8. Financial Statements and Supplementary Data.

Index to Financial Statements:

Reports of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2015 and 2014

Consolidated Statements of Operations for the years ended December 31, 2015, 2014 and 2013

Consolidated Statements of Comprehensive Income for the years ended December 31, 2015, 2014 and 2013

Consolidated Statements of Changes in Equity for the years ended December 31, 2015, 2014 and 2013

Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013

Notes to Consolidated Financial Statements

All other supplemental schedules have been omitted because either the required information is included in our consolidated financial statements and notes thereto or it is not applicable.

106

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of Fortress Investment Group LLC

We have audited the accompanying consolidated balance sheets of Fortress Investment Group LLC (the Company) as of December 31, 2015 and 2014, and the related consolidated statements of operations, comprehensive income, changes in equity, and cash flows for each of the three years in the period ended December 31, 2015. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Fortress Investment Group LLC at December 31, 2015 and 2014, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 1 to the consolidated financial statements, the Company adopted, on a retrospective basis, the amendments to the FASB Accounting Standards Codification resulting from Accounting Standards Update No. 2015-02, “Amendments to the Consolidation Analysis” (ASU 2015-02).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Fortress Investment Group LLC and subsidiaries' internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 25, 2016 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

New York, New York

February 25, 2016

107

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of Fortress Investment Group LLC

We have audited Fortress Investment Group LLC and subsidiaries’ internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Fortress Investment Group LLC and subsidiaries’ management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

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

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

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Fortress Investment Group LLC and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Fortress Investment Group LLC as of December 31, 2015 and 2014, and the related consolidated statements of operations, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2015 of Fortress Investment Group LLC and our report dated February 25, 2016 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

New York, New York

February 25, 2016

108

FORTRESS INVESTMENT GROUP LLC

CONSOLIDATED BALANCE SHEETS

(dollars in thousands)



	December 31,
	2015			2014
Assets
Cash and cash equivalents	$	339,842		$	391,089
Due from affiliates	273,811			326,575
Investments	1,055,789			1,121,545
Investments in options	30,427			71,844
Deferred tax asset, net	427,102			417,623
Other assets	148,310			173,708
Total Assets	$	2,275,281		$	2,502,384

Liabilities and Equity
Accrued compensation and benefits	$	318,750		$	374,709
Due to affiliates	365,218			375,424
Deferred incentive income	332,329			304,526
Debt obligations payable	230,677			75,000
Other liabilities	86,503			88,053
Total Liabilities	1,333,477			1,217,712

Commitments and Contingencies

Redeemable Non-controlling Interests	—			1,717

Equity
Class A shares, no par value, 1,000,000,000 shares authorized, 216,790,409
and 208,535,157 shares issued and outstanding at December 31, 2015 and 2014, respectively	—			—
Class B shares, no par value, 750,000,000 shares authorized, 169,514,478
and 226,331,513 shares issued and outstanding at December 31, 2015 and 2014, respectively	—			—
Paid-in capital	1,988,707			1,996,137
Retained earnings (accumulated deficit)	(1,415,113		)	(1,350,122		)
Accumulated other comprehensive income (loss)	(2,909		)	(2,416		)
Total Fortress shareholders’ equity	570,685			643,599
Principals’ and others’ interests in equity of consolidated subsidiaries	371,119			639,356
Total Equity	941,804			1,282,955
Total Liabilities, Redeemable Non-controlling Interests and Equity	$	2,275,281		$	2,502,384

See notes to consolidated financial statements.

109

FORTRESS INVESTMENT GROUP LLC

CONSOLIDATED STATEMENTS OF OPERATIONS

(dollars in thousands, except per share data)



	Year Ended December 31,
	2015			2014			2013
Revenues
Management fees: affiliates	$	547,109		$	539,600		$	520,283
Management fees: non-affiliates	59,480			68,948			62,795
Incentive income: affiliates	345,052			362,578			419,828
Incentive income: non-affiliates	813			1,734			44,383
Expense reimbursements: affiliates	237,158			213,048			206,452
Expense reimbursements: non-affiliates	11,005			13,429			7,209
Other revenues (affiliate portion disclosed in Note 7)	13,239			6,243			4,033
Total Revenues	1,213,856			1,205,580			1,264,983

Expenses
Compensation and benefits	743,862			795,361			741,761
General, administrative and other	164,194			173,113			136,770
Depreciation and amortization (see Note 1)	39,243			19,829			13,690
Interest expense	4,579			3,443			5,382
Transfer of interest in Graticule	101,000			—			—
Total Expenses	1,052,878			991,746			897,603

Other Income (Loss)
Gains (losses) (affiliate portion disclosed in Note 4)	(18,919		)	(11,757		)	53,933
Tax receivable agreement liability adjustment	(6,141		)	(33,116		)	(8,787		)
Earnings (losses) from equity method investees	(32,915		)	78,199			136,866
Gain on transfer of Graticule	134,400			—			—
Total Other Income (Loss)	76,425			33,326			182,012

Income Before Income Taxes	237,403			247,160			549,392
Income tax expense	(55,788		)	(6,947		)	(65,801		)
Net Income	$	181,615		$	240,213		$	483,591

Allocation of Net Income (Loss):
Principals’ and Others’ Interests in Income of Consolidated Subsidiaries	$	103,129		$	139,956		$	283,144
Redeemable Non-controlling Interests in Income (Loss) of Consolidated Subsidiaries	(6		)	(709		)	—
Net Income Attributable to Class A Shareholders	78,492			100,966			200,447
	$	181,615		$	240,213		$	483,591
Dividends declared per Class A share	$	0.62		$	0.50		$	0.24

Earnings Per Class A share
Net income per Class A share, basic	$	0.35		$	0.47		$	0.83
Net income per Class A share, diluted	$	0.28		$	0.43		$	0.79
Weighted average number of Class A shares outstanding, basic	216,503,554			210,303,241			236,246,296
Weighted average number of Class A shares outstanding, diluted	442,686,774			455,154,136			500,631,423

See notes to consolidated financial statements.

110

FORTRESS INVESTMENT GROUP LLC

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(dollars in thousands)



	Year Ended December 31,
	2015			2014			2013
Comprehensive income (net of tax)
Net income	$	181,615		$	240,213		$	483,591
Foreign currency translation	(123		)	(2,467		)	(772		)
Comprehensive income from equity method investees	—			—			4,136
Total comprehensive income	$	181,492		$	237,746		$	486,955
Allocation of Comprehensive Income (Loss):
Comprehensive income attributable to principals’ and others’ interests	$	102,853		$	138,414		$	285,243
Comprehensive income (loss) attributable to redeemable non-controlling interests	(6		)	(709		)	—
Comprehensive income attributable to Class A shareholders	78,645			100,041			201,712
	$	181,492		$	237,746		$	486,955

See notes to consolidated financial statements.

111

FORTRESS INVESTMENT GROUP LLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2015, 2014 AND 2013

(dollars in thousands)



	Class A Shares	Class B Shares		Paid-In Capital			Retained Earnings (Accumulated Deficit)			Treasury Shares			Accumulated Other Comprehensive Income (Loss)			Total Fortress Shareholders’ Equity			Principals’ and Others’ Interests in Equity of Consolidated Subsidiaries			Total Equity
Equity - December 31, 2012	218,286,342	249,534,372		$	2,119,102		$	(1,486,578	)	$	(3,419	)	$	(2,634	)	$	626,471		$	590,179		$	1,216,650
Contributions from principals’ and others’ interests in equity	—	—		—			—			—			—			—			70,272			70,272
Distributions to principals’ and others’ interests in equity (net of tax)	—	—		(112		)	—			—			—			(112		)	(149,420		)	(149,532		)
Dividends declared	—	—		(56,340		)	—			—			—			(56,340		)	66			(56,274		)
Dividend equivalents accrued in connection with equity-based compensation (net of tax)	—	—		(531		)	—			—			—			(531		)	(845		)	(1,376		)
Conversion of Class B shares to Class A shares	10,333,334	(10,333,334	)	10,143			—			—			—			10,143			(10,143		)	—
Net deferred tax effects resulting from acquisition and exchange of Fortress Operating Group units	—	—		13,315			—			—			—			13,315			(30		)	13,285
Director restricted share grant	127,533	—		372			—			—			—			372			398			770
Capital increase related to equity-based compensation (net of tax)	9,912,027	10,333,334		17,037			—			—			—			17,037			18,123			35,160
Dilution impact of Class A share issuance	—	—		14,173			—			(15		)	(153		)	14,005			(14,005		)	—
Reissuance of treasury stock	2,082,684	—		(4,439		)	—			3,434			—			(1,005		)	—			(1,005		)
Comprehensive income (net of tax)
Net income	—	—		—			200,447			—			—			200,447			283,144			483,591
Foreign currency translation	—	—		—			—			—			(232		)	(232		)	(540		)	(772		)
Comprehensive income from equity method investees	—	—		—			—			—			1,497			1,497			2,639			4,136
Total comprehensive income																201,712			285,243			486,955
Equity - December 31, 2013	240,741,920	249,534,372		$	2,112,720		$	(1,286,131	)	$	—		$	(1,522	)	$	825,067		$	789,838		$	1,614,905

Continued on next page.

112

FORTRESS INVESTMENT GROUP LLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2015, 2014 AND 2013

(dollars in thousands)



	Class A Shares		Class B Shares		Paid-In Capital			Retained Earnings (Accumulated Deficit)			Treasury Shares		Accumulated Other Comprehensive Income (Loss)			Total Fortress Shareholders’ Equity			Principals’ and Others’ Interests in Equity of Consolidated Subsidiaries			Total Equity
Equity - December 31, 2013	240,741,920		249,534,372		$	2,112,720		$	(1,286,131	)	$	—	$	(1,522	)	$	825,067		$	789,838		$	1,614,905
Contributions from principals’ and others’ interests in equity	—		—		—			—			—		—			—			125,497			125,497
Distributions to principals’ and others’ interests in equity (net of tax)	—		—		—			—			—		—			—			(248,932		)	(248,932		)
Dividends declared	—		—		(101,864		)	—			—		—			(101,864		)	—			(101,864		)
Dividend equivalents accrued in connection with equity- based compensation (net of tax)	—		—		(1,218		)	—			—		—			(1,218		)	(2,086		)	(3,304		)
Net deferred tax effects resulting from acquisition and exchange of Fortress Operating Group units	—		—		7,638			—			—		—			7,638			91			7,729
Director restricted share grant	89,390		—		312			—			—		—			312			348			660
Capital increase related to equity-based compensation (net of tax)	5,069,263		—		20,389			—			—		—			20,389			22,830			43,219
Dilution impact of equity transactions (Note 7)	—		—		(41,840		)	—			—		31			(41,809		)	41,809			—
Public offering of Class A shares	23,202,859		—		186,551			—			—		—			186,551			—			186,551
Repurchase of Class A shares (Note 9)	(60,568,275	)	—		—			(164,957		)	—		—			(164,957		)	(228,453		)	(393,410		)
Repurchase of Class B shares (Note 9)	—		(23,202,859	)	(186,551		)	—			—		—			(186,551		)	—			(186,551		)
Comprehensive income (net of tax)
Net income (excludes loss allocated to redeemable non-controlling interests)	—		—		—			100,966			—		—			100,966			139,956			240,922
Foreign currency translation	—		—		—			—			—		(925		)	(925		)	(1,542		)	(2,467		)
Total comprehensive income																100,041			138,414			238,455
Equity - December 31, 2014	208,535,157		226,331,513		$	1,996,137		$	(1,350,122	)	$	—	$	(2,416	)	$	643,599		$	639,356		$	1,282,955

Continued on next page.

113

FORTRESS INVESTMENT GROUP LLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2015, 2014 AND 2013

(dollars in thousands)



	Class A Shares	Class B Shares		Paid-In Capital			Retained Earnings (Accumulated Deficit)			Treasury Shares		Accumulated Other Comprehensive Income (Loss)			Total Fortress Shareholders’ Equity			Principals’ and Others’ Interests in Equity of Consolidated Subsidiaries			Total Equity
Equity - December 31, 2014	208,535,157	226,331,513		$	1,996,137		$	(1,350,122	)	$	—	$	(2,416	)	$	643,599		$	639,356		$	1,282,955
Contributions from principals’ and others’ interests in equity	—	—		—			—			—		—			—			98,887			98,887
Distributions to principals’ and others’ interests in equity (net of tax)	—	—		—			—			—		—			—			(300,576		)	(300,576		)
Dividends declared	—	—		(131,019		)	—			—		—			(131,019		)	—			(131,019		)
Dividend equivalents accrued in connection with equity- based compensation (net of tax)	—	—		(3,110		)	—			—		—			(3,110		)	(5,054		)	(8,164		)
Net deferred tax effects resulting from acquisition and exchange of Fortress Operating Group units	—	—		32,695			—			—		—			32,695			451			33,146
Director restricted share grant	111,969	—		271			—			—		—			271			289			560
Capital increase related to equity-based compensation (net of tax)	8,143,283	—		19,642			—			—		—			19,642			20,551			40,193
Dilution impact of equity transactions (Note 7)	—	—		74,091			—			—		(646		)	73,445			(73,445		)	—
Repurchase of Class B shares (Note 9)	—	(56,817,035	)	—			(143,483		)	—		—			(143,483		)	(112,193		)	(255,676		)
Comprehensive income (net of tax)
Net income (excludes loss allocated to redeemable non-controlling interests)	—	—		—			78,492			—		—			78,492			103,129			181,621
Foreign currency translation	—	—		—			—			—		153			153			(276		)	(123		)
Total comprehensive income															78,645			102,853			181,498
Equity - December 31, 2015	216,790,409	169,514,478		$	1,988,707		$	(1,415,113	)	$	—	$	(2,909	)	$	570,685		$	371,119		$	941,804

See notes to consolidated financial statements.

114

FORTRESS INVESTMENT GROUP LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)



	Year Ended December 31,
	2015			2014			2013
Cash Flows From Operating Activities
Net income	$	181,615		$	240,213		$	483,591
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Depreciation and amortization	39,243			19,829			13,690
Other amortization (included in interest expense)	781			781			900
(Earnings) losses from equity method investees	32,915			(78,199		)	(136,866		)
Distributions of earnings from equity method investees	43,858			110,967			84,548
(Gains) losses	18,919			11,757			(53,933		)
Deferred incentive income	(219,032		)	(171,387		)	(107,276		)
Deferred tax (benefit) expense	20,331			(18,044		)	54,431
Options received from affiliates	(25,158		)	(6,310		)	(42,516		)
Tax receivable agreement liability adjustment	6,141			33,116			8,787
Equity-based compensation	38,407			38,157			39,266
Options in affiliates granted to employees	1,111			701			8,190
Other	536			(616		)	863
Transfer of interest in Graticule	101,000			—			—
Gain on transfer of Graticule	(134,400		)	—			—
Cash flows due to changes in
Due from affiliates	(65,840		)	(164,729		)	(347,942		)
Other assets	(3,041		)	39,049			(18,082		)
Accrued compensation and benefits	46,902			89,875			330,907
Due to affiliates	(28,510		)	(34,137		)	(2,667		)
Deferred incentive income	228,594			216,493			118,765
Other liabilities	11,056			8,021			(1,765		)
Purchases of investments and payments to cover securities sold not yet purchased	(152,418		)	(643,283		)	—
Proceeds from sale of investments and securities sold not yet purchased	98,423			608,228			—
Receivables from brokers and counterparties	(119		)	(44,904		)	—
Due to brokers and counterparties	1,738			12,031			—
Net cash provided by (used in) operating activities	243,052			267,609			432,891

Cash Flows From Investing Activities
Contributions to equity method investees	(33,855		)	(36,110		)	(37,084		)
Distributions of capital from equity method investees	235,290			379,940			281,481
Purchase of securities	(883		)	(16,664		)	(20,043		)
Proceeds from sale of securities	18,101			84,852			18,849
Proceeds from exercise of options	51,543			—			—
Purchase of digital currency (Bitcoin)	—			—			(20,000		)
Purchase of fixed assets	(31,595		)	(12,445		)	(11,471		)
Purchase of software and technology-related assets	—			(25,976		)	—
Cash of liquid hedge fund on deconsolidation date	—			(12,024		)	—
Net cash provided by (used in) investing activities	238,601			361,573			211,732

Continued on next page.

115

FORTRESS INVESTMENT GROUP LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)



	Year Ended December 31,
	2015			2014			2013
Cash Flows From Financing Activities
Repayments of debt obligations	—			(50,000		)	(149,453		)
Borrowing under debt obligations	—			125,000			—
Payment of deferred financing costs	—			—			(2,367		)
Proceeds from public offering (Note 9)	—			186,551			—
Repurchase of Class B shares (Note 9)	(100,000		)	(186,551		)	—
Repurchase of Class A shares (Note 9)	(9,676		)	(363,410		)	—
Repurchase of shares and RSUs (Note 9)	—			(3,611		)	—
Dividends and dividend equivalents paid	(140,773		)	(105,860		)	(57,926		)
Principals’ and others’ interests in equity of consolidated subsidiaries - contributions	1,285			876			401
Principals’ and others’ interests in equity of consolidated subsidiaries - distributions	(286,833		)	(245,461		)	(174,937		)
Excess tax benefits from delivery of RSUs	4,808			3,538			—
Redeemable non-controlling interests - contributions (distributions)	(1,711		)	36,252			—
Net cash provided by (used in) financing activities	(532,900		)	(602,676		)	(384,282		)
Net Increase (Decrease) in Cash and Cash Equivalents	(51,247		)	26,506			260,341
Cash and Cash Equivalents, Beginning of Period	391,089			364,583			104,242
Cash and Cash Equivalents, End of Period	$	339,842		$	391,089		$	364,583
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest	$	2,077		$	2,106		$	3,586
Cash paid during the period for income taxes	$	11,615		$	4,953		$	6,468
Supplemental Schedule of Non-cash Investing and Financing Activities
Employee compensation invested directly in subsidiaries	$	97,515		$	124,442		$	66,779
Investments of incentive receivable amounts into Fortress Funds	$	138,026		$	258,023		$	227,091
Dividends, dividend equivalents and Fortress Operating Group unit distributions declared but not yet paid	$	7,872		$	—		$	5,160
Non-cash redeemable non-controlling interests - contributions	$	—		$	20,519		$	—
Non-cash redeemable non-controlling interests - distributions - deconsolidation of liquid hedge fund	$	—		$	56,524		$	—
Exchange of promissory note for share repurchase (Note 9)	$	155,677		$	—		$	—

See notes to consolidated financial statements.

116

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)

1. ORGANIZATION AND BASIS OF PRESENTATION

Fortress Investment Group LLC (the “Registrant,” or, together with its subsidiaries, “Fortress,”) is a leading, highly diversified global investment management firm. Its primary business is to sponsor the formation of, and provide investment management services for, various investment funds, permanent capital vehicles and related managed accounts (collectively, the “Fortress Funds”). Fortress generally makes investments in these funds.

The Registrant conducts its business and holds its investments through limited partnerships and their subsidiaries which are referred to as Fortress Operating Group. The Registrant through its wholly owned subsidiaries controls Fortress Operating Group as general partner. The Registrant is a limited liability company and its members are not responsible for any of its liabilities beyond the equity they have invested. Fortress's formation documents allow for an indefinite life.

FIG Corp., a subsidiary of the Registrant, is a corporation for tax purposes. As a result, the Registrant is subject to income taxes on that portion of its income which flows through FIG Corp.

The Principals own economic interests in Fortress Operating Group through their ownership of Fortress Operating Group units and Class A shares of the Registrant (Note 9). The Principals’ Fortress Operating Group unit interests in the equity and income (loss) of Fortress Operating Group are recorded on the face of the consolidated financial statements as further described in Note 7.

Fortress's primary sources of income from the Fortress Funds are management fees, incentive income, and investment income on its investments in the funds. In addition, Fortress receives certain expense reimbursements pursuant to its management agreements. The Fortress Funds fall into the following business segments in which Fortress operates:


1)	Private equity:

a) General buyout and sector-specific funds focused on control-oriented investments in cash flow generating assets and asset-based businesses in North America and Western Europe; and

Entities which Fortress collectively refers to as "permanent capital vehicles" which includes (i) Newcastle Investment Corp. ("Newcastle"), New Residential Investment Corp. ("New Residential"), Eurocastle Investment Limited ("Eurocastle"), New Media Investment Group Inc. ("New Media"), New Senior Investment Group Inc. ("New Senior") and Fortress Transportation and Infrastructure Investors LLC ("FTAI"), which are publicly traded companies that are externally managed by Fortress pursuant to management agreements (collectively referred to as the "publicly traded permanent capital vehicles") and (ii) FHC Property Management LLC (together with its subsidiaries, referred to as "Blue Harbor"), a senior living property management business. The publicly traded permanent capital vehicles invest in a wide variety of real estate related assets, including securities, loans, real estate properties and mortgage servicing related assets, media assets and transportation and infrastructure assets. All of the capital of Worldwide Transportation and Infrastructure Investors ("WWTAI"), formerly a private fund managed by Fortress, was contributed to FTAI which completed its initial public offering ("IPO") in May 2015 (see Note 3).


2)	Credit funds:

Credit hedge funds, which make highly diversified investments in direct lending, corporate debt and securities, portfolios and orphaned assets, real estate and structured finance, on a global basis and throughout the capital structure, with a value orientation, as well as non-Fortress originated funds for which Fortress has been retained as manager or co-manager as part of an advisory business; and

b) Credit private equity (“PE”) funds which are comprised of a family of “credit opportunities” funds focused on investing in distressed and undervalued assets, a family of ''long dated value'' funds focused on investing in undervalued assets with limited current cash flows and long investment horizons, a family of “real assets” funds focused on investing in tangible and intangible assets in the following principal categories (real estate, capital assets, natural resources and intellectual property), a family of Asia funds, including Japan real estate funds and an Asian investor based global opportunities fund, and a family of real estate opportunities funds, as well as certain sector-specific funds with narrower investment mandates tailored for the applicable sector.

117

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)

Liquid hedge funds include the affiliated manager platform ("Affiliated Managers"); an endowment style fund, which invests in Fortress Funds, funds managed by external managers, and direct investments; a fund that primarily focuses on an international "event driven" investment strategy, particularly in Europe, Asia-Pacific and Latin America; and a fund that seeks to generate returns by executing a positively convex investment strategy.

On January 5, 2015, Fortress Asia Macro Funds and related managed accounts became the first group of funds to join Fortress's Affiliated Managers as they transitioned to an autonomous asset management business named Graticule Asset Management Asia ("Graticule"). Fortress retained a perpetual minority interest in Graticule amounting to 30% of earnings during 2015 and 2016 and declining to approximately 27% of earnings thereafter. Fortress recorded the results of this transaction at fair value. During the year ended December 31, 2015, Fortress recorded a non-cash gain of $134.4 million, non-cash expense of $101.0 million related to the fair value of the controlling interest in Graticule transferred to a former senior employee for no consideration and $33.4 million from its resulting retained interest as an equity method investment. Fortress utilized an income approach to value Graticule, its retained interest in Graticule and the controlling interest in Graticule which was transferred. This approach relies on a number of factors including actual operating results, discount rates and economic projections. Fortress also receives additional fees for providing infrastructure services (technology, back office, and related services) to Graticule. During the second quarter of 2015, Graticule notified Fortress of its intention to terminate the infrastructure services agreement effective at the end of May 2016. Fortress will continue to earn fees for providing services to Graticule through the effective date of termination.

In the fourth quarter of 2015, Fortress closed the Fortress Macro Funds and related managed accounts. Michael Novogratz, a principal, officer and director of Fortress retired effective January 2016. In November 2015, Fortress purchased from Mr. Novogratz 56.8 million Fortress Operating Group units and corresponding Class B shares at $4.50 per share, or an aggregate purchase price of $255.7 million. In connection with this purchase, Fortress paid $100.0 million of cash in November 2015 and issued a $155.7 million promissory note, of which one-half of the principal amount matures in November 2016 and the remainder in November 2017. In addition, Fortress entered into a consent and waiver with the lenders under its credit agreement for their consent to this transaction.

In January 2014, Fortress acquired software and technology-related assets which were accounted for as a business combination. These assets facilitated trading within Fortress's liquid hedge funds segment. The purchase price was $26.0 million and was allocated to acquired software and technology related assets. During 2015, Fortress determined that these assets had not met performance targets which triggered an asset impairment test. As a result of this test, $18.2 million was written off and included in Depreciation and Amortization for the year ended December 31, 2015. As of December 31, 2015, these assets had no remaining carrying value.

Logan Circle Partners, L.P. (“Logan Circle”), which represents Fortress's traditional asset management business providing institutional clients actively managed investment solutions across a broad spectrum of fixed income strategies. Logan Circle's core fixed income products cover the breadth of the maturity and risk spectrums, including short, intermediate and long duration, core/core plus, investment grade credit, high yield and emerging market debt.

118

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)

For a reconciliation between the financial statements and the segment-based financial data that management uses for making operating decisions and assessing performance, see Note 11.



FINANCIAL STATEMENT GUIDE
Selected Financial Statement Captions	Note Reference	Explanation

Balance Sheet

Due from Affiliates	7	Generally, management fees, expense reimbursements and incentive income due from Fortress Funds.

Investments and Investments in Options	4	Primarily the carrying value of Fortress’s investments in the Fortress Funds.

Deferred Tax Asset, net	6	Relates to potential future net tax benefits.

Due to Affiliates	7	Generally, amounts due to the Principals related to their interests in Fortress Operating Group and the tax receivable agreement.

Deferred Incentive Income	3	Incentive income already received from certain Fortress Funds based on past performance, which is subject to contingent repayment based on future performance.

Debt Obligations Payable	5	The balance outstanding on the credit agreement and other debt obligations.

Principals' and Others' Interests in Equity of Consolidated Subsidiaries	7	The GAAP basis of the Principals' and a former senior employee's ownership interests in Fortress Operating Group as well as employees' ownership interests in certain subsidiaries.

Statement of Operations

Management Fees: Affiliates	3	Fees earned for managing Fortress Funds and other affiliates, generally determined based on the size of such funds.

Management Fees: Non-Affiliates	3	Fees earned from managed accounts and the traditional fixed income asset management business, generally determined based on the amount managed.

Incentive Income: Affiliates	3	Income earned from Fortress Funds, based on the performance of such funds.

Incentive Income: Non- Affiliates	3	Income earned from managed accounts, based on the performance of such accounts.

Compensation and Benefits	8	Includes equity-based, profit-sharing and other compensation to employees.

Gains (Losses)	4	The result of asset dispositions or changes in the fair value of investments or other financial instruments which are marked to market (including the publicly traded permanent capital vehicles and publicly traded portfolio companies).

Continued on next page.

119

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)



FINANCIAL STATEMENT GUIDE
Selected Financial Statement Captions	Note Reference	Explanation
Tax Receivable Agreement Liability Adjustment	6	Represents a change in the amount due to the Principals under the tax receivable agreement.

Earnings (Losses) from Equity Method Investees	4	Fortress’s share of the net earnings (losses) of the Fortress Funds resulting from its investments in these funds.

Income Tax Benefit (Expense)	6	The net tax result related to the current period. Certain of Fortress's revenues are not subject to taxes because they do not flow through taxable entities. Furthermore, Fortress has significant permanent differences between its GAAP and tax basis earnings.

Principals’ and Others’ Interests in Income of Consolidated Subsidiaries	7	Primarily the Principals’ and employees’ share of Fortress’s earnings based on their ownership interests in subsidiaries, including Fortress Operating Group.

Earnings Per Share	9	GAAP earnings per Class A share based on Fortress’s capital structure, which is comprised of outstanding and unvested equity interests, including interests which participate in Fortress’s earnings, at both the Fortress and subsidiary levels.

Other

Distributions	9	A summary of dividends and distributions, and the related outstanding shares and units, is provided.

Distributable Earnings	11	A presentation of Fortress's financial performance by segment (fund type) is provided, on the basis of the operating performance measure used by Fortress’s management committee.

Recent Accounting Pronouncements

In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”) which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a reduction from the carrying amount of that debt liability. ASU 2015-03 does not specifically address requirements for the presentation and subsequent measurement of debt issuance costs related to line-of-credit arrangements. In August 2015, the FASB issued ASU No. 2015-15, Interest -Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements - Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting (“ASU 2015-15”). ASU 2015-15 amends Subtopic 835-30 to include that the SEC would not object to the deferral and presentation of debt issuance costs as an asset and subsequent amortization of the deferred costs over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. ASU 2015-03 is effective for Fortress beginning January 1, 2016. The adoption of ASU 2015-03 is not expected to have a material impact on Fortress's consolidated financial statements.

120

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)

the FASB deferred the effective date of the new revenue recognition standard. The new standard is effective for Fortress beginning January 1, 2018. Early adoption is permitted but not before the original public entity effective date (that is, annual periods beginning after December 15, 2016). ASU 2014-09 permits the use of either the retrospective or cumulative effect transition method. The adoption of ASU 2014-09 is not expected to have a material impact on Fortress's consolidated balance sheet and consolidated statement of operations.

In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810) - Amendments to the Consolidation Analysis ("ASU 2015-02"). ASU 2015-02 eliminates the deferral of Statement of Financial Accounting Standards No. 167, Amendments to FASB Interpretation No. 46 (R) previously provided to investment companies and certain other entities pursuant to ASC 810-10-65-2. ASU 2015-02 also amends the evaluation of whether (1) fees paid to a decision maker or service provider represent a variable interest, (2) a limited partnership or similar entity has the characteristics of a variable interest entity ("VIE") and (3) a reporting entity is the primary beneficiary of a VIE. ASU 2015-02 eliminates certain conditions for evaluating whether a fee paid to a decision maker or a service provider represents a variable interest. Fees received by a decision maker or service provider are no longer considered variable interests and are now excluded from the evaluation of whether the reporting entity is the primary beneficiary of a VIE if the fees are both customary and commensurate with the level of effort required for the services provided and the decision maker or service provider does not hold other interests in the entity being evaluated that would absorb more than an insignificant amount of the expected losses or returns of the entity. If the reporting entity determines that it does not have a variable interest in an entity, no further consolidation analysis is performed as the reporting entity would not be required to consolidate the entity.

The effective date of ASU 2015-02 is for fiscal years and interim periods within those fiscal years, beginning after December 15, 2015 for public companies and early adoption is permitted. During the first quarter of 2015, Fortress elected to early adopt ASU 2015-02 on a retrospective basis as permitted, for all periods presented. The consolidated financial statements and related footnote disclosures have been adjusted for the impact of the adoption. The adoption did not result in a cumulative effect adjustment to Fortress’s retained earnings (accumulated deficit).

Prior to the adoption of ASU 2015-02, during the year ended December 31, 2014, Fortress consolidated New Media, New Senior, a private equity fund and certain investment vehicles formed by certain credit hedge funds, collectively referred to as previously consolidated VIEs. The financial results of the previously consolidated VIEs were included in Fortress's consolidated financial statements in previous filings with the Securities and Exchange Commission, based on the then existing consolidation guidance. The adoption of ASU 2015-02 resulted in the deconsolidation of the previously consolidated VIEs as Fortress determined that under ASU 2015-02, it was not the primary beneficiary of these entities. The fee arrangements with these entities are both commensurate with the level of effort required for the services provided and include only customary terms and Fortress does not hold other interests in these entities that could absorb losses or receive benefits that could potentially be significant to these entities. Therefore, Fortress no longer considers these fee arrangements to be variable interests. Under ASU 2015-02, Fortress and its related parties under common control as a group, where applicable, do not have the obligation to absorb losses or the right to receive benefits from these entities that could potentially be significant to these entities. Also see Note 4 for the related disclosures for certain unconsolidated variable interest entities.

The effects of the deconsolidation of these previously consolidated VIEs as of and for the year ended December 31, 2014 was an increase (decrease) of total assets, total liabilities and total equity of $(3,432.5) million, $(1,649.3) million and $(1,783.2) million, respectively, and total revenue, total expenses and net income of $(606.2) million, $(622.1) million and $6.9 million, respectively.

121

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)


2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General

Basis of Accounting and Consolidation - The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The accompanying consolidated financial statements include the accounts of Fortress and its consolidated subsidiaries, which are comprised of VIEs in which it is the primary beneficiary as described below and voting interest entities (“VOEs”) in which it is determined to have a controlling financial interest under ASC 810, as amended by ASU 2015-02.

For legal entities evaluated for consolidation, Fortress must determine whether the interests that it holds and fees paid to it qualify as a variable interest in the entity. This includes an evaluation of fees paid to Fortress where Fortress acts as a decision maker or service provider to the entity being evaluated. Fees received by Fortress are not variable interests if (i) the fees are compensation for services provided and are commensurate with the level of effort required to provide those services, (ii) the service arrangement includes only terms, conditions, or amounts that are customarily present in arrangements for similar services negotiated at arm’s length and (iii) Fortress's other economic interests in the VIE held directly and indirectly through its related parties, as well as economic interests held by related parties under common control, where applicable, would not absorb more than an insignificant amount of the entity’s losses or receive more than an insignificant amount of the entity’s benefits.

For those entities in which it has a variable interest, Fortress performs an analysis to first determine whether the entity is a VIE. This determination includes considering whether the entity’s equity investment at risk is sufficient, whether the voting rights of an investor are not proportional to its obligation to absorb the income or loss of the entity and substantially all of the entity's activities either involve or are conducted on behalf of that investor and its related parties and whether the entity’s at-risk equity holders have the characteristics of a controlling financial interest. A VIE must be consolidated by its primary beneficiary. Performance of such analysis requires the exercise of judgment.

The primary beneficiary of a VIE is generally defined as the party who has a controlling financial interest in the VIE. Fortress is generally deemed to have a controlling financial interest in a VIE if it has (i) the power to direct the activities of the VIE that most significantly affect the VIE’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. For purposes of evaluating (ii) above, fees paid to Fortress are excluded if the fees are compensation for services provided commensurate with the level of effort required to be performed and the arrangement includes only customary terms, conditions or amounts present in arrangements for similar services negotiated at arm’s length. Fortress also evaluates its economic interests in the VIE held directly by it and indirectly through its related parties, as well as economic interests held by related parties under common control, where applicable. The primary beneficiary evaluation is generally performed qualitatively on the basis of all facts and circumstances. However, quantitative information may also be considered in the analysis, as appropriate. These analyses require judgment. Changes in the economic interests (either by Fortress, related parties of Fortress or third parties) or amendments to the governing documents of the VIE could affect an entity's status as a VIE or the determination of the primary beneficiary. The primary beneficiary evaluation is updated continuously.

For VOEs, Fortress shall consolidate the entity if it has a controlling financial interest. Fortress has a controlling financial interest in a VOE if (i) for legal entities other than limited partnerships, Fortress owns a majority voting interest in the VOE or, for limited partnerships and similar entities, Fortress owns a majority of the entity’s kick-out rights through voting limited partnership interests and (ii) non-controlling shareholders or partners do not hold substantive participating rights and no other conditions exist that would indicate that Fortress does not control the entity.

Virtually all of the Fortress Funds, excluding the permanent capital vehicles, are, for GAAP purposes, investment companies. Investment companies record realized and unrealized gains (losses) resulting from changes in the fair value of their investments as a component of current income. Additionally, investment companies generally do not consolidate their majority-owned and controlled investments (the “Portfolio Companies”).

122

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)

Distributions by Fortress and its subsidiaries are recognized when declared.

Redeemable Non-controlling Interests represent ownership interests in consolidated subsidiaries which are redeemable and not owned by Fortress.

Principals’ and others’ interests in consolidated subsidiaries represent the ownership interests in certain consolidated subsidiaries held by entities or persons other than Fortress. This is primarily related to the Principals’ interests in Fortress Operating Group (Note 7). Non-Fortress interests also include employee interests in majority owned and controlled fund advisor and general partner entities.

All significant intercompany transactions have been eliminated.

Certain prior period amounts have been reclassified to conform to the current period's presentation.

Risks and Uncertainties - In the normal course of business, Fortress encounters primarily two significant types of economic risk: credit and market. Credit risk is the risk of default on Fortress’s or the Fortress Funds’ investments in debt securities, loans, leases, derivatives and other financial instruments that results from a borrower's, lessee’s or counterparty's inability or unwillingness to make required or expected payments. Market risk reflects changes in the value of investments due to changes in interest rates, credit spreads or other market factors. Credit risk is enhanced in situations where Fortress or a Fortress Fund is investing in distressed assets, as well as unsecured or subordinate loans or securities, which is a material part of its business.

Fortress makes investments outside of the United States. Fortress’s non-U.S. investments are subject to the same risks associated with its U.S. investments as well as additional risks, such as fluctuations in foreign currency exchange rates, unexpected changes in regulatory requirements, heightened risk of political and economic instability, difficulties in managing non-U.S. investments, potentially adverse tax consequences and the burden of complying with a wide variety of foreign laws.

Fortress is exposed to economic risk concentrations insofar as it is dependent on the ability of the Fortress Funds to compensate it for the services which Fortress provides to these funds. Further, the incentive income component of this compensation is based on the ability of the Fortress Funds to generate adequate returns on their investments. In addition, a majority of Fortress’s net assets, after deducting the portion attributable to non-controlling interests, are comprised of Fortress's investments in, or receivables from, these funds.

Use of Estimates - The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.

Revenue Recognition

Management Fees and Expense Reimbursements - Management fees are recognized in the periods during which the related services are performed and the amounts have been contractually earned. Fortress is entitled to certain expense reimbursements pursuant to its management agreements. Fortress selects the vendors, incurs the expenses, and is the primary obligor under the related arrangements. Fortress is considered the principal under these arrangements and is required to record the expense and related reimbursement revenue on a gross basis. Expense reimbursements are recognized in the periods during which the related expenses are incurred and the reimbursements are contractually earned.

Options Received - Fully vested options are issued to Fortress by the publicly traded permanent capital vehicles as compensation for services performed in raising capital for these entities. These options are recognized by Fortress as management fees at their estimated fair value at the time of issuance. Fair value was estimated using an option valuation model. Since the publicly traded permanent capital vehicles' option plans have characteristics significantly different from those of traded options, and since the assumptions used in such models, particularly the volatility assumption, are subject to judgment and variability, the actual value of the options could vary materially from this estimate. Fortress has elected to account for these options at fair value with subsequent changes in fair value recognized in income as Gains (Losses).

Incentive Income - Incentive income is calculated as a percentage of the profits earned by the Fortress Funds subject, in certain cases, to the achievement of performance criteria. Incentive income from certain funds is subject to contingent repayment based on the applicable Fortress Fund achieving earnings in excess of a specified minimum return. Incentive income that is not subject to contingent repayment is recognized as contractually earned. Incentive income subject to contingent repayment may be paid to

123

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)

Fortress as particular investments made by the funds are realized. However, if upon liquidation of each fund the aggregate amount paid to Fortress as incentive income exceeds the amount actually due to Fortress based upon the aggregate performance of each fund, the excess is required to be repaid by Fortress (i.e. “clawed back”) to that fund. Fortress has elected to adopt the preferred method of recording incentive income subject to contingencies, whereby it does not recognize incentive income subject to contingent repayment until the termination of the related fund, or when and to the extent distributions from the fund exceed the point at which a clawback of a portion or all of the historic incentive income distributions could no longer occur due to the related contingencies being resolved. Recognition of incentive income allocated or paid to Fortress prior to that date is deferred and recorded as deferred incentive income liability.

Other Revenues and Other Income - Fortress recognizes security transactions on the trade date. Gains and losses are recorded based on the specific identification method and generally include gains (losses) on investments in securities, derivatives and foreign exchange transactions. Dividend income is recognized on the ex-dividend date, or in the absence of a formal declaration, on the date it is received. Interest income is recognized as earned on an accrual basis.

Balance Sheet Measurement

Cash and Cash Equivalents - Fortress considers all highly liquid short term investments with maturities of 90 days or less when purchased to be cash equivalents. Substantially all amounts on deposit with major financial institutions exceed insured limits.

Due from/to Affiliates - For purposes of classifying amounts, Fortress considers its principals, employees, directors, all of the Fortress Funds, the Portfolio Companies and Affiliated Managers to be affiliates. Amounts due from and due to affiliates are recorded at their contractual amount, subject to an allowance for uncollectible amounts if collection is not deemed probable.

Other Assets and Other Liabilities:

Other assets and liabilities are comprised of the following. Other assets are presented net of allowances for uncollectable amounts of $1.2 million and $2.3 million as of December 31, 2015 and 2014, respectively, and changes thereto were recorded as General and Administrative expense.



	Other Assets							Other Liabilities
	December 31,							December 31,
	2015			2014				2015		2014
Fixed assets	$	184,873		$	154,525		Current taxes payable (Note 6)	$	4,337	$	4,204
Accumulated depreciation	(134,910		)	(99,412		)	Accrued expenses and accounts payable	25,310		25,634
Receivables	25,576			24,997			Deferred rent	15,960		7,459
Equity securities	—			17,627			Unearned income	11,243		10,694
Digital currency (Bitcoin)	5,653			6,828			Derivatives	2,201		932
Prepaid compensation, net	14,141			13,091			Accrued fee liability (Note 9)	20,324		30,000
Prepaid expense	17,630			17,418			Miscellaneous liabilities	7,128		9,130
Goodwill and intangibles	14,987			10,417				$	86,503	$	88,053
Accumulated amortization	(9,606		)	(8,345		)
Derivatives	22,146			27,105
Miscellaneous assets, net	7,820			9,457
	$	148,310		$	173,708

Fixed Assets, Depreciation and Amortization - Fixed assets consist primarily of leasehold improvements, furniture, fixtures and equipment, and computer hardware and software, and are recorded at cost less accumulated depreciation. Depreciation and amortization are calculated using the straight-line method over the assets’ estimated useful lives, which are the life of the related lease for leasehold improvements, and three to seven years for other fixed assets.


-	Equity Securities - Equity securities consist primarily of investments in unaffiliated publicly traded companies which are valued based on quoted market prices. All of the equity securities in unaffiliated publicly traded companies were sold in the first quarter of 2015.

124

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)

Digital Currency (Bitcoin) - Represents Fortress's holdings of digital currency which is recorded at the lower of cost or fair value. If fair value is below cost, Fortress records an unrealized loss measured as the excess of cost over fair value of the digital currency. Subsequently, to the extent that fair value increases, Fortress records an unrealized gain but shall not report digital currency above cost. Fortress determines fair value based on estimated exit value using significant observable inputs as of the balance sheet date. During the years ended December 31, 2015 and 2014, Fortress recognized an impairment charge of $2.8 million and $11.5 million, respectively.


-	Prepaid Compensation - Prepaid compensation consists of profit sharing compensation payments previously made to employees which are not considered probable of being incurred as expenses and are receivable back from employees at the termination of the related funds.


-	Goodwill and Intangibles - Goodwill and intangibles represent amounts recorded in connection with business combinations. Goodwill is not amortized but is tested for impairment at least annually. Other intangible assets are amortized over their estimated useful lives.


-	Deferred Rent - Rent expense is recognized on a straight-line basis based on the total minimum rent required throughout the lease period. Deferred rent represents the difference between the rent expense recognized and cash paid to date.

Derivatives and Hedging Activities - All derivatives are recognized as either assets or liabilities on the consolidated balance sheets and measured at fair value. Any unrealized gains or losses on derivatives not designated as hedges are recorded in Gains (Losses). Net payments under these derivatives are similarly recorded, but as realized.

Fortress did not have any derivatives designated as hedges for 2015, 2014 and 2013.

Comprehensive Income (Loss) - Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances, excluding those resulting from investments by and distributions to owners. For Fortress’s purposes, comprehensive income represents net income, as presented in the accompanying consolidated statements of operations, adjusted for unrealized gains or losses on securities available for sale, if any, and on derivatives designated as cash flow hedges, if any, as well as net foreign currency translation adjustments, including Fortress’s relative share of these items from its equity method investees.

The following table summarizes Fortress’s accumulated other comprehensive income (loss):



	December 31,
	2015			2014
Direct
Net foreign currency translation adjustments	$	(2,909	)	$	(2,416	)
Accumulated other comprehensive income (loss)	$	(2,909	)	$	(2,416	)

The amounts reclassified from accumulated other comprehensive income (loss) to components of net income, if any, were immaterial for each period presented.

Foreign Currency - Assets and liabilities relating to foreign investments are translated using the exchange rates prevailing at the end of each reporting period. Results of foreign operations are translated at the weighted average exchange rate for each reporting period. Translation adjustments are included in current income to the extent that unrealized gains and losses on the related investment are included in income, otherwise they are included as a component of accumulated other comprehensive income until realized. Foreign currency gains or losses resulting from transactions outside of the functional currency of a consolidated entity are recorded in income as incurred and were not material during the years ended December 31, 2015, 2014 and 2013.

Profit Sharing Arrangements - Pursuant to employment arrangements, certain of Fortress’s employees are granted profit sharing interests and are thereby entitled to a portion of the incentive income or other amounts realized from certain Fortress Funds. Accordingly, incentive income resulting from a realization event within a fund gives rise to the incurrence of a profit sharing obligation and amounts payable under these profit sharing plans are recorded as compensation expense when they become probable and reasonably estimable.

For profit sharing plans related to hedge funds and publicly traded permanent capital vehicles, where incentive income is generally earned on an annual basis, the related compensation expense is accrued during the period for which the incentive income is related. In addition, certain of Fortress's employees are granted rights in options it holds in the publicly traded permanent capital vehicles

125

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)

(the "tandem options"). The fair value of these rights are recorded as profit sharing compensation expense at the grant date. Subsequent to the grant date, the related liability, included in accrued compensation and benefits, is marked to fair value through compensation expense until such time as the rights are exercised or expire.

For profit sharing plans related to private equity funds and credit PE funds, where incentive income is received as investments are realized but is subject to clawback (see “Incentive Income” above), although Fortress defers the recognition of incentive income until all contingencies are resolved, accruing expense for employee profit sharing is based upon when it becomes probable and reasonably estimable that incentive income will be received and therefore a profit sharing liability has been incurred. Based upon this policy, the recording of an accrual for profit sharing expense to employees generally precedes the recognition of the related incentive income revenue.

Fortress's determination of the point at which it becomes probable and reasonably estimable that incentive income will be earned and therefore a corresponding profit sharing expense should be recorded is based upon a number of factors, including the level of realized gains generated by the underlying funds which ultimately give rise to incentive income payments. A realization event has occurred when an investment within a fund generates proceeds in excess of its related invested capital, such as when an investment is sold at a gain. In some cases, this accrual is subject to reversal based on a determination that the expense is no longer probable of being incurred (in other words, that a clawback is probable).

Fortress may withhold a portion of the profit sharing payments relating to private equity fund or credit PE fund incentive income as a reserve against contingent repayment (clawback) obligations to the funds. Employees may opt to have these withheld amounts invested in either a money market account or in one of a limited group of Fortress Funds.

Equity-Based Compensation - Fortress currently has several categories of equity-based compensation, which are accounted for as described in Note 8. Generally, the grant date fair value of equity-based compensation granted to employees or directors is expensed ratably over the required service period (or immediately if there is no required service period). Equity-based compensation granted to non-employees is expensed ratably over the required service period based on its fair value at each reporting date.

Income Taxes - FIG Corp., a subsidiary of the Registrant, is a corporation for tax purposes. As a result, a substantial portion of Fortress’s income earned by FIG Corp. is subject to U.S. federal and state income taxation, taxed at prevailing rates. The remainder of Fortress’s income is allocated directly to its shareholders and is not subject to a corporate level of taxation. Certain subsidiaries of Fortress are subject to the New York City unincorporated business tax (“UBT”) on their U.S. earnings based on a statutory rate of 4%. Certain subsidiaries of Fortress are subject to income tax of the foreign countries in which they conduct business. Interest and penalties, if any, are treated as additional taxes.

Fortress accounts for these taxes using the liability method under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. These temporary differences are expected to result in taxable or deductible amounts in future years and the deferred tax effects are measured using enacted tax rates and laws that will be in effect when such differences are expected to reverse. A valuation allowance is established when management believes it is more likely than not that a deferred tax asset will not be realized.

Fortress is party to a tax receivable agreement whereby the Principals will receive payments from Fortress related to tax savings realized by Fortress in connection with certain transactions entered into by the Principals.

3. MANAGEMENT AGREEMENTS AND FORTRESS FUNDS

Fortress has two principal sources of fee income from its agreements with the Fortress Funds: contractual management fees, which are generally based on a percentage of fee paying assets under management ("AUM"), and related incentive income, which is generally based on a percentage of returns, or profits, subject to the achievement of performance criteria. Substantially all of Fortress's net assets, after deducting the portion attributable to non-controlling interests, are a result of Fortress's investments in, or receivables from, these funds. The terms of agreements between Fortress and the Fortress Funds are generally determined in connection with third party fund investors. In addition, Fortress receives certain expense reimbursements pursuant to its management agreements.

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FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)

The Fortress Funds are divided into segments and Fortress's agreements with each are detailed below.

Management Fees and Incentive Income

Fortress recognized management fees and incentive income as follows:



	Year Ended December 31,
	2015		2014		2013
Private Equity
Private Equity Funds
Management fees: affil.	$	115,613	$	135,803	$	133,725
Management fees: non-affil.	—		364		493
Incentive income: affil.	691		22,094		27,790

Permanent Capital Vehicles
Management fees: affil.	95,410		67,638		58,206
Management fees, options: affil.	25,158		6,310		42,516
Management fees: non-affil.	1,853		2,910		3,807
Incentive income: affil.	54,199		56,497		15,653

Credit Funds
Credit Hedge Funds
Management fees: affil.	132,541		113,712		101,699
Management fees: non-affil.	71		146		191
Incentive income: affil.	78,555		120,255		190,581

Credit PE Funds
Management fees: affil.	117,624		96,586		95,787
Management fees: non-affil.	116		129		138
Incentive income: affil.	210,600		147,897		78,341
Incentive income: non-affil.	697		1,396		1,145

Liquid Hedge Funds
Management fees: affil.	57,695		116,526		85,807
Management fees: non-affil.	6,513		21,365		24,815
Incentive income: affil.	873		15,835		107,463
Incentive income: non-affil.	39		232		43,238

Logan Circle
Management fees: affil.	3,068		3,025		2,543
Management fees: non-affil.	50,927		44,034		33,351
Incentive income: affil.	134		—		—
Incentive income: non-affil.	77		106		—

Total
Management fees: affil. (including options)	$	547,109	$	539,600	$	520,283
Management fees: non-affil.	$	59,480	$	68,948	$	62,795
Incentive income: affil. (A)	$	345,052	$	362,578	$	419,828
Incentive income: non-affil.	$	813	$	1,734	$	44,383


(A)	See “Deferred Incentive Income” below. The incentive income amounts presented in this table are based on the estimated results of investment vehicles for each period. These estimates are subject to change based on the final results of such vehicles.

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FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)

Deferred Incentive Income

Incentive income from certain Fortress Funds, primarily the private equity funds and credit PE funds, is received when such funds realize returns, or profits, based on the related agreements. However, this incentive income is subject to contingent repayment by Fortress to the funds until certain overall fund performance criteria are met. Accordingly, Fortress does not recognize this incentive income as revenue until the related contingencies are resolved. Until such time, this incentive income is recorded on the balance sheet as deferred incentive income and is included as “distributed-unrecognized” deferred incentive income in the table below. Incentive income from such funds, based on their net asset value, which has not yet been received is not recorded on the balance sheet and is included as “undistributed” deferred incentive income in the table below.

Incentive income from certain Fortress Funds is earned based on achieving annual performance criteria. Accordingly, this incentive income is recorded as revenue at year end (in the fourth quarter of each year) and is generally received subsequent to year end. Incentive income recognized as revenue at year end from these funds was $56.3 million, $108.7 million and $271.2 million during the years ended December 31, 2015, 2014 and 2013, respectively.

During the years ended December 31, 2015, 2014 and 2013, Fortress recognized $211.3 million, $147.9 million and $78.3 million, respectively, of incentive income distributions from its credit PE funds which were non-clawbackable or represented “tax distributions.” Tax distributions are not subject to clawback and reflect a cash amount approximately equal to the amount expected to be paid out by Fortress for taxes or tax-related distributions on the allocated income from such funds.

Distributed incentive income amounts in the table below do not include incentive income which is not subject to clawback when received from the Fortress Funds. This also does not include any amounts related to third party funds, receipts from which are reflected as Other Liabilities until all contingencies are resolved.

Deferred incentive income from the Fortress Funds was comprised of the following on an inception-to-date basis.



	Distributed-Gross			Distributed-Recognized (A)			Distributed-Unrecognized (B)			Undistributed, net of intrinsic clawback (C) (D)
Deferred incentive income as of December 31, 2013	$	1,015,084		$	(767,528	)	$	247,556		$	696,333
Share of income (loss) of Fortress Funds	N/A			N/A			N/A			399,213
Distribution of private equity funds and credit PE funds incentive income	226,780			N/A			226,780			(226,780		)
Distribution of private permanent capital vehicle incentive income	217			N/A			217			(217		)
Recognition of previously deferred incentive income	N/A			(171,387		)	(171,387		)	N/A
Changes in foreign exchange rates	1,360			—			1,360			N/A
Deferred incentive income as of December 31, 2014	$	1,243,441		$	(938,915	)	$	304,526		$	868,549
Share of income (loss) of Fortress Funds	N/A			N/A			N/A			276,323
Distribution of private equity funds, credit PE funds and permanent capital vehicles incentive income	240,215			N/A			240,215			(240,215		)
Distribution of private permanent capital vehicle incentive income through IPO in May 2015	6,299			N/A			6,299			(6,299		)
Recognition of previously deferred incentive income	N/A			(219,032		)	(219,032		)	N/A
Changes in foreign exchange rates	321			—			321			N/A
Deferred incentive income as of December 31, 2015	$	1,490,276	(E)	$	(1,157,947	)	$	332,329		$	898,358		(E)
Deferred incentive income including Fortress Funds which matured	$	1,543,932		$	(1,211,603	)


(A)	All related contingencies have been resolved.


(B)	Reflected on the consolidated balance sheet.

(C)

At December 31, 2015, the net undistributed incentive income is comprised of $965.3 million of gross undistributed incentive income, net of $66.9 million of intrinsic clawback. The net undistributed incentive income represents the amount that would be received by Fortress from the related funds if such funds were liquidated on December 31, 2015 at their net asset values. Subsequent to December 31, 2015, Fortress paid $66.9 million to Fund III representing prior net incentive income distributions received ($45.1 million net of employee amounts). Following such payment, no clawback exists for Fund III.

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FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)

(D)

From inception to December 31, 2015, Fortress has paid $698.8 million of compensation expense under its employee profit sharing arrangements (Note 8) in connection with distributed incentive income, of which $21.5 million has not been expensed because management has determined that it is not probable of being incurred as an expense and will be recovered from the related individuals. As of December 31, 2015, Fortress had recovered $6.4 million from individuals relating to their clawback obligations. Subsequent to December 31, 2015, Fortress recovered an additional $15.1 million from individuals relating to their clawback obligations. If the $965.3 million of gross undistributed incentive income were realized, Fortress would recognize and pay an additional $481.7 million of compensation expense.


(E)	See detailed reconciliations of Distributed-Gross and Undistributed, net of intrinsic clawback below.

The amounts set forth under Distributed-Gross can be reconciled to the incentive income threshold tables (on the following pages) as follows:



			December 31, 2015
Distributed incentive income - Private Equity Funds			$	847,362
Distributed incentive income - Private Equity Funds in Investment Period or Commitment Period			—
Distributed incentive income - Credit PE Funds			955,289
Distributed incentive income - Credit PE Funds in Investment Period or Commitment Period			9,767
Distributed incentive income - Permanent Capital Vehicle (see footnote (P) of incentive income threshold tables)			7,043
Less:
	Fortress Funds which are not subject to a clawback provision:
	—	NIH	(94,513		)
	—	GAGACQ Fund	(51,476		)
	Portion of Fund I distributed incentive income that Fortress is not entitled to (see footnote K of incentive income threshold tables)		(183,196		)
Distributed-Gross			$	1,490,276

The amounts set forth under Undistributed, net of intrinsic clawback can be reconciled to the incentive income threshold tables (on the following pages) as follows:



		December 31, 2015
Undistributed incentive income - Private Equity Funds		$	29,395
Undistributed incentive income - Private Equity Funds in Investment Period or Commitment Period		1,972
Undistributed incentive income - Credit PE Funds		830,361
Undistributed incentive income - Credit PE Funds in Investment Period or Commitment Period		36,018
Undistributed incentive income - Permanent Capital Vehicles		—
Undistributed incentive income - Hedge Funds (total)		67,515
Undistributed incentive income - Logan Circle		—
Less:	Gross intrinsic clawback per incentive income threshold tables - Private Equity Funds	(66,903		)
Undistributed, net of intrinsic clawback		$	898,358

Certain investments held by employees and affiliates of Fortress, as well as by Fortress itself, in the Fortress Funds are not subject to management fees or incentive income. During the years ended December 31, 2015, 2014 and 2013, management fees of $5.2 million, $6.0 million and $4.7 million, respectively, and incentive income, exclusive of tax distributions, of $3.0 million, $4.0 million and $6.0 million, respectively, were waived on such employees’ investments.

129

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)



The following tables summarize information with respect to the Fortress Funds and their related incentive income thresholds as of December 31, 2015:
Fund (Vintage) (A)	Maturity Date (B)	Inception to Date Capital Invested		Inception to Date Distributions (C)			Net Asset Value (“NAV”)			NAV Surplus (Deficit) (D)			Current Preferred Return Threshold (E)		Gain to Cross Incentive Income Threshold (F)	Undistributed Incentive Income (G)		Distributed Incentive Income (H)		Distributed Incentive Income Subject to Clawback (I)		Gross Intrinsic Clawback (J)		Net Intrinsic Clawback (J)
Private Equity Funds
NIH (1998)	Closed Jun-15	$	415,574	$	(823,588	)	$	—		$ N/A			$ N/A		$ N/A	$	—	$	94,513	$	—	$	—	$	—
Fund I (1999) (K)	Closed May-13	1,015,943		(2,847,929		)	—			N/A			N/A		N/A	—		344,939		—		—		—
Fund II (2002)	Closed Dec-15	1,974,298		(3,446,405		)	—			N/A			N/A		N/A	—		289,531		—		—		—
Fund III (2004)	In Liquidation	2,762,992		(2,152,525		)	748,600			138,133			2,295,674		2,157,541	—		66,903		66,903		66,903		45,108
Fund III Coinvestment (2004)	In Liquidation	273,649		(231,688		)	55,533			13,572			267,680		254,108	—		—		—		—		—
Fund IV (2006)	Jan-17	3,639,561		(1,379,503		)	1,872,736			(387,322		)	3,131,331		3,518,653	—		—		—		—		—
Fund IV Coinvestment (2006)	Jan-17	762,696		(278,972		)	342,783			(140,941		)	669,109		810,050	—		—		—		—		—
Fund V (2007)	Feb-18	4,103,713		(1,615,467		)	5,097,957			2,609,711			2,680,330		299,493	11,463		—		—		—		—
Fund V Coinvestment (2007)	Feb-18	990,480		(174,098		)	483,389			(332,993		)	768,725		1,101,718	—		—		—		—		—
GAGACQ Fund (2004) (GAGFAH)	Closed Nov-09	545,663		(595,401		)	—			N/A			N/A		N/A	—		51,476		—		—		—
FRID (2005) (GAGFAH)	Closed Nov-14	1,220,229		(1,202,153		)	—			N/A			N/A		N/A	—		—		—		—		—
FRIC (2006) (Brookdale)	Closed Dec-14	328,754		(291,330		)	—			N/A			N/A		N/A	—		—		—		—		—
FICO (2006) (Intrawest)	Jan-17	724,525		—			(65,229		)	(789,754		)	711,570		1,501,324	—		—		—		—		—
FHIF (2006) (Holiday)	Jan-17	1,543,463		(788,152		)	1,195,360			440,049			1,328,550		888,501	—		—		—		—		—
FECI (2007) (Florida East Coast/Flagler)	Feb-18	982,779		(924		)	911,347			(70,508		)	890,395		960,903	—		—		—		—		—
MSR Opportunities Fund I A (2012)	Aug-22	341,135		(172,438		)	292,961			124,264			—		N/A	11,965		—		—		—		—
MSR Opportunities Fund I B (2012)	Aug-22	82,760		(41,707		)	70,893			29,840			—		N/A	2,983		—		—		—		—
MSR Opportunities Fund II A (2013)	Jul-23	160,653		(33,577		)	143,717			16,641			—		N/A	2,390		—		—		—		—
MSR Opportunities Fund II B (2013)	Jul-23	2,291		(462		)	2,047			218			—		N/A	23		—		—		—		—
MSR Opportunities MA I (2013)	Jul-23	36,868		(7,739		)	32,998			3,869			—		N/A	571		—		—		—		—
																$	29,395	$	847,362	$	66,903	$	66,903	$	45,108
Private Equity Funds in Investment or Commitment Period
Italian NPL Opportunities Fund (2013)	Sep-24	$	310,705	$	(10,421	)	$	313,671		$	13,387		$	—	N/A	$	1,972	$	—	$	—	$	—	$	—
																$	1,972	$	—	$	—	$	—	$	—
Continued on next page.

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FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)



Fund (Vintage) (A)	Maturity Date (B)	Inception to Date Capital Invested		Inception to Date Distributions (C)			Net Asset Value (“NAV”)		NAV Surplus (Deficit) (D)		Current Preferred Return Threshold (E)		Gain to Cross Incentive Income Threshold (F)		Undistributed Incentive Income (G)		Distributed Incentive Income (H)		Distributed Incentive Income Subject to Clawback (I)		Gross Intrinsic Clawback (J)		Net Intrinsic Clawback (J)
Credit PE Funds
Long Dated Value Fund I (2005)	Apr-30	$	267,325	$	(128,335	)	$	282,640	$	143,650	$	164,090	$	20,617	$	5	$	—	$	—	$	—	$	—
Long Dated Value Fund II (2005)	Nov-30	274,280		(150,977		)	195,049		71,746		130,848		59,102		—		412		—		—		—
Long Dated Value Fund III (2007)	Feb-32	343,156		(284,616		)	176,545		118,005		—		N/A		12,004		7,571		—		—		—
LDVF Patent Fund (2007)	Nov-27	40,731		(34,027		)	28,043		21,339		—		N/A		730		1,471		—		—		—
Real Assets Fund (2007)	Jun-17	359,024		(403,818		)	52,026		96,820		—		N/A		7,776		7,231		—		—		—
Credit Opportunities Fund (2008)	Oct-20	5,672,867		(7,376,555		)	1,058,430		2,762,118		—		N/A		127,604		414,602		134,423		—		—
Credit Opportunities Fund II (2009)	Jul-22	2,360,538		(2,703,347		)	936,041		1,278,850		—		N/A		116,987		133,797		48,305		—		—
Credit Opportunities Fund III (2011)	Mar-24	3,371,703		(1,899,242		)	2,234,215		761,754		—		N/A		109,283		39,908		—		—		—
FCO Managed Accounts (2008-2012)	Apr-22 to Dec-24	4,552,034		(3,770,818		)	2,418,731		1,637,515		—		N/A		184,378		127,107		38,773		—		—
SIP Managed Account (2010)	Sep-20	11,000		(39,230		)	17,688		45,918		—		N/A		4,422		5,646		—		—		—
Japan Opportunity Fund (Yen only) (2009)	Jun-19	909,373		(1,593,377		)	583,060		1,267,064		—		N/A		116,060		152,597		35,122		—		—
Net Lease Fund I (2010)	Closed Dec- 15	152,851		(227,108		)	—		N/A		N/A		N/A		—		9,743		—		—		—
Real Estate Opportunities Fund (2011)	Sep-24	544,586		(370,375		)	370,554		196,343		—		N/A		13,692		3,465		2,791		—		—
Global Opportunities Fund (2010)	Sep-20	331,379		(175,653		)	236,322		80,596		—		N/A		13,496		2,220		2,220		—		—
Japan Opportunity Fund II (Yen) (2011)	Dec-21	706,556		(393,107		)	756,820		443,371		—		N/A		68,135		20,675		—		—		—
Japan Opportunity Fund II (Dollar) (2011)	Dec-21	674,509		(394,357		)	689,439		409,287		—		N/A		52,883		26,163		—		—		—
Real Estate Opportunities REOC Fund (2011)	Oct-23	57,299		(43,758		)	41,617		28,076		—		N/A		2,906		2,681		1,187		—		—
															$	830,361	$	955,289	$	262,821	$	—	$	—

Continued on next page.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)



Fund (Vintage) (A)	Maturity Date (B)	Inception to Date Capital Invested		Inception to Date Distributions (C)			Net Asset Value (“NAV”)		NAV Surplus (Deficit) (D)			Current Preferred Return Threshold (E)		Gain to Cross Incentive Income Threshold (F)		Undistributed Incentive Income (G)		Distributed Incentive Income (H)		Distributed Incentive Income Subject to Clawback (I)		Gross Intrinsic Clawback (J)		Net Intrinsic Clawback (J)
Credit PE Funds in Investment Period or Commitment Period
FCO Managed Accounts (2010-2015)	Jun-24 to Feb-28	$	834,923	$	(342,687	)	$	659,531	$	167,295		$	4,358	$	1,911	$	20,812	$	9,767	$	2,605	$	—	$	—
Life Settlements Fund (2010)	Dec-22	406,548		(299,330		)	70,386		(36,832		)	88,508		125,340		—		—		—		—		—
Life Settlements Fund MA (2010)	Dec-22	33,321		(24,482		)	5,519		(3,320		)	7,266		10,586		—		—		—		—		—
Real Estate Opportunities Fund II (2014)	May-27	391,421		(56,471		)	371,321		36,371			—		N/A		6,145		—		—		—		—
Japan Opportunity Fund III (Yen) (2014)	Dec-24	144,822		—			163,488		18,666			—		N/A		3,700		—		—		—		—
Japan Opportunity Fund III (Dollar) (2014)	Dec-24	108,247		—			125,131		16,884			—		N/A		3,244		—		—		—		—
Credit Opportunities Fund IV (2015)	Feb-27	521,250		(31,249		)	510,715		20,714			—		N/A		2,117		—		—		—		—
Global Opportunities Fund II (2015)	Jul-26	9,330		(36		)	8,577		(717		)	195		912		—		—		—		—		—
CFT Co-invest Fund (CAD) (2015)	Oct-25	11,995		—			11,791		(204		)	29		233		—		—		—		—		—
CFT Co-invest Fund (USD) (2015)	Oct-25	85,154		—			85,047		(107		)	205		312		—		—		—		—		—
																$	36,018	$	9,767	$	2,605	$	—	$	—



Publicly Traded Permanent Capital Vehicles	Equity Eligible for Incentive (L)		Gain to Cross Incentive Income Threshold (F)	Undistributed Incentive Income (O)	Life-to-Date Incentive Income Crystallized (P)
Newcastle	$	751,544	$ (F)	$ N/A	$	41,283
Eurocastle	331,145		—	—	42,147
New Residential	2,714,461		—	N/A	86,576
New Media	645,007		—	N/A	29,800
New Senior	1,075,389		578	N/A	—
FTAI	1,181,237		9,156	—	—

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)



	Incentive Income Eligible NAV (L)		Gain to Cross Incentive Income Threshold (M)		Percentage of Incentive Income Eligible NAV Above Incentive Income Threshold (N)		Undistributed Incentive Income (O)		Year to Date Incentive Income Crystallized (P)
Credit Hedge Funds
Special Opportunities Funds (S)
Main fund investments	$	4,793,583	$	—	100.0	%	$	—	$	52,227
Sidepocket investments (Q)	42,399		7		N/A		2,911		—
Sidepocket investments - redeemers (R)	141,767		48,640		N/A		4,880		—
Main fund investments (liquidating) (T)	426,332		—		100.0	%	54,380		25,172
Managed accounts	1,512		49,209		0.0	%	—		—

Worden Funds
Main fund investments	246,827		3,713		85.3	%	—		791

Fortress Japan Income Fund (Yen only)
Main fund investments	87,832		N/A		100.0	%	—		364

Value Recovery Funds (U)
Managed accounts	5,734		7,342		33.0	%	29		—

Liquid Hedge Funds
Macro Funds (S)
Sidepocket investments - redeemers (R)	$	100,304	$	77,947	N/A		$	801	$	121

Fortress Convex Asia Funds (S)
Main fund investments	133,327		11,804		0.0	%	—		56

Fortress Partners Funds (S)
Main fund investments	2,914		7,851		0.0	%	—		49
Sidepocket investments (Q)	59,452		2,175		N/A		4,514		—

Fortress Centaurus Global Funds (S)
Main fund investments	178,799		2,794		48.0	%	—		673

Logan Circle
Main fund investments	$	67,393	$	—	100.0	%	$	—	$	127
Managed accounts	201,606		3,029		27.2	%	—		77


(A)	Vintage represents the year in which the fund was formed.


(B)	Represents the contractual maturity date including the assumed exercise of all extension options, which in some cases may require the approval of the applicable fund advisory board. Private equity funds that have reached their maturity date are included in the table to the extent they have generated incentive income.


(C)	Includes an increase to the NAV surplus related to the U.S. income tax expense of certain investment entities, which is considered a distribution for the purposes of computing incentive income.


(D)	A NAV deficit represents the gain needed to cross the incentive income threshold (as described in (F) below), excluding the impact of any relevant performance (i.e. preferred return) thresholds (as described in (E) below).


(E)	For fund investors whose NAV is below the incentive income threshold, represents the gain needed for these investors to achieve the current relevant performance thresholds, assuming the gain described in (D) above is already achieved.

133

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)

(F)

For fund investors whose NAV is below the incentive income threshold, represents the immediate increase in NAV needed for these investors for Fortress to begin earning incentive income, including the achievement of any relevant performance thresholds. It does not include the amount needed to earn back intrinsic clawback (see (J) below), if any. Incentive income is not recorded as revenue until it is received and any related contingencies are resolved (see (I) below). For the publicly traded permanent capital vehicles, represents the immediate increase of the entity's applicable supplemental measure of operating performance needed for Fortress to begin earning incentive income. As of December 31, 2015, as a result of Newcastle not meeting the incentive income threshold, Fortress does not expect to earn incentive income from Newcastle for an indeterminate period of time. In April 2015, Fortress entered into an amended management agreement with Eurocastle, which reset the earnings threshold for Fortress to earn incentive income.

(G)

Represents the amount of additional incentive income Fortress would receive if the fund were liquidated at the end of the period at its NAV. The undistributed incentive income amounts presented in this table are based on the estimated results of the investment vehicles for the current period. These estimates are subject to change based on the final results of such vehicles. As of December 31, 2015, a portion of Fund V and Long Dated Value Fund I's capital is above their incentive income threshold.


(H)	Represents the amount of net incentive income previously received from the fund since inception.

(I)

Represents the amount of incentive income previously received from the fund which is still subject to contingencies and is therefore recorded on the consolidated balance sheet as Deferred Incentive Income. This amount will either be recorded as revenue when all related contingencies are resolved, or, if the fund does not meet certain performance thresholds, will be returned by Fortress to the fund (i.e., “clawed back”).

(J)

Represents the amount of incentive income previously received from the fund that would be clawed back (i.e., returned by Fortress to the fund) if the fund were liquidated at the end of the period at its NAV, excluding the effect of any tax adjustments. Employees, former employees and affiliates of Fortress would be required to return a portion of this incentive income that was paid to them under profit sharing arrangements. “Gross” and “Net” refer to amounts that are gross and net, respectively, of this employee/affiliate portion of the intrinsic clawback. Fortress remains liable to the funds for these amounts even if it is unable to collect the amounts from employees/affiliates. Fortress withheld a portion of the amounts due to employees under these profit sharing arrangements as a reserve against future clawback; as of December 31, 2015, Fortress held $20.9 million of such amounts on behalf of employees related to all of the private equity funds. Subsequent to December 31, 2015, Fortress paid $66.9 million to Fund III representing prior net incentive income distributions received ($45.1 million net of employee amounts). Following such payment, no remaining clawback exists for Fund III.


(K)	The Fund I distributed incentive income amount is presented for the total fund, of which Fortress was entitled to approximately 50%.


(L)	Represents the portion of a fund’s or managed account's NAV or trading level that is eligible to earn incentive income. For the publicly traded permanent capital vehicles, represents the equity basis that is used to calculate incentive income.

(M)

Such amount represents, for those investors whose NAV is below the performance threshold, the amount by which their aggregate incentive income thresholds exceed their aggregate NAVs. "Incentive income threshold" or "high water mark" means the immediate increase in NAV needed for Fortress to begin earning incentive income. The amount by which the NAV of each investor within this category is below their respective incentive income threshold varies and, therefore, Fortress may begin earning incentive income from certain investors before this entire amount is earned back. Fortress earns incentive income whenever the assets of new investors, as well as of investors whose NAV exceeds their incentive income threshold, increase in value. For Fortress Japan Income Fund, Fortress earns incentive income based on investment income, which does not include unrealized and realized gains and losses, earned in excess of a preferred return threshold.

(N)

Represents the percentage which is computed by dividing (i) the aggregate NAV of all investors who are at or above their respective incentive income thresholds, by (ii) the total incentive income eligible NAV of the fund. The amount by which the NAV of each fund investor who is not in this category is below their respective incentive income threshold may vary, and may vary significantly. This percentage represents the performance of only the main fund investments and managed accounts relative to their respective incentive income thresholds. It does not incorporate the impact of unrealized losses on sidepocket investments that can reduce the amount of incentive income earned from certain funds. See footnote (R) below.

(O)

For hedge funds, represents the amount of additional incentive income Fortress would earn from the fund or managed account if it were liquidated at the end of the period at its NAV. This amount is currently subject to performance contingencies generally until the end of the year or, in the case of sidepocket investments, until such investments are realized. Main Fund Investments (Liquidating) pay incentive income only after all capital is returned. For the Fortress Japan Income Fund, represents the amount of incentive income Fortress would earn from the fund assuming the amount of investment income earned in excess of the preferred return threshold was distributed as of the end of the period. For the Value Recovery Fund managed accounts, Fortress can earn incentive income if aggregate realizations exceed an agreed threshold. For Eurocastle and FTAI, the amount disclosed, if any, represents the amount of additional incentive income Fortress would receive if the measurement period had occurred at the end of the reporting period. The undistributed incentive income amounts presented in this table are based on the estimated results of the investment vehicles for the current period. These estimates are subject to change based on the final results of such vehicles.

(P)

For hedge funds, represents the amount of incentive income Fortress has earned which is not subject to clawback. For the publicly traded permanent capital vehicles, represents the life-to-date incentive income amount that Fortress has earned and which is not subject to clawback. All of the capital of WWTAI, formerly a private fund managed by Fortress, was contributed to FTAI which completed its IPO in May 2015. Fortress earned $7.0 million in life-to-date incentive income which is not subject to clawback and was not included in the table above. Of the $7.0 million in incentive income from WWTAI, Fortress received $5.9 million in FTAI common shares based on the share price at IPO. A portion of the incentive income crystallized amounts are based on the estimated results of the investment vehicles for the current period. These estimates are subject to change based on the final results of such vehicles.

134

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)

(Q)

Represents investments held in sidepockets (also known as special investment accounts), which generally have investment profiles similar to private equity funds. The performance of these investments may impact Fortress’s ability to earn incentive income from main fund investments. For the credit hedge funds and Fortress Partners Funds, realized and unrealized losses from individual sidepockets below original cost may reduce the incentive income earned from main fund investments.


(R)	Represents investments held in sidepockets for investors with no corresponding investment in the related main fund investments.


(S)	Includes onshore and offshore funds. In the fourth quarter of 2015, Fortress closed the Fortress Macro Funds and related managed accounts.


(T)	Relates to accounts where investors have provided return of capital notices and are subject to payout as underlying fund investments are realized.


(U)	Excludes the Value Recovery Funds which had a NAV of $95.8 million at December 31, 2015. Fortress began managing the third party originated Value Recovery Funds in June 2009 and generally does not expect to earn any significant incentive income from the fund investments.

Private Equity Funds

The following table presents certain information with respect to Fortress’s management agreements with the private equity funds as of December 31, 2015.

Fortress and

Total
Original
Capital

Affiliates
Original Capital

Carrying Value

Percent of
Capital

Longest
Capital
Commitment

Longest
Fund

Annual

Incentive

Incentive
Income

Commitments

of Fortress's

Commitments

Period

Termination

Management

Income

Threshold

(A)

(B)

Investments

Drawn

Ends

Date (C)

Fee (D)

(E)

Return (E)

17,034,844

2,167,931

608,728

94.5%

Sep-2016

Sep-2024

1.0% - 1.5%

10% - 20%

8% - 10%


(A)	Represents the total amount of capital originally committed by investors to these funds. This capital can be called, or drawn, for new investments during the capital commitment period, generally up to three years for private equity funds. Subsequent to the capital commitment period, it may only be drawn to maintain ongoing business as permitted by the applicable fund agreement.


(B)	Affiliate commitments are comprised of the following. Fortress’s remaining commitments as of December 31, 2015 are discussed in Note 10.



Employees, Former				Other Fortress		Total
Employees and BOD Members		Principals		Funds		Affiliates		Fortress		Total
$	260,127	$	543,605	$	701,996	$	1,505,728	$	662,203	$	2,167,931


(C)	Including the assumed exercise of all available extensions, which in some cases require the approval of the applicable fund advisory board.

(D)

Expressed as a percentage. This percent is generally applied to the capital commitment amount during the capital commitment periods and to invested capital (as defined, or NAV on an investment by investment basis, if lower) thereafter. In some funds, management fee rates vary depending on the size of commitments. Affiliate commitments are not charged management fees. For certain funds formed after March 2006 which are no longer in the capital commitment period, management fees are based on the value of publicly traded investments. The weighted average (by AUM) management fee rate as of December 31, 2015 was approximately 1.2%.

(E)

Expressed as a percent of the total returns of the funds. The incentive income is subject to: (i) the achievement of a cumulative incentive income threshold return payable to the third party investors in the funds, which is the minimum return these investors must receive in order for incentive income to be paid, and (ii) a contingent repayment or clawback provision which requires amounts previously distributed as incentive income to be returned to each fund if, upon liquidation of such fund, such amounts exceeded the actual amount of incentive income due. Affiliate commitments are not subject to incentive income. The weighted average (by AUM) incentive income rate as of December 31, 2015 was approximately 19.7%, and the weighted average (by AUM) threshold rate was approximately 8.1%.

Pursuant to profit sharing arrangements, certain of Fortress’s employees are entitled to a portion of the incentive income received from the private equity funds. As of December 31, 2015, for funds where Fortress is entitled to incentive income and profit sharing has been assigned, this portion was equal to approximately 27.4%, based on a weighted average by total capital commitments.

Subsequent to December 31, 2015, Fortress paid $66.9 million to Fund III representing prior net incentive income distributions received ($45.1 million net of employee amounts). Following such payment, no remaining clawback exists for Fund III. Effective January 1, 2016, Fortress no longer earns management fees from Fund III and Fund III Coinvestment which had AUM of $0.7 billion as of December 31, 2015.

135

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)

During 2014, certain PE Funds (Fund II, FRID and FRIC) substantially liquidated their respective remaining investments. These funds distributed a majority of the sale of proceeds to their respective investors and final liquidation was completed in November and December 2014 for FRID and FRIC, respectively. During 2014, Fortress received additional net incentive income of $0.9 million from Fund II and returned $16.4 million to FRID representing prior net incentive income distributions received ($10.0 million net of employee amounts). No remaining clawback amount exists for these funds. During December 2015, Fortress received $0.7 million of incentive income from Fund II as a result of the final liquidation of Fund II.

Permanent Capital Vehicles

The publicly traded permanent capital vehicles are comprised of Newcastle (NYSE: NCT), New Residential (NYSE: NRZ), New Media (NYSE: NEWM), New Senior (NYSE: SNR), Eurocastle (NYSE Euronext, Amsterdam: ECT) and FTAI (NYSE: FTAI).



Annual	Incentive	Incentive Income	Carrying Value of
Management Fee (A)	Income (B)	Threshold Return (B)	Fortress's Investments (C)
0.75% - 1.50%	10% - 25%	8% - 10%	$	20,518


(A)	Expressed as a percent of contributed capital or book equity (as defined).

(B)

The incentive income from publicly traded capital vehicles is earned either annually or quarterly on a cumulative basis equal to the product of (1) the incentive income percent (shown above) multiplied by (2) the difference by which (i) a specified measure of earnings (as defined) exceeds (ii) the company's gross equity (as defined) multiplied by the incentive income threshold return (shown above). Additionally, for FTAI, a portion of incentive income is earned annually on a cumulative basis equal to the product of (1) 10% multiplied by (2) realized gains (as defined) subject to certain adjustments. As a result of not meeting the incentive income threshold, the incentive income from Newcastle has been discontinued for an indeterminate period of time.


(C)	Excludes options held in the publicly traded permanent capital vehicles (Note 4).

The management agreements between Fortress and the publicly traded permanent capital vehicles provide for initial terms of up to ten years and automatic extensions of one to three years, subject to certain termination rights.

Fortress owns a senior living property management subsidiary (Blue Harbor). As of December 31, 2015, this subsidiary had agreements to manage 26 senior living properties, including 24 which are owned by New Senior and two which are owned by a third party. Fortress receives management fees between 5.0% and 7.0% of revenues (as defined in the agreements). In addition, Fortress receives reimbursement for certain expenses, including all of the compensation expense associated with the 1,868 on-site employees.

WWTAI was a private fund formed in July 2011 and formerly managed by Fortress. All of the capital of WWTAI was contributed to FTAI which completed its IPO in May 2015. Fortress received shares in FTAI in exchange for its equity interests in WWTAI. During the second quarter of 2015, Fortress recognized $7.0 million in incentive income from WWTAI as these distributions were determined to no longer be subject to clawback. Of the $7.0 million in incentive income from WWTAI, Fortress received $5.9 million in FTAI common shares based on the share price at IPO.

In addition, Fortress received options from certain of the publicly traded permanent capital vehicles as compensation for services performed in raising capital for these entities (Note 4).

In April 2015, Fortress entered into an amended management agreement with Eurocastle to adjust the AUM used to compute management fees and reset the earnings threshold for Fortress to earn incentive income.

136

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)

Credit Hedge Funds

The following table presents certain information with respect to the credit hedge funds, including related managed accounts, as of December 31, 2015.



	Assets Under		Carrying Value of		Annual	Incentive
	Management (AUM)		Fortress's Investments		Management Fee (A)	Income (B)
Fortress Originated	$	5,843,934	$	44,804	1% - 2.75%	10% - 20%
Non-Fortress Originated (C)	2,954,881		—		1% - 2%	5% - 20%

(A)

For Fortress originated AUM, expressed as a percent of AUM (as defined). For Fortress originated AUM, the weighted (by AUM) average management fee rate as of December 31, 2015 was approximately 2.0%. For non-Fortress originated AUM, as co-manager of the Mount Kellett funds, Fortress earns a portion of the management fees charged by these funds and for other funds management fees are equal to 1.0% of realized proceeds.


(B)	For Fortress originated AUM, expressed as a percent of the total returns of fund and the incentive income is earned on a calendar year (annual) basis. For non-Fortress originated AUM, Fortress may receive limited incentive income if aggregate realizations exceed an agreed threshold.


(C)	Non-Fortress originated funds include the Value Recovery funds and the Mount Kellett funds.

In July 2015, Fortress and Mount Kellett Capital Management LP ("Mount Kellett"), a private, multi-strategy investment firm, reached an agreement for an affiliate of Fortress to become co-manager with Mount Kellett of the Mount Kellett investment funds and related accounts (collectively, the "Mount Kellett Funds"). Mount Kellett affiliates will continue to serve as general partner of the Mount Kellett Funds. The unrelated limited partners of the Mount Kellett Funds have the substantive ability to liquidate the Mount Kellett Funds or otherwise remove Mount Kellett and Fortress as general partner and co-managers.

Credit PE Funds

The following table presents certain information with respect to Fortress’s management agreements with the credit PE funds, including related managed accounts, as of December 31, 2015.

Total

Fortress and

Carrying

Percent of

Longest

Incentive

Original

Affiliates

Value

Capital

Fund

Annual

Income

Capital

Original Capital

of Fortress's

Commitments

Commitment

Termination

Management

Incentive

Threshold

Commitments (A)

Commitments (B)

Investments

Drawn

Period Ends (C)

Date (D)

Fee (E)

Income (F)

Return (F)

21,544,279

1,268,409

187,664

58.1

Nov-2027

Feb-2032

0.75% - 2.25%

10% - 20%

0% - 9%


(A)	Represents the total amount of capital originally committed by investors to these funds. This capital can be called, or drawn, for new investments during the capital commitment period, generally up to three years. Subsequent to the capital commitment period, it may only be drawn to maintain ongoing business as permitted by the applicable fund agreement.


(B)	Affiliate commitments are comprised of the following. Fortress’s remaining commitments as of December 31, 2015 are discussed in Note 10.



Employees, Former				Other Fortress		Total
Employees and BOD Members		Principals		Funds		Affiliates		Fortress		Total
$	219,003	$	113,433	$	616,406	$	948,842	$	319,567	$	1,268,409


(C)	Of the total original capital commitments, $4.6 billion relates to funds that have a capital commitment period extending beyond December 2018.


(D)	Of the total original capital commitments, $6.5 billion relates to funds that have a termination date (including the assumed exercise of all available extensions, which in some cases requires the approval of the applicable fund advisory board) extending beyond December 2025.

(E)

Expressed as a percent. This percent is generally applied to the capital commitment amount during the capital commitment periods and to invested capital (as defined, or NAV on an investment by investment basis, if lower) thereafter. In some funds, management fee rates vary depending on the size of commitments. Affiliate commitments are not charged management fees. The weighted (by AUM) average management fee rate as of December 31, 2015 was approximately 1.3%.

(F)

137

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)

as incentive income to be returned to each fund if, upon liquidation of such fund, such amounts exceeded the actual amount of incentive income due. Affiliate commitments are not subject to incentive income. The weighted (by AUM) incentive income rate as of December 31, 2015 was approximately 19.8% and the weighted average threshold was approximately 7.7%.

Pursuant to profit sharing arrangements, certain of Fortress’s employees are entitled to a portion of the incentive income received from the credit PE funds. As of December 31, 2015, for funds where profit sharing has been assigned, this portion was equal to approximately 56.0%, based on a weighted average by total capital commitments.

Liquid Hedge Funds

The following table presents certain information with respect to the liquid hedge funds, as of December 31, 2015.



	Assets Under		Carrying Value of		Annual	Incentive
	Management (AUM)		Fortress's Investments		Management Fee (A)	Income (B)
Fortress Originated	$	912,437	$	135,777	1% - 2%	18% - 20%
Affiliated Managers	$	4,496,157	$	34,392	See Note 1	See Note 1


(A)	Expressed as a percent of AUM (as defined). New investors are currently charged a management fee rate of between 1% and 2%. The weighted (by AUM) average management fee rate as of December 31, 2015 was approximately 1.3%.


(B)	Expressed as a percent of the total returns of the funds. The incentive income is generally earned on a calendar year (annual) basis. The weighted (by AUM) average incentive income rate as of December 31, 2015 was approximately 19.7%.

In the fourth quarter of 2015, Fortress closed the Fortress Macro Funds and related managed accounts.

Traditional Asset Management Business

Logan Circle is an asset manager with approximately $31.2 billion in assets under management as of December 31, 2015, which Fortress acquired in April 2010. As of December 31, 2015, the Logan Circle AUM pays an average annual management fee of approximately 0.16%.

During the year ended December 31, 2015, Logan Circle began managing two new fixed income funds which had a total net asset value of $163.5 million as of December 31, 2015.

4. INVESTMENTS AND FAIR VALUE

Investments consist primarily of investments in equity method investees and options in certain investees. The investees are primarily Fortress Funds.

Investments can be summarized as follows:



	December 31, 2015		December 31, 2014
Equity method and other investees	$	1,034,189	$	1,106,338
Equity method investees, held at fair value (A)	21,600		15,207
Total investments	$	1,055,789	$	1,121,545
Options in equity method investees	$	30,427	$	71,844


(A)	Includes the publicly traded private equity portfolio companies and publicly traded permanent capital vehicles, including FTAI which completed its IPO in May 2015 (see Note 3).

138

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)

Gains (losses) are summarized as follows:



	Year Ended December 31,
	2015			2014			2013
Net realized gains (losses)	$	4,495		$	(8,431	)	$	1,247
Net realized gains (losses) from affiliate investments (A)	31,751			47,624			12,030
Net unrealized gains (losses)	(6,127		)	25,661			6,273
Net unrealized gains (losses) from affiliate investments (A)	(49,038		)	(76,611		)	34,383
Total gains (losses)	$	(18,919	)	$	(11,757	)	$	53,933


(A)	Includes the impact of the exercise of options in New Residential in June 2015 and the sale of GAGFAH shares which was completed in June 2014.

These gains (losses) were generated as follows:



	Year Ended December 31,
	2015			2014			2013
Mark to fair value on affiliate investments and options	$	(17,175	)	$	(28,591	)	$	46,371
Mark to fair value on derivatives	1,784			26,715			8,402
Mark to fair value on equity securities	(509		)	965			2,962
Gains (losses) on digital currency (Bitcoin)	(1,175		)	(9,470		)	(3,702		)
Other	(1,844		)	(1,376		)	(100		)
Total gains (losses)	$	(18,919	)	$	(11,757	)	$	53,933

The underlying investments of the Fortress Funds are diversified by issuer, industry and geographic location. They are comprised of both equity and debt investments, as well as derivatives, including investments in affiliated entities. A majority of the investments are in the United States, with investments also in Western Europe and Asia. There are some concentrations, mainly in the private equity funds, in the financial services, transportation and infrastructure, leisure and gaming, real estate (including Florida commercial real estate), media and senior living sectors, including certain individual investments within the funds which are significant to the funds as a whole. Furthermore, the Fortress Funds have concentrations of counterparty risk with respect to derivatives and borrowings.

Since Fortress’s investments in the various Fortress Funds are not equal, Fortress’s concentrations from a management fee and incentive income perspective and its concentrations from an investment perspective are different. From an investment perspective, Fortress’s most significant investment as of December 31, 2015, which comprised approximately 25% of its equity method investments, is in a fund with a single investment which focuses on the rail transportation and real estate sectors in Florida.

Investments

Fortress holds investments in certain Fortress Funds which are primarily recorded based on the equity method of accounting. Fortress’s maximum exposure to loss with respect to these entities is generally equal to its investment plus its basis in any options received from such entities, plus any receivables from such entities as described in Note 7. In addition, unconsolidated affiliates also hold ownership interests in certain of these entities.

139

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)

A summary of the changes in Fortress’s investments is as follows:



	Private Equity
	Funds			Publicly Traded Portfolio Companies (A)			Permanent Capital Vehicles (A)			Credit Hedge Funds			Credit PE Funds			Liquid Hedge Funds (B)			Other			Total
Investment - December 31, 2013	$	786,093		$	63,001		$	19,188		$	58,825		$	159,044		$	158,920		$	8,195		$	1,253,266
Earnings from equity method and other investees	36,413			N/A			70			8,236			28,693			3,844			943			78,199
Contributions to equity method and other investees (C)	2,994			—			5,640			168,699			43,331			89,324			596			310,584
Distributions of earnings from equity method and other investees	(70,409		)	N/A			(79		)	(7,483		)	(28,477		)	(4,487		)	(32		)	(110,967		)
Distributions of capital from equity method and other investees (C)	(78,155		)	N/A			(4,148		)	(171,053		)	(17,124		)	(128,505		)	(118		)	(399,103		)
Total distributions from equity method and other investees	(148,564		)	N/A			(4,227		)	(178,536		)	(45,601		)	(132,992		)	(150		)	(510,070		)
Consolidation of Investment Company	—			—			—			—			—			—			6,990			6,990
Mark to fair value - during period (D)	(1,795		)	5,200			(936		)	N/A			N/A			N/A			(657		)	1,812
Translation adjustment	(7		)	(742		)	(279		)	—			(2,338		)	—			—			(3,366		)
Dispositions	—			(66,424		)	—			—			(2		)	—			(210		)	(66,636		)
Reclassification to Due to Affiliates (E)	2,232			—			—			—			—			—			—			2,232
Deconsolidation of Liquid Hedge Fund (F)	—			—			—			—			—			48,534			—			48,534
Investment - December 31, 2014	677,366			1,035			19,456			57,224			183,127			167,630			15,707			1,121,545
Earnings (losses) from equity method and other investees	(49,346		)	N/A			89			3,920			19,630			(6,387		)	(821		)	(32,915		)
Contributions to equity method and other investees (C)	5,227			50			7,742			118,332			43,005			13,844			825			189,025
Distributions of earnings from equity method and other investees	(14,342		)	N/A			(173		)	(3,511		)	(22,909		)	(658		)	(2,265		)	(43,858		)
Distributions of capital from equity method and other investees (C) (F)	(7,899		)	N/A			(216		)	(131,161		)	(77,003		)	(37,660		)	(22		)	(253,961		)
Total distributions from equity method and other investees	(22,241		)	N/A			(389		)	(134,672		)	(99,912		)	(38,318		)	(2,287		)	(297,819		)
Mark to fair value - during period (D)	(412		)	(3		)	(6,152		)	N/A			N/A			N/A			(991		)	(7,558		)
Net purchases of investments by consolidated funds (F)	—			—			—			—			41,985			—			10,391			52,376
Translation adjustment	(1,413		)	—			(228		)	—			(123		)	—			—			(1,764		)
Dispositions	(2,683		)	—			—			—			(48		)	—			—			(2,731		)
Reclassification to Due to Affiliates (E)	2,230			—			—			—			—			—			—			2,230
Retained interest in Graticule (Note 1)	—			—			—			—			—			33,400			—			33,400
Investment - December 31, 2015	$	608,728		$	1,082		$	20,518		$	44,804		$	187,664		$	170,169		$	22,824		$	1,055,789

Undistributed earnings - December 31, 2015	$	42,572		$ N/A			$	—		$	3,404		$	10,346		$	3,136		$	—		$	59,458


(A)	Fortress elected to record the common shares held in the publicly traded private equity portfolio companies and publicly traded permanent capital vehicles, including FTAI which completed its IPO in May 2015 (see Note 3), at fair value pursuant to the fair value option for financial instruments.


(B)	Includes Fortress's investment in Affiliated Managers.

140

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)


(C)	The amounts presented above can be reconciled to the amounts presented on the statement of cash flows as follows:



	Year Ended December 31,
	2015					2014
	Contributions		Distributions of Capital			Contributions		Distributions of Capital
Per Consolidated Statements of Cash Flows	$	33,855	$	(235,290	)	$	36,110	$	(379,940	)
Investments of incentive receivable amounts into Fortress Funds	138,026		—			258,023		—
Change in distributions payable out of Fortress Funds	—		(177		)	—		172
Net funded*	17,094		(17,094		)	16,451		(16,451		)
Other	50		(1,400		)	—		(2,884		)
Per Above	$	189,025	$	(253,961	)	$	310,584	$	(399,103	)


*	In some instances, a private equity style fund may need to simultaneously make both a capital call (for new investments or expenses) and a capital distribution (related to realizations from existing investments). This results in a net funding.


(D)	Recorded to Gains (Losses).


(E)	Represents a portion of the general partner liability (Note 10).


(F)	In December 2014, Fortress deconsolidated a liquid hedge fund (Note 4) and the amount disclosed represents Fortress’s investment in the fund as of the date of deconsolidation. In December 2015, Fortress deconsolidated a credit PE fund and subsequently received a $42.0 million capital distribution from the fund (Note 4).

The ownership percentages presented in the following tables are reflective of the ownership interests held as of the end of the respective periods. For tables which include more than one Fortress Fund, the ownership percentages are based on a weighted average by total equity of the funds as of period end. The permanent capital vehicles, the publicly traded portfolio companies and Other are not presented as they are insignificant to Fortress’s investments.



	Private Equity Funds (B)
	December 31, (or year then ended)
	2015			2014			2013
Assets	$	11,950,687		$	13,484,372
Debt	(3,144		)	(3,251		)
Other liabilities	(151,778		)	(143,363		)
Equity	$	11,795,765		$	13,337,758
Fortress’s Investment	$	608,728		$	677,366
Ownership (A)	5.2		%	5.1		%

Revenues and gains (losses) on investments	$	(1,126,186	)	$	731,574		$	2,335,934
Expenses	(178,022		)	(194,509		)	(208,301		)
Net Income (Loss)	$	(1,304,208	)	$	537,065		$	2,127,633
Fortress’s earnings (losses) from equity method investees	$	(49,346	)	$	36,413		$	81,470

141

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)



	Credit Hedge Funds									Credit PE Funds (B) (C)
	December 31, (or year then ended)
	2015			2014			2013			2015			2014			2013
Assets	$	10,959,844		$	11,349,879					$	12,770,674		$	11,992,369
Debt	(4,413,323		)	(4,621,360		)				(259,114		)	(67,618		)
Other liabilities	(174,397		)	(283,818		)				(373,224		)	(824,837		)
Non-controlling interest	(11,068		)	(14,406		)				(3,963		)	(4,852		)
Equity	$	6,361,056		$	6,430,295					$	12,134,373		$	11,095,062
Fortress’s Investment	$	44,804		$	57,224					$	187,664		$	183,127
Ownership (A)	0.7		%	0.9		%				1.5		%	1.7		%

Revenues and gains (losses) on investments	$	747,861		$	1,011,969		$	1,295,945		$	1,718,546		$	2,381,032		$	1,835,118
Expenses	(403,646		)	(340,373		)	(255,222		)	(310,125		)	(369,653		)	(325,436		)
Net Income (Loss)	$	344,215		$	671,596		$	1,040,723		$	1,408,421		$	2,011,379		$	1,509,682
Fortress’s earnings (losses) from equity method investees	$	3,920		$	8,236		$	12,242		$	19,630		$	28,693		$	29,824



	Liquid Hedge Funds (D)
	December 31, (or year then ended)
	2015			2014			2013
Assets	$	2,279,590		$	13,132,531
Debt	—			—
Other liabilities	(829,515		)	(5,733,970		)
Non-controlling interest	—			—
Equity	$	1,450,075		$	7,398,561
Fortress’s Investment	$	170,169		$	167,630
Ownership (A)	11.7		%	2.3		%

Revenues and gains (losses) on investments	$	(190,659	)	$	220,958		$	838,506
Expenses	(212,545		)	(219,303		)	(159,892		)
Net Income (Loss)	$	(403,204	)	$	1,655		$	678,614
Fortress’s earnings (losses) from equity method investees	$	(6,387	)	$	3,844		$	13,124


(A)	Excludes ownership interests held by other Fortress Funds, the Principals, employees, directors and other affiliates.

(B)

For private equity funds, includes four entities which are recorded on a one quarter lag (i.e. current year balances reflected for these entities are for the periods ended September 30, 2015, 2014 and 2013, respectively). For credit PE funds, includes one entity which is recorded on a one quarter lag and several entities which are recorded on a one month lag. They are recorded on a lag, as permitted, because they are foreign entities, or they have substantial operations in foreign countries, and do not provide financial reports under GAAP within the reporting time frame necessary for U.S. public entities.


(C)	Includes certain entities in which Fortress has both a direct and an indirect investment.


(D)	For liquid hedge funds, 2015 includes amounts related to Fortress's retained interest in Graticule. Amounts in 2014 and 2013 include the Fortress Asia Macro Funds and related managed accounts which were transferred to Graticule in January 2015.

Investments in Variable Interest Entities and Other Unconsolidated Entities

All of Fortress’s interests in unconsolidated entities relate to (i) entities in which Fortress has an investment, which are included on the consolidated balance sheet and described in Note 4, and/or (ii) entities from which Fortress earns fees, which are included in revenues and described in Note 3. These entities are primarily Fortress Funds which are VOEs and provide their limited partners or members unrelated to Fortress with the substantive ability to liquidate the Fortress Fund or otherwise remove Fortress as the general partner and/or manager or co-manager.

142

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)

Consolidation and Deconsolidation of certain funds

In July 2015, Fortress formed a new credit PE fund. Fortress determined that the fund qualified as a variable interest entity and that it was the primary beneficiary and therefore consolidated the fund. During December 2015, a reconsideration event occurred at the credit PE fund whereby the credit PE fund no longer qualified as a variable interest entity. The credit PE fund is deemed to be a voting interest entity and Fortress does not have control over the fund since the unrelated limited partners have the substantive ability to liquidate the fund or otherwise remove Fortress as general partner without cause based on a simple unaffiliated majority vote. As such, Fortress deconsolidated the credit PE fund in December 2015. In addition, subsequent to deconsolidation of the fund, Fortress received a $42.0 million capital distribution from the fund. The capital distribution is reported as part of investing activities in the statement of cash flows. Fortress retained a $0.3 million equity method investment in the credit PE fund. The retained investment is included within Investments on the Consolidated Balance Sheet.

In 2014, Fortress formed a new liquid hedge fund. Fortress determined that the fund qualified as a variable interest entity and that it was the primary beneficiary and therefore consolidated the fund. The liquid hedge fund allowed investors to redeem their interests on a periodic basis at their net asset value. During December 2014, a reconsideration event occurred at the liquid hedge fund whereby the liquid hedge fund no longer qualified as a variable interest entity. The liquid hedge fund was deemed to be a voting interest entity and Fortress does not have control over the fund since the unrelated limited partners or members have the substantive ability to liquidate the fund or otherwise remove Fortress as general partner or managing member without cause based on a simple unaffiliated majority vote. As such, Fortress deconsolidated the liquid hedge fund in December 2014. The deconsolidation of the liquid hedge fund resulted in non-cash investing activity of $56.5 million in the statement of cash flows. Fortress retained a $48.5 million equity method investment in the liquid hedge fund. The retained investment is included within Investments on the Consolidated Balance Sheet.

The following tables set forth certain information regarding VIEs in which Fortress held a variable interest as of December 31, 2015 and 2014, respectively.



	Fortress is not Primary Beneficiary
	December 31, 2015
Business	Number of VIEs	Gross Assets (A)		Financial Obligations (A)		Fortress Investment (B)		Notes (H)
Private Equity Funds	1	$	136,129	$	—	$	1,959	(D)
Permanent Capital Vehicles	6	23,618,598		15,581,168		114,228		(C)
Credit Hedge Funds	8	1,912,019		426,988		5,405		(D) (E)
Credit PE Funds	35	990,008		232,082		9,659		(D) (E)
Liquid Hedge Funds	4	364,535		1,270		39,192		(D) (E)



	Fortress is not Primary Beneficiary
	December 31, 2014
Business	Number of VIEs	Gross Assets (A)		Financial Obligations (A)		Fortress Investment (B)		Notes (H)
Private Equity Funds	2	$	85,553	$	—	$	56	(D)
Permanent Capital Vehicles	5	14,539,141		10,336,207		154,346		(C)
Credit Hedge Funds	8	1,976,328		152,806		25,474		(D) (E)
Credit PE Funds	30	735,855		143,743		5,897		(D) (E)
Liquid Hedge Funds	2	3,070,203		432,580		7,094		(D)

143

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)



	Fortress is Primary Beneficiary
	December 31, 2015
Business	Number of VIEs	Gross Assets (A)		Financial Obligations (A)		Fortress Investment (B)		Notes (H)
Private Equity Funds	9	$	71,277	$	—	$	18,666	(F) (G)
Credit PE Funds	2	400		—		20		(F)
Liquid Hedge Funds	1	6,126		—		2,821		(F)
Logan Circle	1	4,468		—		4,317		(F)



	Fortress is Primary Beneficiary
	December 31, 2014
Business	Number of VIEs	Gross Assets (A)		Financial Obligations (A)		Fortress Investment (B)		Notes (H)
Private Equity Funds	9	$	90,723	$	—	$	20,368	(F) (G)
Credit PE Funds	2	434		—		22		(F)
Liquid Hedge Funds	3	8,714		—		4,125		(F)
Logan Circle	1	6,566		—		4,783		(F)

(A)

Represents financial obligations of the VIEs which are not recourse to Fortress and assets of the VIEs which Fortress does not have the right to make use of to satisfy its obligations. Financial obligations include financial borrowings, derivative liabilities and short securities. In many cases, these VIEs have additional debt within unconsolidated subsidiaries. The debt obligations of the VIEs are not cross collateralized with the debt obligations of Fortress. Fortress has no obligation to satisfy the liabilities of the VIEs. The VIE’s debt obligations have no impact on Fortress’s cash flows and its ability to borrow or comply with its debt covenants under its revolving credit agreement.

Of the financial obligations represented herein as of December 31, 2015, for VIEs where Fortress is not the primary beneficiary, $15,192.6 million, $423.4 million, $232.1 million and $1.2 million represent financial borrowings which have weighted average maturities of 2.0 years, 9.7 years, 2.3 years and 11.0 years for the permanent capital vehicles, credit hedge funds, credit PE funds and liquid hedge funds, respectively. Of the financial obligations represented herein as of December 31, 2014, $9,911.4 million, $151.7 million, and $143.7 million represent financial borrowings which have weighted average maturities of 1.9 years, 7.6 years, and 2.3 years for the permanent capital vehicles, credit hedge funds, and credit PE funds, respectively.

(B)

Represents Fortress’s maximum exposure to loss with respect to these entities, which includes investments in these entities, plus any receivables due from these entities. In addition to the table above, Fortress is exposed to potential changes in cash flow and revenues attributable to the management fees and/or incentive income Fortress earns from those entities. For VIEs where Fortress is deemed to be the primary beneficiary, these investments and receivables are eliminated in consolidation but still represent Fortress’s economic exposure to the VIEs.

(C)

Includes permanent capital vehicles that are a VIE because the entity's at-risk equity holders as a group lack the characteristics of a controlling financial interest because the group of at-risk equity holders does not have the power, through voting rights or similar rights, to direct the activities that most significantly affect the success of the entity or impact the entity's economic performance. Fortress is not the primary beneficiary of these entities. Fortress and its related parties under common control as a group, where applicable, do not have the obligation to absorb losses or the right to receive benefits that could potentially be significant to these entities.

(D)

Includes entities, primarily investing vehicles set up on behalf of the Fortress Funds to make investments, that are a VIE because the entity’s at-risk equity holders as a group lack the characteristics of a controlling financial interest because either (i) the group of at-risk equity holders does not have the power, through voting rights or similar rights, to direct the activities that most significantly affect the success of the entity or impact the entity's economic performance and/or (ii) the voting rights of an investor are not proportional to its obligation to absorb the income or loss of the entity and substantially all of the entity’s activities either involve or are conducted on behalf of that investor and its related parties. Fortress is not the primary beneficiary of these entities. Fortress and its related parties under common control as a group, where applicable, do not have the obligation to absorb losses or the right to receive benefits that could potentially be significant to these entities.


(E)	Includes entities that are a VIE because the entity's equity investment at-risk is determined to be insufficient. Fortress is not the primary beneficiary of these entities because Fortress does not have the power to direct the activities that most significantly impact the economic performance of these entities.

(F)

Includes entities that are a VIE because the entity's at-risk equity holders as a group lack the characteristics of a controlling financial interest because either (i) the group of at-risk equity holders does not have the power, through voting rights or similar rights, to direct the activities that most significantly affect the success of the entity or impact the entity's economic performance and/or (ii) the voting rights of an investor are not proportional to its obligation to absorb the income or loss of the entity and substantially all of the entity's activities either involve or are conducted on behalf of that investor and its related parties. Fortress is the investment manager of these entities. Fortress is determined to be the primary beneficiary of these entities since it has both power over the activities that most significantly

144

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)

affect the success of the entity or impact the entity’s economic performance and has the right to receive benefits or the obligation to absorb losses from the VIE that potentially could be significant to the entity.


(G)	Includes an entity that is a VIE because the entity’s equity investment at risk is determined to be insufficient. Fortress, as a result of directing the operations of the entity through its management contracts with certain funds, and providing financial support to the entity, was deemed to be its primary beneficiary.

(H)

As of December 31, 2015, for VIEs where Fortress is not the primary beneficiary, Fortress's investment included: (i) management fees receivable of $17.3 million which is comprised of $12.3 million, less than $0.1 million, $0.8 million and $4.1 million from the permanent capital vehicles, credit hedge funds, credit PE funds and liquid hedge funds, respectively, (ii) incentive income receivable of $39.7 million which is comprised of $37.3 million and $2.4 million from the permanent capital vehicles and credit hedge funds, respectively, and (iii) expense reimbursements, dividends and other receivables of $16.7 million which is comprised of $1.9 million, $13.6 million, $0.9 million, $0.1 million and $0.2 million from the private equity funds, permanent capital vehicles, credit hedge funds, credit PE funds and liquid hedge funds, respectively.

As of December 31, 2014, for VIEs where Fortress is not the primary beneficiary, Fortress's investment included: (i) management fees receivable of $7.1 million which is comprised of $6.1 million, $0.5 million and $0.5 million from the permanent capital vehicles, credit hedge funds and credit PE funds, respectively, (ii) incentive income receivable of $79.8 million which is comprised of $55.3 million, $21.9 million and $2.6 million from the permanent capital vehicles, credit hedge funds and liquid hedge funds, respectively and (iii) expense reimbursements, dividends and other receivables of $11.9 million which is comprised of $6.9 million, $1.1 million, $0.1 million and $3.8 million from the permanent capital vehicles, credit hedge funds, credit PE funds and liquid hedge funds, respectively.

As of December 31, 2015, for VIEs where Fortress is the primary beneficiary, Fortress's investment included: (i) management fees receivable of less than $0.1 million from Logan Circle, and (ii) advances of $10.1 million to an operating subsidiary of one of the private equity funds. These receivables and advances are eliminated in consolidation but still represent Fortress’s economic exposure to the VIEs.

As of December 31, 2014, for VIEs where Fortress was the primary beneficiary, Fortress's investment included: (i) management fees receivable of less than $0.1 million from Logan Circle, and (ii) advances of $10.3 million to an operating subsidiary of one of the private equity funds. These receivables and advances are eliminated in consolidation but still represent Fortress's economic exposure to the VIEs.

145

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)

Fair Value of Financial Instruments

The following table presents information regarding Fortress’s financial instruments that are recorded at fair value. Investments denominated in foreign currencies have been translated at the period end exchange rate. Changes in fair value are recorded in Gains (Losses).



	Fair Value
	December 31, 2015			December 31, 2014			Valuation Method
Assets (within Investments)
Common shares of publicly traded permanent capital vehicles (A)	$	20,518		$	14,172		Level 1 - Quoted prices in active markets for identical assets
Common stock of publicly traded private equity portfolio companies	1,082			1,035			Level 1 - Quoted prices in active markets for identical assets
Total equity method investments carried at fair value	$	21,600		$	15,207
Options in equity method investees	$	30,427		$	71,844		Level 2 - Option valuation models using significant observable inputs
Assets (within Other Assets)
Derivatives	22,146			27,105			Level 2 - See below
Equity Securities (B)	—			17,627			Level 1 - Quoted prices in active markets for identical assets
Liabilities (within Accrued Compensation and Benefits)
Options in affiliates granted to employees	(3,010		)	(8,356		)	Level 2 - Option valuation models using significant observable inputs
Liabilities (within Other Liabilities)
Derivatives	(2,201		)	(932		)	Level 2 - See below


(A)	FTAI completed its IPO in May 2015 and Fortress elected to record its interest at fair value pursuant to the fair value option for financial instruments.


(B)	These equity securities were held at fair value and classified as trading and were all sold during the first quarter of 2015.

See Note 5 regarding the fair value of outstanding debt.

Publicly Traded Permanent Capital Vehicle Options

Fully vested options are issued to Fortress by the publicly traded permanent capital vehicles as compensation for services performed in raising capital for these entities. These options are accounted for at fair value with subsequent changes in fair value recognized in income as Gains (Losses).

The assumptions used in valuing the options at December 31, 2015 were:



	Risk-Free Rate	Dividend Yield (A)	Volatility
Newcastle	0.80% - 2.11%	10.93% - 17.99%	26.40% - 35.51%
New Residential	0.80% - 2.17%	9.83% - 18.13%	25.76% - 28.81%
New Media	2.11% - 2.14%	4.30% - 4.46%	36.15%
New Senior	0.80% - 2.17%	8.13% - 14.70%	23.21% - 26.62%
Eurocastle	0.05% - 0.93%	4.49% - 5.68%	24.81% - 26.89%


(A)	Options which are due to expire prior to the expected payment of future dividends are valued using a 0.00% dividend yield.

All of the Newcastle, New Residential, New Media and New Senior options were fully vested on issuance and become exercisable over thirty months and have a ten-year term. With the exception of Eurocastle’s May 2013 options grant, which became exercisable in October 2013, all of the Eurocastle options were fully vested and exercisable on issuance, and have a ten-year term. All of the options held by Fortress in the publicly traded permanent capital vehicles incorporate effects of reverse stock splits or spin-offs.

146

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)

Fortress has granted rights, which Fortress refers to as tandem options, in the options it holds in certain publicly traded permanent capital vehicles it manages to certain of its employees. The value of these rights is recorded as accrued profit sharing compensation expense and the related liability is marked to fair value as compensation expense until such time as the rights are exercised or expire.

The following table summarizes certain Newcastle options held by Fortress.



	Options Issued During Year of Grant	Public Offering Price/Option Strike Price	Fair Value of Options Issued at Grant Date	As of December 31, 2015
Year of Grant	Options Issued During Year of Grant	Public Offering Price/Option Strike Price	Fair Value of Options Issued at Grant Date	Total	Tandem Options held by Employees	Available to Fortress
2011	718,750	$1.00	$1,182	583,149	—	583,149
2012	1,121,250	$1.00	$2,017	949,997	—	949,997
2013	2,978,348	$2.32 - $3.57	$4,513	2,978,338	266,657	2,711,681
2014	765,416	$4.01	$360	765,416	—	765,416

The following table summarizes certain New Residential options held by Fortress.



	Options Issued During Year of Grant	Public Offering Price/Option Strike Price	Fair Value of Options Issued at Grant Date	As of December 31, 2015
Year of Grant	Options Issued During Year of Grant	Public Offering Price/Option Strike Price	Fair Value of Options Issued at Grant Date	Total	Tandem Options held by Employees	Available to Fortress
2012	3,363,750	$ 6.82 - $ 7.34	$11,768	25,000	—	25,000
2013	4,025,000	$10.24 - $11.48	$14,428	1,936,068	1,100,497	835,571
2014	1,437,500	$12.20	$1,604	1,437,500	258,750	1,178,750
2015	8,543,539	$15.25 - $15.88	$12,705	8,543,539	—	8,543,539

The following table summarizes certain New Senior options held by Fortress.



	Options Issued During Year of Grant	Public Offering Price/Option Strike Price	Fair Value of Options Issued at Grant Date	As of December 31, 2015
Year of Grant	Options Issued During Year of Grant	Public Offering Price/Option Strike Price	Fair Value of Options Issued at Grant Date	Total	Tandem Options held by Employees	Available to Fortress
2011	718,750	$ 4.09 - $ 7.18	$4,535	465,832	—	465,832
2012	1,121,250	$7.66 - $8.75	$7,739	916,029	—	916,029
2013	2,978,348	$14.42 - $19.23	$17,328	2,978,338	266,657	2,711,681
2014	765,416	$20.89	$1,383	765,416	—	765,416
2015	2,011,409	$13.75	$2,978	2,011,409	—	2,011,409

The following table summarizes New Media options held by Fortress:



	Options Issued During Year of Grant	Public Offering Price/Option Strike Price	Fair Value of Options Issued at Grant Date	As of December 31, 2015
Year of Grant	Options Issued During Year of Grant	Public Offering Price/Option Strike Price	Fair Value of Options Issued at Grant Date	Total	Tandem Options held by Employees	Available to Fortress
2014	745,062	$15.71	$2,963	745,062	92,751	652,311
2015	700,000	$21.70	$4,144	700,000	—	700,000

The following table summarizes select Eurocastle options held by Fortress.



	Options Issued During Year of Grant	Public Offering Price/Option Strike Price	Fair Value of Options Issued at Grant Date	As of December 31, 2015
Year of Grant	Options Issued During Year of Grant	Public Offering Price/Option Strike Price	Fair Value of Options Issued at Grant Date	Total	Tandem Options held by Employees	Available to Fortress
2013	1,500,000	€7.25	€4,807	1,500,000	—	1,500,000
2015	3,976,299	€7.85	€4,756	3,976,299	—	3,976,299

147

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)

The following table summarizes options in the publicly traded permanent capital vehicles held as of December 31, 2015, which were issued prior to 2011:



Entity	Weighted Average Option Strike Price		Options held by Fortress
Newcastle	$	13.16	115,239
New Senior	$	56.01	115,239
New Residential	$	31.31	345,720
Eurocastle	€	6,151.76	18,886

In January 2016, Fortress granted tandem options in 1.7 million, 0.4 million and 0.1 million of the options it holds in New Residential, New Senior and New Media, respectively, to certain employees. The estimated value of these New Residential, New Senior and New Media tandem options are $0.3 million, $0.1 million and $0.3 million, respectively.

Derivatives

Fortress uses derivative instruments to manage its foreign currency risk. Fortress enters into foreign exchange forward contracts and options to economically hedge the risk of fluctuations in foreign exchange rates with respect to certain foreign currency denominated assets and expected revenues. Gains and losses on these contracts are reported currently in Gains (Losses).

Fortress’s derivative instruments are carried at fair value and are generally valued using models with observable market inputs that can be verified and which do not involve significant judgment. The significant observable inputs used in determining the fair value of the Level 2 derivative contracts are contractual cash flows and market based parameters such as foreign exchange rates.

Fortress’s derivatives (not designated as hedges) are recorded as follows:



	Balance Sheet	December 31, 2015 (or year ended)								Maturity
	Classification (A)	Fair Value			Notional Amount		Gains/(Losses) (B)			Date
Foreign exchange option contracts	Other Assets	$	21,884		¥	40,160,526	$	1,788		Feb-16 - Mar-18
Foreign exchange option contracts	Other Liabilities	$	(994	)	¥	8,593,346	$	(532	)	Jun-16 - Mar-18
Foreign exchange forward contracts	Other Assets	$	262		¥	2,568,543	$	186		Jan-16 - Dec-17
Foreign exchange forward contracts	Other Liabilities	$	(590	)	¥	6,106,852	$	(590	)	Jan-16 - Jun-16
Foreign exchange forward contracts	Other Liabilities	$	(617	)	C$	123,802	$	(617	)	Jun-16


(A)	Fortress has a master netting agreement with its counterparty.


(B)	Reflects unrealized gains (losses) related to contracts existing at period end. Total net foreign exchange gains (losses) from derivatives were $1.8 million, $26.7 million and $8.4 million during the years ended December 31, 2015, 2014 and 2013.

Fortress's average notional amount outstanding for the year ended December 31, 2015 was $492.3 million.

The following tables summarizes the fair value of Fortress's derivative contacts on a gross basis and any amount of offset as permitted by netting agreements as of December 31, 2015.

148

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)



							Net Amounts of
				Gross Amounts Offset			Assets Presented
	Gross Amounts of			in the Consolidated			in the Consolidated
	Recognized Assets as of			Balance Sheet as of			Balance Sheet as of
Offsetting of Derivative Assets	December 31, 2015			December 31, 2015			December 31, 2015
Foreign exchange option contracts	$	23,616		$	(1,732	)	$	21,884
Foreign exchange forward contracts	262			—			262
	$	23,878		$	(1,732	)	$	22,146

							Net Amounts of
				Gross Amounts Offset			Liabilities Presented
	Gross Amounts of			in the Consolidated			in the Consolidated
	Recognized Liabilities as of			Balance Sheet as of			Balance Sheet as of
Offsetting of Derivative Liabilities	December 31, 2015			December 31, 2015			December 31, 2015
Foreign exchange option contracts	$	(2,054	)	$	1,060		$	(994	)
Foreign exchange forward contracts	(1,207		)	—			(1,207		)
	$	(3,261	)	$	1,060		$	(2,201	)

The counterparty on the outstanding derivatives is Citibank N.A.

149

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)

5. DEBT OBLIGATIONS

The following table presents summarized information regarding Fortress's debt obligations:



	Face Amount and Carrying Value				Contractual	Final	December 31, 2015
	December 31,				Interest	Stated	Amount
Debt Obligation	2015		2014		Rate	Maturity	Available for Draws
Revolving credit agreement (A) (B)	$	75,000	$	75,000	LIBOR+2.50% (C)	Feb 2016	$	72,332
Promissory note (D)	155,677		—		5.00%	Nov 2017	N/A
Total	$	230,677	$	75,000


(A)	Collateralized by substantially all of Fortress Operating Group’s assets as well as Fortress Operating Group’s rights to fees from the Fortress Funds and its equity interests therein, other than fees from Fortress's senior living property manager.


(B)	The $150.0 million revolving debt facility includes a $15.0 million letter of credit subfacility of which $2.7 million was utilized.


(C)	Subject to unused commitment fees of 0.4% per annum.


(D)	Issued to a principal in exchange for his Fortress Operating Group units and Class B shares in Fortress.

Management believes the fair value of its outstanding debt was $231.8 million as of December 31, 2015 (classified as a level 3 valuation, which is based on internal models using discounted future contractual cash flows and market interest rates).

In February 2013, Fortress entered into a $150.0 million revolving credit facility (the "2013 Credit Agreement") with a $15.0 million letter of credit subfacility and repaid its existing $60.0 million revolving credit facility. The 2013 Credit Agreement generally bears interest at an annual rate equal to LIBOR plus an applicable rate that fluctuates depending upon Fortress's credit rating and a commitment fee on undrawn amounts that fluctuates depending upon Fortress's credit rating, as well as other customary fees.

In January 2014, in connection with the announcement of the Fortress Asia Macro Funds and related managed accounts transferring to Affiliated Managers, Fortress entered into a First Amendment, Consent and Waiver (the "Amendment") to the 2013 Credit Agreement. Pursuant to the Amendment, among other things, the lenders consented to the consummation of the transaction and certain amendments to the 2013 Credit Agreement, primarily the definition of AUM and Consolidated EBITDA, in order to account for its retained economic interests.

In January 2016, Fortress entered into a new $275.0 million senior unsecured revolving credit facility (the "2016 Credit Agreement") with a $15.0 million letter of credit subfacility and repaid the 2013 Credit Agreement. The 2016 Credit Agreement is not collateralized by the assets of Fortress Operating Group. After giving effect to the initial extensions of credit thereunder of $75.0 million, and a subsequent borrowing of $100.0 million in February 2016, approximately $97.3 million was available to be drawn. The 2016 Credit Agreement generally bears interest at an annual rate equal to LIBOR plus an applicable rate that fluctuates depending upon the credit rating of the borrower's senior unsecured long-term debt and a commitment fee on undrawn amounts that fluctuates depending upon such credit rating, as well as other customary fees. The 2016 Credit Agreement matures in January 2021. Based upon the borrower's current credit rating, the interest rate is equal to LIBOR plus 1.75% per annum and the unused commitment fee is 0.25% per annum.

Covenants

Fortress Operating Group is required to prepay any amounts outstanding under the 2013 Credit Agreement upon the occurrence of certain events.

150

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)

The events of default under the 2013 Credit Agreement are typical of such agreements and include payment defaults, failure to comply with credit agreement covenants, cross-defaults to material indebtedness, bankruptcy and insolvency, and change of control. A default under the 2013 Credit Agreement would likely have a material, adverse impact on Fortress's liquidity.


•	Permit AUM (as defined as Management Fee Earning Assets in the 2013 Credit Agreement) to be less than $25.0 billion as of the end of any calendar month;


•	Permit the Consolidated Leverage Ratio (a measure of Adjusted Net Funded Indebtedness compared to Consolidated EBITDA, each such term as defined in the 2013 Credit Agreement) to be greater than 2.00 to 1.0 as of the end of any fiscal quarter for the four quarter period ending on such date; or


•	Permit the Consolidated Interest Coverage Ratio (a measure of Consolidated EBITDA compared to Consolidated Interest Charges, each such term as defined in the 2013 Credit Agreement) to be less than 4.00 to 1.0 as of the end of any fiscal quarter for the four quarter period ending on such date.

Fortress was in compliance with all of its debt covenants as of December 31, 2015. The following table sets forth the financial covenant requirements as of December 31, 2015.



	December 31, 2015
	(dollars in millions)
	Requirement			Actual		Notes
AUM, as defined	≥	$	25,000	$	46,563	(A)
Consolidated Leverage Ratio	≤	2.00		0.59		(B)
Consolidated Interest Coverage Ratio	≥	4.00		86.73		(B)


(A)	Impacted by capital raised in funds, redemptions from funds, and valuations of fund investments. The AUM presented here is based on the definition of Management Fee Earning Assets contained in the 2013 Credit Agreement.

(B)

The Consolidated Leverage Ratio is equal to Adjusted Net Funded Indebtedness, as defined, divided by the trailing four quarters’ Consolidated EBITDA, as defined. The Consolidated Interest Coverage Ratio is equal to the quotient of (A) the trailing four quarters' Consolidated EBITDA, as defined, divided by (B) the trailing four quarters' interest charges as defined in the 2013 Credit Agreement. Consolidated EBITDA, as defined, is impacted by the same factors as distributable earnings, except Consolidated EBITDA is not impacted by changes in clawback reserves or gains and losses, including impairment, on investments.

The borrower and the guarantors under the 2016 Credit Agreement are required to prepay any amounts outstanding under the 2016 Credit Agreement upon the occurrence of certain events.

151

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)

These covenants are subject to a number of limitations and exceptions set forth in the 2016 Credit Agreement. In addition, the borrower must not:


•	Permit AUM (as defined as Management Fee Earning Assets in the 2016 Credit Agreement) to be less than $30.0 billion as of the end of any fiscal quarter;


•	Permit the Consolidated Leverage Ratio (a measure of Adjusted Net Funded Indebtedness compared to Consolidated EBITDA, each such term as defined in the 2016 Credit Agreement) to be greater than 2.50 to 1.0 as of the end of any fiscal quarter for the four-quarter period ending on such date; or


•	Permit the Consolidated Interest Coverage Ratio (a measure of Consolidated EBITDA compared to Consolidated Interest Charges, each such term as defined in the 2016 Credit Agreement) to be less than 4.00 to 1.0 as of the end of any fiscal quarter for the four-quarter period ending on such date.

If the 2016 Credit Agreement has been in effect as of December 31, 2015, Fortress would have been in compliance with the covenant requirements thereunder.

Intercompany Debt

As a result of Fortress’s initial public offering and related transactions, secondary public offerings, and other transactions, FIG Asset Co. LLC lent aggregate excess proceeds of approximately $802.3 million to FIG Corp. pursuant to a demand note, as amended. As of December 31, 2015, the outstanding balance was approximately $667.7 million, including unpaid interest. This intercompany debt is eliminated in consolidation.

6. INCOME TAXES AND TAX RELATED PAYMENTS

Fortress is a publicly traded partnership and has a wholly owned corporate subsidiary. Accordingly, a substantial portion of Fortress’s income related to Class A shares is earned by the corporate subsidiary and subject to U.S. federal and state income taxation, taxed at prevailing rates. The remainder of Fortress’s income is allocated directly to its shareholders and is not subject to a corporate level of taxation.

Fortress recognizes compensation expense from the issuance of RSUs and RPUs (Note 8) over their vesting period. Consequently, Fortress records an estimated income tax benefit associated with RSUs and RPUs. However, Fortress is not entitled to an actual deduction on its income tax returns until a later date when the compensation is considered taxable to the employee. The actual income tax deduction can vary significantly from the amount recorded as an income tax benefit in earlier periods and is based on the value of the stock at the date the compensation is taxable to the employee.

Equity-based compensation resulted in $12.5 million, $7.8 million and $26.0 million of recognized current tax benefit for the years ended December 31, 2015, 2014 and 2013, respectively.

At each tax deduction date, Fortress is required to compare the amount of the actual income tax benefit to the estimated amount recognized earlier. Excess tax benefits associated with RSUs and RPUs are credited to stockholders' equity to the extent that the actual tax benefit is greater than what was previously estimated. If the actual tax benefit is less than that estimated, which will occur if the price of the stock has declined during the vesting period, Fortress has a “tax shortfall.” The tax shortfall must be charged to income tax expense to the extent Fortress does not have prior excess tax benefits (i.e., prior actual tax benefits associated with RSUs and RPUs that were greater than the estimated benefits).

For the year ended December 31, 2015 and 2014, Fortress recorded $4.8 million and $3.5 million, to paid in capital for excess tax benefits from RSUs delivered during these periods and as a financing activity on the consolidated statements of cash flows.

Based on the value of the RSUs and RPUs which vested during the year ended December 31, 2013, Fortress has tax a shortfall of $24.6 million, which has been charged to income tax expense during this period.

152

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)

The provision for income taxes consists of the following:



	Year Ended December 31,
	2015			2014			2013
Current
Federal income tax expense (benefit)	$	8,552		$	7,558		$	1,185
Foreign income tax expense (benefit)	19,570			12,258			8,875
State and local income tax expense (benefit)	7,335			5,175			1,310
	35,457			24,991			11,370
Deferred
Federal income tax expense (benefit)	23,209			(1,051		)	47,953
Foreign income tax expense (benefit)	3,472			1,115			65
State and local income tax expense (benefit) (A)	(6,350		)	(18,108		)	6,413
	20,331			(18,044		)	54,431
Total expense (benefit)	$	55,788		$	6,947		$	65,801


(A)	During the year ended December 31, 2015 and 2014 New York City and New York State, respectively, enacted corporate tax law changes which increased the value of certain future tax benefits.

For the years ended December 31, 2015, 2014 and 2013, deferred income taxes of $0.4 million, $0.5 million and $(0.7) million were credited (debited) to other comprehensive income, primarily related to foreign currency translation. Current income tax benefits of $1.7 million, $0.7 million and $0.0 million were credited to paid-in capital in those years, respectively, related to (i) dividend equivalent payments on RSUs (Note 9), as applicable, and (ii) distributions to Fortress Operating Group restricted partnership unit holders (Note 9), which are currently deductible for income tax purposes.

Fortress established deferred tax assets in connection with its initial public offering and related transactions in 2007, as well as in connection with its subsequent public offering of shares. These transactions resulted in increases to the tax basis of FIG Corp.'s ownership interests in the assets owned by Fortress Operating Group. Fortress established these deferred tax assets for the expected tax benefits associated with the difference between the financial reporting basis of net assets and the tax basis of net assets. The establishment of the deferred tax assets increased additional paid in capital. These deferred tax assets reflect the tax impact of payments expected to be made under the tax receivable agreement (described below), which further increase Fortress’s deferred tax benefits and the estimated payments due under the tax receivable agreement.

In November 2015, Fortress purchased from Mr. Novogratz 56.8 million Fortress Operating Group units and corresponding Class B shares at $4.50 per share, or an aggregate amount of $255.7 million. All of the Fortress Operating Group units and corresponding Class B shares were canceled and ceased to be outstanding. Additionally, in 2015 Fortress delivered Class A shares for vested RSUs (Note 8). As a result, FIG Corp. increased its ownership in the underlying Fortress Operating Group entities during the year ended December 31, 2015. FIG Corp. decreased its ownership in the underlying Fortress Operating Group entities during the year ended December 31, 2014 as a result of the purchase of Class A shares from Nomura. This decrease was offset by an increase from the delivery of vested RSUs (Note 8) and the offering of Class A shares and the repurchase of an equivalent number of outstanding Fortress Operating Group units and an equal number of Class B shares. FIG Corp. increased its ownership in the underlying Fortress Operating Group entities during 2013 through (i) the exchanges by the Principals and a former senior employee of Fortress Operating Group units and Class B shares for Class A shares (as described in Note 9) and (ii) the delivery of vested RSUs and RPUs (Note 8). As a result of the changes in ownership, the deferred tax asset was increased (decreased) by $17.2 million, $(8.0) million and $2.7 million with offsetting increases (decreases) of $2.2 million, $(3.5) million and $0.5 million to the valuation allowance (described below), in 2015, 2014 and 2013, respectively. In addition, the deferred tax asset was increased by $13.3 million, $48.5 million and $12.1 million related to a step-up in tax basis due to the share purchase and exchanges which will result in additional tax deductions, with offsetting increases in the valuation allowance of $0.9 million, $0.9 million and $0.9 million, while the liability for the tax receivable agreement was increased by $0.1 million, $39.1 million and $0.1 million to represent 85% of the expected cash tax savings resulting from the increase in tax basis deductions, in 2015, 2014 and 2013, respectively. Furthermore, deferred income taxes of $1.0 million was debited to paid-in capital related to the tax gain on treasury shares issued to employees in connection with equity-based compensation deliveries in 2013. The establishment of these net deferred tax assets, net of the change in the tax receivable agreement liability, also increased additional paid in capital.

153

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)

The realization of the deferred tax assets is dependent on the amount of Fortress’s future taxable income before deductions related to the establishment of the deferred tax asset. The deferred tax asset is comprised of a portion that would be realized in connection with future ordinary income and a portion that would be realized in connection with future capital gains.

Fortress projects that it will have sufficient future taxable ordinary income in the normal course of business without any projected significant change in circumstances to fully realize the portion of the deferred tax asset that would be realized in connection with future ordinary income. Such projections do not include material changes in AUM or incentive income from the current levels. However, the projections do contain an estimated marginal growth assumption. Based on Fortress’s historical and projected taxable income, management has concluded that the realization of the portion of the deferred tax asset that would be realized in connection with future taxable ordinary income is more likely than not. If Fortress’s estimates change in the future and it is determined that it is more likely than not that some portion, or all, of this portion of the deferred tax asset will not be realized, a valuation allowance would be recorded for that portion. However, in most cases, any tax expense recorded in connection with the establishment of a valuation allowance or the reversal of a deferred tax asset would be partially offset by other income recorded in connection with a corresponding reduction of a portion of the tax receivable agreement liability (see below). The following table sets forth Fortress’s federal taxable income for historical periods before deductions relating to the establishment of the deferred tax assets, other than deferred tax assets arising from equity-based compensation, as well as the average ordinary income needed over the approximate period of the deductibility (approximately 15 years from the date of establishment, based on the amortization period of the tax basis intangible assets recorded) in order to fully realize the portion of the deferred tax asset that would be realized in connection with future ordinary income (in millions):



2011	$	53.5
2012	80.9
2013	90.7
2014	150.9
2015: Estimated	143.9
2016 - 2023: Average Required	$	84.1

Fortress has made an assessment of the realizability of the portion of the deferred tax asset that would only be realized in connection with future capital gains. Fortress has established a full valuation allowance for this portion of the deferred tax asset as management does not believe that the projected generation of material taxable capital gains is sufficiently assured in the foreseeable future. The establishment of the valuation allowance resulted in a reduction of the obligations associated with the tax receivable agreement and a corresponding reduction of the deferred tax asset. Fortress recorded other income in connection with the adjustments to the tax receivable agreement liability.

154

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)

The tax effects of temporary differences have resulted in deferred income tax assets and liabilities as follows:



	December 31,
	2015			2014

Pre-IPO equity transaction - tax basis adjustment
Tax basis goodwill and other intangible assets	$	214,625		$	235,372
Other assets	6,770			19,161
Principals’ (and a former senior employee’s) exchanges - tax basis adjustment
Tax basis goodwill and other intangible assets	85,501			76,390
Other assets	3,340			2,417
Public offering basis difference	(947		)	(922		)
Compensation and benefits	12,776			11,017
Options in affiliates	2,767			3,558
Partnership basis differences (A)	121,288			77,158
Other	23,639			15,008
Gross deferred tax assets	469,759			439,159
Less:
Valuation allowance	(39,616		)	(13,072		)
Deferred tax liabilities (B)	(3,041		)	(8,464		)
Deferred tax assets, net	$	427,102		$	417,623


(A)	Difference in book and tax basis from underlying partnership investments.


(B)	The deferred tax liabilities primarily relate to timing differences in the recognition of income from options received from certain publicly traded permanent capital vehicles. Deferred tax assets are shown net of deferred tax liabilities since they are both primarily of similar tax character and tax jurisdiction.

The following table summarizes the change in the deferred tax asset valuation allowance:



Valuation Allowance at December 31, 2013	$	49,805
Due to FIG Corp. ownership change	(2,575		)
Net decreases (A)	(34,158		)
Valuation Allowance at December 31, 2014	$	13,072
Due to FIG Corp. ownership change	3,095
Net increases (A)	23,449
Valuation Allowance at December 31, 2015	$	39,616

(A)

In 2015, the increases are primarily related to the change in the portion of the deferred tax asset that would be realized only in connection with future capital gains and therefore required a full valuation allowance. In 2014, the decreases were primarily related to the reversal of the valuation allowance on previously fully reserved deferred tax assets associated with funds in the process of liquidation.

155

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)

Fortress’s effective income tax expense rate is impacted by a variety of factors including, but not limited to, changes in the mix of businesses producing income or loss, which may be subject to tax at different rates, and related changes to Fortress’s structure, as well as changes in the deferred tax asset which, in turn, may result from a variety of factors. A reconciliation of the U.S. federal statutory income tax expense rate to Fortress’s effective income tax expense rate is as follows:



	Year Ended December 31,
	2015		2014		2013
Statutory U.S. federal income tax rate	35.00	%	35.00	%	35.00	%
(Income) loss passed through to stockholders	(14.75	)%	(17.95	)%	(13.30	)%
State and local income taxes	3.81	%	6.08	%	4.33	%
Change in tax rate on certain deferred tax benefits (A)	(5.76	)%	(16.08	)%	(0.60	)%
Tax receivable agreement liability adjustment (B)	1.60	%	10.74	%	1.16	%
Foreign taxes	6.59	%	6.54	%	1.55	%
Deferred tax asset write-off (C)	—	%	14.00	%	8.41	%
Valuation allowance (C)(D)	17.46	%	(31.65	)%	(11.95	)%
Other	(2.40	)%	(0.24	)%	0.11	%
Effective income tax rate (E)	41.55	%	6.44	%	24.71	%


(A)	Primarily related to enacted legislative changes to New York City and New York State corporate taxation in 2015 and 2014, respectively, which increased the value of certain future tax benefits.


(B)	Relates to the tax receivable agreement discussed below, which is not tax deductible and represents a significant permanent tax/GAAP difference.


(C)	In 2014, write-off of deferred tax assets relating to public offering basis difference, fully offset by a reversal of the related valuation allowance. In 2013, write-off of deferred tax assets relating to the tax shortfall created by the vesting of RSUs and RPUs.


(D)	In 2015, primarily related to the change in the portion of the deferred tax asset that would be realized only in connection with future capital gains and therefore required a full valuation allowance. In 2014 and 2013, primarily related to the reversal of the valuation allowance on previously fully reserved deferred tax assets associated with funds in the process of liquidation.


(E)	The Effective income tax rate is computed by dividing Income tax benefit (expense) for the period by the sum of (i) Income (Loss) Before Income Taxes less (ii) Principals' and Others' Interests in Income (Loss) of Consolidated Subsidiaries for the period.

Tax Receivable Agreement

The Principals have the right to exchange each of their Fortress Operating Group units for one Class A share. Certain Fortress Operating Group entities have made an election under Section 754 of the Internal Revenue Code, as amended, which may result in an adjustment to the tax basis of the assets owned by Fortress Operating Group at the time of an exchange. The exchange may result in increases in tax deductions and tax basis that would reduce the amount of tax that the corporate taxpayers (i.e. FIG Corp., a wholly-owned Fortress subsidiary) would otherwise be required to pay in the future. Additionally, the further acquisition of Fortress Operating Group units from the Principals also may result in increases in tax deductions and tax basis that would reduce the amount of tax that the corporate taxpayers would otherwise be required to pay in the future.

The corporate taxpayers entered into a tax receivable agreement with each of the Principals that provides for the payment to an exchanging or selling Principal of 85% of the amount of cash savings, if any, in U.S. federal, state, local and foreign income tax that the corporate taxpayers actually realize (or are deemed to realize in the case of an early termination payment by the corporate taxpayers or a change of control, as defined) as a result of these increases in tax basis. Such payments are expected to occur over approximately the next 15 years. Although Fortress is not aware of any issue that would cause the IRS to challenge a tax basis increase, the Principals will not reimburse Fortress for any payments made under this agreement if tax savings claimed are later disallowed by the IRS. In connection with certain equity transactions that occurred prior to Fortress’s initial public offering, and related tax effects, a $393.0 million capital decrease and offsetting liability to the Principals was recorded in Due to Affiliates with respect to the tax receivable agreement. Subsequently, this liability has been adjusted based on transactions of the nature described above and for payments under the agreement. In connection with the tax returns filed for the years ended December 31, 2014, 2013 and 2012, $31.1 million (paid in 2015), $24.1 million (paid in 2014) and $21.8 million (paid in 2013) was paid to the Principals under the tax receivable agreement (including interest), respectively. For the tax year ended December 31, 2015, the payment which is expected to become due pursuant to the tax receivable agreement is approximately $36.6 million subject to the finalization of Fortress’s 2015 tax return. To the extent that a portion, or all, of this liability is not expected to be incurred (due to changes in expected taxable income), the liability is reduced. For the year ending December 31, 2015, an expense of $6.1 million was

156

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)

recognized as a result of an increase in the tax receivable agreement liability mainly attributable to the change to the estimated effective tax rate applicable to future benefits as a result of enacted legislative changes to New York City corporate taxation.

7. RELATED PARTY TRANSACTIONS AND INTERESTS IN CONSOLIDATED SUBSIDIARIES

Affiliate Receivables and Payables

Due from affiliates was comprised of the following:



	Private Equity				Credit				Liquid
			Permanent		Hedge		PE		Hedge		Logan
December 31, 2015	Funds		Capital Vehicles		Funds		Funds		Funds		Circle		Other (B)		Total
Management fees and incentive income (A)	$	41,706	$	49,578	$	55,864	$	20,540	$	5,880	452		$	—	$	174,020
Expense reimbursements (A)	35,982		11,052		13,250		16,006		1,867		129		—		78,286
Dividends and distributions	—		270		—		—		—		—		—		270
Other	—		2,383		—		—		—		—		18,852		21,235
Total	$	77,688	$	63,283	$	69,114	$	36,546	$	7,747	$	581	$	18,852	$	273,811



	Private Equity				Credit				Liquid
			Permanent		Hedge		PE		Hedge		Logan
December 31, 2014	Funds		Capital Vehicles		Funds		Funds		Funds		Circle		Other (B)		Total
Management fees and incentive income (A)	$	35,970	$	65,043	$	96,996	$	18,393	$	15,634	$	1,089	$	—	$	233,125
Expense reimbursements (A)	37,447		7,237		10,533		12,880		14,014		164		—		82,275
Dividends and distributions	—		295		—		—		—		—		—		295
Other	—		1,346		—		—		—		—		9,534		10,880
Total	$	73,417	$	73,921	$	107,529	$	31,273	$	29,648	$	1,253	$	9,534	$	326,575


(A)	Net of allowances for uncollectible management fees and expense reimbursements of $12.2 million and $6.8 million at December 31, 2015, respectively, and of $12.2 million and $6.6 million as of December 31, 2014, respectively. Allowances are recorded as General and Administrative expenses.


(B)	Other includes amounts primarily due from the principals and advances to senior employees (who are not officers).

As of December 31, 2015, amounts due from Fortress Funds recorded in Due from Affiliates included $38.6 million of past due management fees and $11.0 million of private equity general and administrative expenses advanced on behalf of a certain Fortress Fund. Although such fund is currently experiencing a liquidity issue, the past due amounts represent less than 5% of such fund's NAV and Fortress believes these fees and reimbursement expenses will ultimately be collected.

As of December 31, 2015, Fortress also had past due amounts recorded in Due from Affiliates of $12.2 million in management fees and $6.8 million in private equity general and administrative expenses due from another Fortress Fund which Fortress has fully reserved.

Due to affiliates was comprised of the following:



	December 31, 2015		December 31, 2014
Principals - tax receivable agreement - Note 6	$	264,625	$	289,324
Principals - Principal Performance Payments - Note 8	42,234		30,659
Distributions payable on Fortress Operating Group units - Note 9	7,739		—
Other	4,360		11,411
General partner liability - Note 10	46,260		44,030
Total	$	365,218	$	375,424

157

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)

Other Related Party Transactions

For the years ended December 31, 2015, 2014 and 2013, Other Revenues included $5.5 million, $2.5 million and $1.7 million, respectively, of revenues from affiliates, primarily interest and dividends.

Fortress has entered into cost sharing arrangements with certain Fortress Funds, including market data services and subleases of certain of its office space. Fortress pays these costs directly and is reimbursed by the related Fortress Funds.

Certain Portfolio Companies and Fortress Funds are co-owned by, have merged with, and/or have engaged in transactions (including loans) with, other Portfolio Companies and Fortress Funds. Generally, co-ownership arrangements are entered into due to transaction size limitations in individual funds and transactions between Portfolio Companies take advantage of relevant expertise possessed by these entities. In some instances, Portfolio Companies have entered into contracts with other Portfolio Companies or with certain of Fortress’s equity method investees to provide services to, or receive services from, these entities, including asset management, consulting, loan servicing and others. These contracts were entered into because the entity providing the service possessed relevant expertise.

From time to time, Fortress may advance amounts on behalf of affiliates for limited periods. In such cases it generally charges interest to these affiliates. In 2015, 2014 and 2013, Fortress waived $1.6 million, $1.5 million and $1.8 million, respectively, of interest owed from its private equity funds related to management fees paid in arrears. One of Fortress’s consolidated subsidiaries (not a Fortress Fund) acts as the loan origination platform for certain Fortress Funds. In this respect, it holds commercial lending licenses in various states and received fees for its loan origination duties of less than $0.1 million during 2015 and 2014, and $0.1 million for 2013.

The principals and certain executive officers of Fortress may also serve as directors and/or officers of each of the publicly traded permanent capital vehicles and of certain Portfolio Companies and may have investments in these entities as well as in other Fortress Funds.

From time to time, employees of Fortress mutually agree with Fortress to terminate their employment in order to accept employment opportunities at the Fortress Funds, Portfolio Companies, or other affiliates. To the extent these former employees had been granted RSUs by Fortress, they are generally permitted to continue vesting in these RSUs pursuant to their original vesting terms as long as they remain employed by an affiliate.

From time to time, Fortress makes advances to senior employees (who are not officers). These advances may be due on a certain date, at termination or upon the maturity of a Fortress Fund (generally when the advances are to finance employee fund investments).

Outstanding advances (including principal and accrued interest) can be summarized as follows:



	December 31,
	2015	2014
Amount outstanding	$12.6 million	$4.7 million
Range of interest rates	LIBOR +4% to LIBOR +5%	LIBOR +4% to LIBOR + 4.25%

During 2015, Fortress advanced $7.0 million to four of its senior employees who are not officers. These advances bear interest ranging from LIBOR +4.0% to LIBOR +5.0%. All principal and interest is due and payable no later than February 2019. In addition, three senior employee repaid advances aggregating $0.2 million. Subsequent to December 31, 2015, Fortress advanced $2.0 million to a senior employee (who is not an officer).

In connection with its initial public offering, Fortress entered into a tax receivable agreement with the Principals, as described in Note 6, and the Principals entered into a forfeiture agreement with each other, as described in Note 8. The Principals, employees, directors and Fortress Funds have and continue to make investments in Fortress Funds and Portfolio Companies.

The Principals have guaranteed payment on a several basis to certain Fortress private equity funds and credit PE funds of any contingent repayment (clawback) obligation with respect to such private equity fund or credit PE fund incentive income in the event that Fortress fails to fulfill its clawback obligation, if any, with respect to such fund.

As a result of the repeal of the exemption from registration under the Investment Advisers Act of 1940 for family offices, Fortress hired the personnel of the Principals’ family offices and entered into investment management agreements with the family offices.

158

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)

Pursuant to these agreements, these individuals work solely on the Principals’ personal financial matters, and the Principals reimburse Fortress for the expense attributable to them. The total amount of such expenses was $5.4 million, $3.5 million and $3.1 million in 2015, 2014 and 2013, respectively.

Certain Fortress subsidiaries may, from time to time, be required to pay taxes to various tax jurisdictions on behalf of its members, which include the Principals and other senior employees. These taxes are subject to reimbursement from the members and are collected periodically. The amounts subject to reimbursement aggregate $3.2 million, $1.1 million and less than $0.1 million in 2015, 2014 and 2013, respectively.

Two of the Principals leased or indirectly owned aircraft that Fortress chartered from a third-party aircraft operator for business purposes in the course of operations. Fortress and/or the funds, depending on the purposes of the trip, paid market rates for the charters. With respect to one of the Principals, these amounts totaled $2.6 million, $2.2 million and $1.8 million in 2015, 2014 and 2013, respectively. With respect to the other Principal, these amounts totaled $0.6 million, $0.6 million and $0.4 million in 2015, 2014 and 2013, respectively. The operators remitted a portion of these amounts to the Principals.

In addition to the other transactions discussed above, the Principals receive limited benefits from Fortress in addition to their compensation, including the personal use of certain company assets and personnel for which they reimburse Fortress. The amounts subject to reimbursement aggregated $0.0 million, $0.4 million and $0.0 million in 2015, 2014 and 2013, respectively.

In February 2016, Fortress entered into a sale agreement with Graticule for the sale of certain software and technology related assets for $1.7 million with $1.1 million received by Fortress at closing and an additional $0.6 million to be received in February 2017. Fortress may also receive an additional $0.6 million in February 2017, subject to certain conditions.

Redeemable Non-Controlling Interests

The following table represents the activity in Redeemable Non-controlling Interests:



	Year Ended
	December 31, 2015			December 31, 2014
Beginning balance	$	1,717		$	—
Capital contributions (distributions)	(1,711		)	56,771
Consolidation of Redeemable Non-Controlling interest	—			2,179
Redeemable Non-controlling Interests in income (loss) of consolidated subsidiaries	(6		)	(709		)
Deconsolidation of Redeemable Non-Controlling interests in income (loss)	—			(56,524		)
	$	—		$	1,717

Principals’ and Others’ Interests in Consolidated Subsidiaries

These amounts relate to equity interests in Fortress’s consolidated, but not wholly owned, subsidiaries, which are held by the Principals, employees, and others.

This balance sheet caption was comprised of the following:



	December 31,
	2015		2014
Fortress Operating Group units held by the Principals and a former senior employee	$	307,539	$	556,720
Employee interests in majority owned and controlled fund advisor and general partner entities	61,833		80,333
Other	1,747		2,303
Total	$	371,119	$	639,356

159

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)

The Fortress Operating Group portion of these interests is computed as follows:



	December 31,
	2015			2014
Fortress Operating Group equity	$	764,429		$	1,152,297
Less: Others' interests in equity of consolidated subsidiaries	(63,580		)	(82,636		)
Total Fortress shareholders' equity in Fortress Operating Group	$	700,849		$	1,069,661
Fortress Operating Group units outstanding (A)	169,514,478			226,331,513
Class A shares outstanding	216,790,409			208,535,157
Total	386,304,887			434,866,670
Fortress Operating Group units as a percent of total (B)	43.9		%	52.0		%
Equity of Fortress Operating Group units held by the Principals and a former senior employee	$	307,539		$	556,720


(A)	Held by the Principals and a former senior employee; exclusive of Class A shares.

(B)

As a result, the Registrant owned 56.1% and 48.0% of Fortress Operating Group as of December 31, 2015 and 2014, respectively. In November 2015, Fortress purchased from a principal 56.8 million Fortress Operating Group units and corresponding Class B shares at $4.50 per share, or an aggregate purchase price of $255.7 million. All of the Fortress Operating Group units and corresponding Class B shares were canceled and ceased to be outstanding.

This statement of operations caption was comprised of shares of consolidated net income (loss) related to the following:



	Year Ended December 31,
	2015			2014		2013
Fortress Operating Group units held by the Principals and a former senior employee	$	102,507		$	135,029	$	276,683
Employee interests in majority owned and controlled fund advisor and general partner entities	843			4,657		6,456
Other	(221		)	270		5
Total	$	103,129		$	139,956	$	283,144

The Fortress Operating Group portion of these interests is computed as follows:



	Year Ended December 31,
	2015			2014			2013
Fortress Operating Group net income (loss)	$	219,209		$	263,030		$	545,623
Adjust:
Others' interests in net (income) loss of consolidated subsidiaries	(622		)	(4,927		)	(6,461		)
Redeemable Non-controlling interests in (income) loss of consolidated subsidiaries	6			709			—
Total Fortress shareholders' net income (loss) in Fortress Operating Group	$	218,593		$	258,812		$	539,162
Fortress Operating Group as a percent of total (A)	46.9		%	52.2		%	51.3		%
Fortress Operating Group net income (loss) attributable to the Principals and a former senior employee	$	102,507		$	135,029		$	276,683


(A)	Represents the weighted average percentage of total Fortress shareholders' net income (loss) in Fortress Operating Group attributable to the Principals and a former senior employee. In November 2015, Fortress purchased 56.8 million Operating Group units and corresponding Class B shares at $4.50 per share, or an aggregate purchase price of $255.7 million.

160

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)

The following discloses the effects of changes in Fortress’s ownership interest in Fortress Operating Group on Fortress’s equity:



	Year Ended December 31,
	2015		2014			2013
Net Income attributable to Class A shareholders	$	78,492	$	100,966		$	200,447
Transfers (to) from the Principals' and Others' Interests:
Increase in Fortress’s shareholders’ equity for the conversion of Fortress Operating Group units by the Principals and a former senior employee	—		—			10,143
Increase in Fortress’s shareholders’ equity for the purchase of Fortress Operating Group units from one Principal	63,850		—			—
Increase in Fortress’s shareholders’ equity for the delivery of Class A shares primarily in connection with vested RSUs and RPUs	9,595		5,835			14,005
Increase in Fortress's shareholders' equity for the public offering of Class A shares and repurchase of Class B shares and FOGUs	—		53,510			—
Decrease in Fortress's shareholders' equity for the repurchase and cancellation of Class A shares and FOGUs	—		(101,156		)	—
Change from net income attributable to Fortress and transfers (to) from Principals’ and Others' Interests	$	151,937	$	59,155		$	224,595

8. EQUITY-BASED AND OTHER COMPENSATION

Fortress’s total compensation and benefits expense, including Principal Performance Payments (described below), is comprised of the following:



	Year Ended December 31,
	2015		2014		2013
Equity-based compensation, per below	$	38,407	$	38,157	$	39,266
Profit-sharing expense, per below	203,759		269,162		263,436
Discretionary bonuses	239,153		239,561		220,114
Other payroll, taxes and benefits	262,543		248,481		218,945
	$	743,862	$	795,361	$	741,761

161

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)

Equity-Based Compensation

Fortress currently has several categories of equity-based compensation which are accounted for as described in the table below. A total of 181,593,848 Class A shares have been authorized for issuance under Fortress’s equity-based compensation plan as of December 31, 2015. RSUs are Class A restricted share units which entitle the holder to receive Class A shares on various future dates if the applicable service conditions, if any, are met.



		Service	Entitled to		December 31, 2015
	Type of	Conditions	Dividends		Shares/Units
Granted To	Award	(A)	(B)	Accounting	Outstanding
Employees	RSUs	Yes	Yes	Fair value at grant date expensed over service period.	10,535,667
	RSUs	Yes	No	Fair value at grant date discounted for the non-entitlement to dividends, expensed over service period.	10,391,502
Directors	Restricted Shares	Yes	Yes	Fair value at grant date expensed over service period.	729,348
Non- Employees (employees of affiliates and former employees)	RSUs	Yes	No	Fair value at grant date discounted for the non-entitlement to dividends, expensed over service period. Subsequent changes in fair value, through the vesting date, expensed over remaining service period with a cumulative catch-up adjustment in the period of change.	322,278

(A)

Employee awards not entitled to dividends generally vest over 3 years, 50% each in years two and three. Employee awards that are entitled to dividends generally vest over 6 years with 33 1/3% vesting on the fourth, fifth and sixth anniversaries. Vesting of awards may be accelerated if an employee is terminated without cause, or in the event of death or disability, or a change in control of Fortress.


(B)	Vested Class A shares are delivered to employee grant recipients within six months after vesting or, in certain circumstances, on an agreed schedule. Director restricted shares are delivered effective on the grant date. Certain awards entitle the recipient to receive dividend equivalent payments prior to such delivery dates or between vesting and delivery.

The aggregate fair value of each of the RSU grants which are subject to service conditions is reduced by an estimated forfeiture factor (that is, the estimated amount of awards which will be forfeited prior to vesting). The estimated forfeiture factor is based upon historic forfeiture and turnover rates within Fortress, adjusted for the expected effects of the grants on turnover, the actual price of Fortress’s shares, the economic environment and other factors in the best judgment of management. The estimated forfeiture factor is reviewed at each reporting date, incorporating updated information on actual forfeiture rates incurred and the remaining vesting period of certain grants. These reviews resulted in changes in estimated forfeiture factors in 2015 which did not materially impact equity based compensation expense. The reviews in 2014 and 2013 resulted in increases in equity-based compensation expense of $2.2 million and $1.2 million, respectively.

The estimated forfeiture factors which Fortress used for the years ended December 31, 2015, 2014 and 2013 were (i) a range of 0% to 38% for non-dividend paying RSUs and (ii) a range of 0% to 26% for dividend paying RSUs.

The risk-free discount rate assumptions used in valuing certain awards were based on the applicable U.S. Treasury rate of like term. The dividend yield assumptions used in valuing certain awards were based on Fortress’s actual dividend rate at the time of the award; the dividend growth rate used with respect to certain awards was based on management’s judgment and expectations.

162

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)

The discount related to RSUs, which do not entitle the recipients to dividend equivalents prior to the vesting of Class A shares, was based on the estimated present value of dividends to be paid during the vesting period, which in turn was based on an estimated initial dividend rate, an estimated dividend growth rate and a risk-free discount rate (based on grant date and term), the weighted average of which is as follows:



	2015		2014		2013
Initial dividend rate	4.30	%	4.00	%	5.00	%
Dividend growth rate	6.25	%	5.00	%	3.64	%
Risk-free discount rate	0.55	%	0.28	%	0.18	%

Each of these elements, particularly the forfeiture factor and the dividend growth rate used in valuing certain awards, are subject to judgment and variability.

When Fortress records equity-based compensation expense it records a corresponding increase in capital. When Fortress delivers Class A shares as a result of the vesting of equity-based compensation, to the extent that it pays withholding taxes in cash (rather than through the sale of employee shares upon delivery) it will record a decrease in capital related to these payments.

The following tables set forth information regarding equity-based compensation activities.



	RSUs								Restricted Shares				RPUs (F)
	Employees				Non-Employees				Issued to Directors				Employees
	Number		Value (A)		Number		Value (A)		Number		Value (A)		Number		Value (A)
Outstanding at December 31, 2012	21,754,544		$	9.44	1,246,406		$	5.51	828,211		$	5.29	10,333,334		$	13.75
2013
Issued	8,950,696		$	5.10	—		—		127,533		$	6.21	—		—
Transfers	—		—		—		—		—		—		—		—
Converted to Class A shares	(10,762,805	)	$	12.52	(1,231,906	)	$	5.53	—		—		(10,333,334	)	$	13.75
Forfeited	(713,969	)	$	3.72	—		—		—		—		—		—
Outstanding at December 31, 2013	19,228,466		$	4.14	14,500		$	3.12	955,744		$	5.41	—		—

2014
Issued	8,415,043		$	7.19	237,498		$	7.18	89,390		$	7.38	—		—
Transfers	(152,313	)	$	5.09	152,313		$	5.64	—		—		—		—
Converted to Class A shares	(5,591,854	)	$	3.81	(7,437	)	$	3.28	—		—		—		—
Forfeited	(1,745,596	)	$	3.87	—		—		—		—		—		—
Outstanding at December 31, 2014	20,153,746		$	5.52	396,874		$	6.51	1,045,134		$	5.58	—		—

2015
Issued	11,925,660		$	6.89	111,540		$	7.61	111,969		$	7.55	—		—
Transfers	—		—		—		—		—		—		—		—
Converted to Class A shares	(7,966,543	)	$	4.59	(186,136	)	$	6.78	(427,755	)	$	6.32	—		—
Forfeited	(3,185,694	)	$	5.51	—		—		—		—		—		—
Outstanding at December 31, 2015 (B)	20,927,169		$	6.66	322,278		$	6.74	729,348		$	5.42	—		—



	Year Ended December 31,
	2015		2014		2013
Expense incurred (B)
Employee RSUs	$	30,571	$	22,925	$	22,869
Non-Employee RSUs	1,369		1,428		1
Principal Performance Payments (C)	6,406		13,307		16,396
Granted Class A Shares (D)	—		497		—
Restricted Shares (E)	61		—		—
Total equity-based compensation expense	$	38,407	$	38,157	$	39,266


(A)	Represents the weighted average grant date estimated fair value per share or unit.

163

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)


(B)	In future periods, Fortress will further recognize compensation expense on its non-vested equity based awards outstanding as of December 31, 2015 of $79.4 million, with a weighted average recognition period of 4.1 years.


(C)	A total of approximately 0.5 million, 0.5 million and 3.2 million RSUs were awarded as Principal Performance Payments based on 2015, 2014 and 2013 results, respectively.


(D)	Represents expense associated with vested Class A shares granted during the year ended December 31, 2014.


(E)	Represents expense associated with restricted shares granted to a director during 2015. These restricted shares will vest over a period of 2 years. Certain restricted shares granted to directors are recorded in General and Administrative Expense ($0.4 million, $0.5 million and $0.6 million for the years ended December 31, 2015, 2014 and 2013, respectively) and therefore are not included above.


(F)	Represents FOG restricted partnership units ("RPUs") granted to a former senior employee. The RPUs vest into full capital interests in newly issued Fortress Operating Group units. One third of the RPUs vested in each of January 2011, January 2012 and January 2013. The RPUs final vesting occurred in January 2013.

Subsequent to December 31, 2015, Fortress granted 2.1 million RSUs to its employees. These RSUs generally vest over a period of three years.

In August 2011, Fortress’s Principals extended their employment for a new five-year term effective January 1, 2012, on substantially similar terms and conditions as their prior employment agreements. Additionally, under a new compensation plan adopted by Fortress, the Principals receive annual payments (“Principal Performance Payments”) based on the performance of the existing AUM (as of December 31, 2011) of Fortress’s flagship hedge funds during a given year and on their success in raising and investing new funds across all businesses and the performance of these new funds during a given fiscal year.

Principal Performance Payments are comprised of a mix of cash and equity-based compensation, with the equity component becoming larger as performance, and the size of the payments, increases. Specifically the plan calls for payments of: (i) 20% of the incentive income earned from existing flagship hedge fund AUM and 20% of the fund management distributable earnings above a threshold for publicly traded permanent capital vehicles existing at January 1, 2012, as well as (ii) either 10% or 20% (based on the level of involvement of the Principal) of the fund management distributable earnings of new AUM in new businesses and 20% of fund management distributable earnings for new flagship hedge fund AUM. Payments of up to 10% of fund management distributable earnings before Principal Performance Payments, in each of the Principals' respective businesses, are made in cash, and payments in excess of this threshold are made in RSUs that will vest in equal increments over three years.

Pursuant to the new employment agreements, each Principal receives annual compensation of $200,000. The Principals' employment agreements contain customary post-employment non-competition and non-solicitation covenants. In order to ensure the Principals' compliance with such covenants, an amount equal to 50% of the after-tax cash portion of any Principal Performance Payments are subject to mandatory investment in Fortress-managed funds, and such invested amounts will serve as collateral against any breach of those covenants.

The expense for Principal Performance Payments was comprised of the following:



	Year Ended December 31, 2015								Year Ended December 31, 2014
	Equity-Based Compensation			Profit Sharing Expense		Total			Equity-Based Compensation		Profit Sharing Expense		Total
Private equity business	$	385		$	19,395	$	19,780		$	—	$	5,588	$	5,588
Credit business	6,076			21,965		28,041			9,577		22,202		31,779
Liquid hedge fund business	(55		)	—		(55		)	3,730		1,591		5,321
Total	$	6,406		$	41,360	$	47,766		$	13,307	$	29,381	$	42,688

In April 2010, in connection with the acquisition of Logan Circle, Fortress created the Logan Circle Comp Plan, as amended. The Logan Circle Comp Plan provides for annual bonuses which may be paid partially in RSUs, as well as for potential Class A share awards to certain employees related to the years 2016 and 2017. These awards are annual performance-based awards and depend on the future performance of Logan Circle in the specific years to which they relate. Furthermore, the amounts of RSUs or shares to be awarded are not fixed until the respective year is completed. As such, these awards are expensed over the related service period. If Logan Circle meets the future performance targets under this plan, the amounts to be awarded could be significant. Through December 31, 2015, no compensation expense was recognized under this plan as the satisfaction of the performance condition and amount of the award were not considered to be probable.

164

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)

Profit Sharing Expense

Recognized profit sharing compensation expense is summarized as follows:



	Year Ended December 31,
	2015		2014		2013
Private equity funds	$	245	$	303	$	2,135
Permanent capital vehicles (A)	5,455		13,221		10,690
Credit hedge funds	35,802		59,819		95,229
Credit PE funds	119,668		137,091		68,883
Liquid hedge funds	1,229		29,347		51,886
Principal Performance Payments (B)	41,360		29,381		34,613
Total	$	203,759	$	269,162	$	263,436


(A)	Includes rights in options held in the publicly traded permanent capital vehicles (tandem options) that are granted to certain Fortress employees. The fair value and changes thereto are recorded as profit sharing compensation expense.


(B)	Relates to all applicable segments.

401(K) Plan

Fortress has established a tax qualified retirement plan (the “401(K) Plan”) that provides employees with an opportunity to save for retirement on a tax advantaged basis. Employees participate in the 401(K) Plan on their first day of employment and are able to defer compensation up to the limits established by the Internal Revenue Service. Fortress matches a portion of the employees’ contributions up to a maximum amount. Fortress expects to contribute approximately $5.0 million to the 401(K) Plan in 2016 related to employee contributions made in 2015. Similarly, Fortress contributed $4.8 million and $4.2 million related to employee contributions in 2014 and 2013, respectively.

9. EARNINGS PER SHARE AND DISTRIBUTIONS

Fortress's potentially dilutive equity instruments fall primarily into two general categories: (i) instruments that Fortress has issued as part of its compensation plan, and (ii) ownership interests in Fortress's subsidiary, Fortress Operating Group, that are owned by the Principals (and a former senior employee) and are convertible into Class A shares. Based on the rules for calculating earnings per share, there are two general ways to measure dilution for a given instrument: (a) calculate the net number of shares that would be issued assuming any related proceeds are used to buy back outstanding shares (the treasury stock method), or (b) assume the gross number of shares are issued and calculate any related effects on net income available for shareholders (the if-converted and two-class methods). Fortress has applied these methods as prescribed by GAAP to each of its outstanding equity instruments as shown below.

Substantially all of Fortress's business is conducted at the Fortress Operating Group (“FOG”) level and FOG’s net income (loss) is allocated pro rata between the Fortress Operating Group units held by the Registrant, on the one hand, and the Principals and a former senior employee, on the other hand. The FOG income allocated to the Principals and a former senior employee is not subject to corporate income tax. A substantial portion of the Registrant’s income is allocated to FIG Corp. and is subject to U.S federal and state income taxation (taxed at prevailing rates), while the remainder of the Registrant’s portion of FOG income is allocated directly to its shareholders and is not subject to a corporate level of taxation.

The primary difference between basic and diluted earnings per share (“EPS”), if any, is income tax related. If the Principals and a former senior employee converted all of their Fortress Operating Group units into Class A shares, their portion of FOG’s income would become subject to corporate level taxation. Certain permanent differences in the Registrant’s tax calculation are not based on FIG Corp.’s ownership percentage of FOG. Thus, the effective tax rate changes when more income or loss is allocated to FIG Corp. This change in the effective tax rate results in incremental per share income or loss in the diluted EPS calculation, depending on whether the Registrant has income tax expense or benefit for the period. The comparison of the Registrant’s effective tax rate and the if-converted tax rate determines the dilutive or anti-dilutive impact of the Fortress Operating Group units held by the Principals and a former senior employee.

165

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)

The computations of basic and diluted net income (loss) per Class A share are set forth below:



	Year Ended December 31, 2015
	Basic			Diluted
Weighted average shares outstanding
Class A shares outstanding	212,464,539			212,464,539
Fully vested restricted Class A share units with dividend equivalent rights	3,272,595			3,272,595
Restricted Class A shares	766,420			766,420
Fortress Operating Group units exchangeable into Class A shares (1)	—			220,416,315
Class A restricted share units granted to employees (not eligible for dividend and dividend equivalent payments) (3)	—			5,766,905
Total weighted average shares outstanding	216,503,554			442,686,774
Basic and diluted net income per Class A share
Net income attributable to Class A shareholders	$	78,492		$	78,492
Dividend equivalents declared on, and undistributed earnings allocated to, non-vested restricted Class A shares and restricted Class A share units (2)	(3,415		)	(3,415		)
Add back Principals’ and others’ interests in income of Fortress Operating Group, net of assumed income taxes at enacted rates, attributable to Fortress Operating Group units exchangeable into Class A shares (1)	—			49,545
Net income available to Class A shareholders	$	75,077		$	124,622
Weighted average shares outstanding	216,503,554			442,686,774
Basic and diluted net income per Class A share	$	0.35		$	0.28



	Year Ended December 31, 2014
	Basic			Diluted
Weighted average shares outstanding
Class A shares outstanding	207,907,352			207,907,352
Fully vested restricted Class A share units with dividend equivalent rights	1,379,649			1,379,649
Restricted Class A shares	1,016,240			1,016,240
Fortress Operating Group units exchangeable into Class A shares (1)	—			231,162,793
Class A restricted shares and Class A restricted share units granted to employees and directors (eligible for dividend and dividend equivalent payments) (2)	—			4,670,736
Class A restricted share units granted to employees (not eligible for dividend and dividend equivalent payments) (3)	—			9,017,366
Total weighted average shares outstanding	210,303,241			455,154,136
Basic and diluted net income per Class A share
Net income attributable to Class A shareholders	$	100,966		$	100,966
Dividend equivalents declared on, and undistributed earnings allocated to, non-vested restricted Class A shares and restricted Class A share units (2)	(1,296		)	(1,296		)
Add back Principals' and others' interests in income of Fortress Operating Group, net of assumed income taxes at enacted rates, attributable to Fortress Operating Group units exchangeable into Class A shares (1)	—			97,751
Net income available to Class A shareholders	$	99,670		$	197,421
Weighted average shares outstanding	210,303,241			455,154,136
Basic and diluted net income per Class A share	$	0.47		$	0.43

166

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)



	Year Ended December 31, 2013
	Basic			Diluted
Weighted average shares outstanding
Class A shares outstanding	233,117,423			233,117,423
Fully vested restricted Class A share units with dividend equivalent rights	2,207,612			2,207,612
Restricted Class A shares	921,261			921,261
Fortress Operating Group units and fully vested RPUs exchangeable into Class A shares (1)	—			251,969,075
Class A restricted shares and Class A restricted share units granted to employees and directors (eligible for dividend and dividend equivalent payments) (2)	—			2,318,202
Class A restricted share units granted to employees (not eligible for dividend and dividend equivalent payments) (3)	—			10,097,850
Total weighted average shares outstanding	236,246,296			500,631,423
Basic and diluted net income per Class A share
Net income attributable to Class A shareholders	$	200,447		$	200,447
Dividend equivalents declared on, and undistributed earnings allocated to, non-vested restricted Class A shares and restricted Class A share units (2)	(3,365		)	(3,365		)
Add back Principals’ and others’ interests in loss of Fortress Operating Group, net of assumed income taxes at enacted rates, attributable to Fortress Operating Group units and fully vested RPUs exchangeable into Class A shares (1)	—			196,272
Net income available to Class A shareholders	$	197,082		$	393,354
Weighted average shares outstanding	236,246,296			500,631,423
Basic and diluted net income per Class A share	$	0.83		$	0.79

(1)

The Fortress Operating Group units and fully vested RPUs not held by Fortress (that is, those held by the Principals and a former senior employee) are exchangeable into Class A shares on a one-to-one basis (fully vested RPUs would first have to be exchanged for Fortress Operating Group units and Class B shares). These units and fully vested RPUs are not included in the computation of basic earnings per share. These units and fully vested RPUs enter into the computation of diluted net income (loss) per Class A share when the effect is dilutive using the if-converted method, which includes the income tax effects of nondiscretionary adjustments to the net income (loss) attributable to Class A shareholders from assumed conversion of these units and fully vested RPUs. To the extent charges, particularly tax related charges, are incurred by the Registrant (i.e. not at the Fortress Operating Group level), the effect may be anti-dilutive. The final vesting of the RPUs occurred on January 1, 2013.

(2)

Restricted Class A shares granted to directors and certain restricted Class A share units granted to employees are eligible to receive dividend or dividend equivalent payments when dividends are declared and paid on Fortress’s Class A shares and therefore participate fully in the results of Fortress’s operations from the date they are granted. They are considered in the computation of both basic and diluted earnings per Class A share using the two-class method for participating securities, except during periods of net losses.

(3)

Certain restricted Class A share units granted to employees are not entitled to dividend or dividend equivalent payments until they are vested and are therefore non-participating securities. These units are not included in the computation of basic earnings per share. They are included in the computation of diluted earnings per share when the effect is dilutive using the treasury stock method. The effect of the units on the calculation is generally anti-dilutive during periods of net losses. The weighted average restricted Class A share units which are not entitled to receive dividend or dividend equivalent payments outstanding were:



Period		Share Units
Year Ended December 31, 2015		12,139,050

Year Ended December 31, 2014		13,310,978

Year Ended December 31, 2013		15,321,401

The Class B shares have no net income (loss) per share as they do not participate in Fortress’s earnings (losses) or distributions. The Class B shares have no dividend or liquidation rights. Each Class B share, along with one Fortress Operating Group unit, can be exchanged for one Class A share, subject to certain limitations. The Class B shares have voting rights on a pari passu basis with the Class A shares.

A former senior employee exchanged an aggregate of 10,333,334 Fortress Operating Group units and Class B shares for an equal number of Class A shares in 2013.

167

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)

Subsequent to December 31, 2015, in connection with the delivery of vested RSUs, Fortress paid $6.5 million of statutory withholding tax on behalf of employees and, therefore, issued only 2.1 million Class A shares in satisfaction of 3.8 million RSUs originally granted. Additionally, Fortress issued 1.6 million and 0.6 million Class A shares to a principal and former principal, respectively, in connection with vested dividend paying RSUs.

In 2014, Fortress paid $3.6 million of statutory withholding tax on behalf of employees and, therefore, issued only 0.5 million Class A shares in satisfaction of 1.1 million RSUs originally granted. These payments are treated as a financing activity on the statements of cash flows since it had the same accounting effect as if Class A shares were repurchased.

Fortress’s dividend paying shares and units were as follows:



	Weighted Average
	Year Ended December 31,			As of December 31,
	2015	2014	2013	2015	2014
Class A shares	212,464,539	207,907,352	233,117,423	216,061,061	207,490,023
Restricted Class A shares (directors)	766,420	1,016,240	921,261	729,348	1,045,134
Restricted Class A share units (employees) (A)	3,272,595	1,379,649	2,207,612	1,360,960	194,287
Restricted Class A share units (employees) (B)	10,023,561	7,017,047	4,883,186	9,174,707	7,002,003
Fortress Operating Group units (Principals and a former senior employee)	220,416,315	231,162,793	249,534,372	169,514,478	226,331,513
Fortress Operating Group RPUs (a former senior employee)	—	—	2,434,703	—	—
Total	446,943,430	448,483,081	493,098,557	396,840,554	442,062,960


(A)	Represents vested restricted Class A share units which are entitled to dividend equivalent payments.


(B)	Represents unvested restricted Class A share units which are entitled to dividend equivalent payments.

In November 2015, Fortress purchased from a principal 56.8 million Fortress Operating Group units and corresponding Class B shares at $4.50 per share, or an aggregate purchase price of $255.7 million. All of the Fortress Operating Group units and corresponding Class B shares were canceled and ceased to be outstanding.

In March 2014, Fortress issued and sold 23,202,859 Class A shares for $186.6 million. Fortress used all of the proceeds from the sale of the Class A shares to purchase from the Principals an equivalent number of outstanding Fortress Operating Group units and an equal number of Class B shares.

On February 13, 2014, Fortress entered into a purchase agreement with Nomura Investment Managers U.S.A. ("Nomura") to acquire 60,568,275 Class A shares for $363.4 million. All of the purchased Class A shares (and underlying Fortress Operating Group units) were canceled and ceased to be outstanding. As part of the purchase agreement, Fortress agreed for each year, until the third anniversary of the date of the agreement, to engage Nomura and its affiliates to provide certain financial advisory and financing services and/or pay Nomura certain annual sums in lieu thereof equal to the difference, if any, between (i) $12.0 million less (ii) all fees earned or received by Nomura for the services provided to Fortress and its affiliates during each year.

In connection with the agreement to engage Nomura and its affiliates as described above, Fortress recorded an estimated liability, as of the date of the agreement (included in Other liabilities on the consolidated balance sheets) of approximately $30.0 million, which has been recorded as a reduction to equity as part of the repurchase of Class A shares. During 2015, Fortress paid $9.7 million to Nomura related to the estimated liability pursuant to the terms of the purchase agreement.

During 2013, two of the Principals contributed a combined total of 1,859,283 Class A shares to charitable organizations.

168

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)

Dividends and distributions during the years ended December 31, 2015 are summarized as follows:



			Declared in Current Year
	Declared in Prior Year, Paid Current Year		Declared and Paid		Declared but not yet Paid		Total
2015:
Dividends on Class A shares	$	—	$	131,019	$	—	$	131,019
Dividend equivalents on restricted Class A share units (A)	—		9,754		133		9,887
Distributions to Fortress Operating Group unit holders (Principals and a former senior employee) (B)	—		174,275		7,739		182,014
Total distributions	$	—	$	315,048	$	7,872	$	322,920

2014:
Dividends on Class A shares	$	—	$	101,864	$	—	$	101,864
Dividend equivalents on restricted Class A share units (A)	—		3,996		—		3,996
Distributions to Fortress Operating Group unit holders (Principals and a former senior employee) (B)	5,160		136,748		—		136,748
Total distributions	$	5,160	$	242,608	$	—	$	242,608

2013:
Dividends on Class A shares	$	—	$	56,274	$	—	$	56,274
Dividend equivalents on restricted Class A share units (A)	—		1,652		—		1,652
Distributions to Fortress Operating Group unit holders (Principals and a former senior employee) (B)	30,725		72,295		5,160		77,455
Distributions to Fortress Operating Group RPU holders (Note 8) (B)	1,272		401		—		401
Total distributions	$	31,997	$	130,622	$	5,160	$	135,782


(A)	A portion of these dividend equivalents, if any, related to RSUs expected to be forfeited, is included as compensation expense in the consolidated statement of operations and is therefore considered an operating cash flow.


(B)	Fortress Operating Group made tax-related distributions to the FOG unit holders (the Principals and a former senior employee) and the RPU holder (a former senior employee).

The base quarterly dividends related to each of the quarters of 2015, all quarters of 2014 and the fourth quarter of 2013, were $0.08 per share. In addition to the base quarterly dividend at $0.08 per Class A share, a special cash dividend of $0.18 per Class A share was declared for the second quarter of 2014 and a special dividend of $0.30 per share was declared for the fourth quarter of 2014. The dividends related to the fourth quarter of 2015, declared on February 24, 2016, will be paid on March 21, 2016 to holders of record of Class A shares on March 16, 2016. The dividends related to each of the first three quarters of 2013 were $0.06 per share.

In February 2016, Fortress announced the commencement of a modified "Dutch auction" self-tender offer to repurchase up to $100.0 million in cash of Class A shares, at a price per share within the range of $4.25 to $4.75, less applicable withholding taxes and without interest. Shareholders whose shares are validly tendered and accepted for payment pursuant to the tender offer will not be eligible to receive future dividends.

169

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)

10. COMMITMENTS AND CONTINGENCIES

Indemnifications – In the normal course of business, Fortress and its subsidiaries enter into operating contracts that contain a variety of representations and warranties and that provide general indemnifications. In addition, subsidiaries of Fortress that act as general partners (or in similar capacities) of Fortress Funds enter into guarantees of certain obligations of such funds in the case of fraud by Fortress employees or under similar circumstances. Fortress’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against Fortress that have not yet occurred. However, based on experience, Fortress expects the risk of material loss to be remote.

General Partner Liability — Certain of Fortress’s consolidated subsidiaries act as the general partner of various Fortress Funds and accordingly have potentially unlimited liability for the obligations of the funds under applicable partnership law principles. In the event that any such fund was to fall into a negative net equity position (Note 3), the full amount of the negative net equity would be recorded on the balance sheet of the general partner entity. Such amount would be recorded on Fortress's balance sheet in consolidation until it is legally resolved. While these entities are limited liability companies and generally have no material assets other than their general partner interests, these entities and Fortress may be subject to litigation in connection with such amounts if fund creditors choose to sue Fortress to seek repayment. See “Litigation” below.

In March 2011, a private equity fund fell into a negative equity position, after considering all of Fortress’s interests in such fund and its reserves related thereto. As described above, the amount of the negative equity was recorded, through earnings (losses) from equity method investees, by the general partner entity and is therefore included in the consolidated financial statements of Fortress. When the fund matures and is liquidated, Fortress will record a gain in the event and to the extent it does not fund this negative equity. The amount of negative equity recorded at December 31, 2015 and 2014 was $46.3 million and $44.0 million, respectively.

Litigation - Fortress is, from time to time, a defendant in legal actions from transactions conducted in the ordinary course of business. Management, after consultation with legal counsel, believes the ultimate liability arising from such actions that existed as of December 31, 2015, individually and in the aggregate, will not materially affect Fortress’s results of operations, liquidity or financial position.

In some cases, Fortress is named as a defendant in legal actions pertaining to one of the Fortress Funds and/or their portfolio companies. In such cases, Fortress is generally indemnified by the fund against potential losses arising from Fortress’s role as investment manager.

Regulatory Matters - In the ordinary course of business, Fortress and its subsidiaries and equity method investees may be subject to regulatory examinations, information gathering requests, inquiries or investigations. Management, after consultation with legal counsel, does not believe these matters will ultimately have a material effect on Fortress.

Private Equity Fund and Credit PE Fund Capital Commitments - Fortress has remaining capital commitments, which aggregated $153.7 million as of December 31, 2015, primarily to certain of the Fortress Funds. These commitments can be drawn by the funds on demand.

Incentive Income Contingent Repayment - Incentive income received from certain Fortress Funds, primarily the private equity funds and credit PE funds, is subject to contingent repayment and is therefore recorded as deferred incentive income, a liability, until all related contingencies have been resolved. The Principals guaranteed the contingent repayments to certain funds under certain conditions and Fortress has indemnified the Principals for any payments to be made under such guarantees. Fortress expects the risk of loss on each of these indemnifications and guarantees to be remote. Fortress’s direct liability for such incentive income contingent repayment is discussed in Notes 2, 3 and 11.

Private Equity Fund Operating Expense Limit - Fortress is contingently liable, under an agreement with the operating subsidiary of its private equity funds, for any expenses of such subsidiary in excess of amounts approved by the private equity funds’ advisory board (comprised of representatives of the funds’ investors). Fortress monitors these expenses and does not expect to make any payments related thereto.

Debt Covenants - Fortress’s debt agreements contain various customary loan covenants (Note 5). Fortress was in compliance with all of its existing credit agreement covenants as of December 31, 2015.

170

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)

Minimum Future Rentals - Fortress is a lessee under operating leases for office space located in a number of locations worldwide.

The following is a summary of major lease terms:



	New York Leases	Other Leases
Lease end date	Various dates through October 2032	Various dates through March 2026
Escalations	Generally, a fixed percentage of the landlord’s annual operating expenses and tax expense.	Generally, a fixed percentage of the landlord’s annual operating expenses and tax expense.
Free rent periods	5 - 12 months	1 - 16.5 months
Leasehold improvement incentives	$12,499	$2,903
Renewal periods	Up to 5 years - some have none	Up to 5 years - some have none

Minimum future rental payments (excluding expense escalations) under these leases as of December 31, 2015 are as follows:



Year Ending December 31,
2016	$	26,549
2017	17,121
2018	24,200
2019	22,749
2020	21,614
Thereafter	265,755
Total	$	377,988

Rent expense, including operating expense escalations, during the years ended December 31, 2015, 2014 and 2013 was $29.6 million, $23.7 million and $23.6 million respectively, and was included in General, Administrative and Other Expense.

In February 2015, Fortress entered into new lease agreements which relate to its primary office space in New York and extends through October 2032.

Fortress sublet a portion of its office space at a loss and recorded lease related charges of $0.5 million and $0.8 million to General, Administrative, and Other expense for the years ended December 31, 2015 and 2013, respectively.

171

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)

11. SEGMENT REPORTING

The amounts not allocated to a segment consist primarily of interest expense, foreign currency translation and interest income. Assets not allocated to a segment consist primarily of cash and net deferred tax assets.

Management assesses Fortress’s segments on a Fortress Operating Group and pre-tax basis and therefore adds back the interests in consolidated subsidiaries related to Fortress Operating Group units (primarily held by the Principals) and income tax expense.

Management assesses the net performance of each segment based on its “distributable earnings” (“DE”) and utilizes “fund management distributable earnings” or “fund management DE” as a supplemental measure of segment performance. Neither distributable earnings or fund management DE is a measure of cash generated by operations which is available for distribution. Rather, they are supplemental measures of operating performance used by management in analyzing its segments and overall results. Neither distributable earnings or fund management DE should be considered as an alternative to cash flow, in accordance with GAAP, as a measure of Fortress’s liquidity, and they are not necessarily indicative of cash available to fund cash needs (including dividends and distributions).

DE is defined by Fortress’s chief operating decision maker ("CODM"), which is its management committee. The CODM receives performance reports on Fortress’s segments on a DE basis pursuant to their requirements for managing Fortress’s business.

“Distributable earnings” for the existing Fortress businesses is equal to net income (loss) attributable to Fortress’s Class A shareholders adjusted as follows:

Incentive Income

(i) a. for Fortress Funds which are private equity funds, the private permanent capital vehicle through IPO in May 2015 and credit PE funds, adding (a) incentive income paid (or declared as a distribution) to Fortress, less an applicable reserve for potential future clawbacks if the likelihood of a clawback is deemed greater than remote by Fortress’s CODM as described below (net of the reversal of any prior such reserves that are no longer deemed necessary), less (b) incentive income recorded in accordance with GAAP,


c.	adding the receipt of cash or proceeds from the sale of shares received (a) as incentive income from the publicly traded permanent capital vehicles and (b) pursuant to the exercise of options in the publicly traded permanent capital vehicles, if any, in excess of their strike price,


d.	adding incentive income received from third parties which is subject to contingent repayment less incentive income from third parties that is no longer subject to contingent repayment,

Other Income


(ii)	with respect to income from certain investments in the Fortress Funds and certain other interests or assets that cannot be readily transferred or redeemed:

b. subtracting gains (or adding losses) on options held in the publicly traded permanent capital vehicles,

c. subtracting unrealized gains (or adding unrealized losses) on derivatives, direct investments in publicly traded portfolio companies and in the publicly traded permanent capital vehicles,

172

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)


(iii)	subtracting management fee income recorded in accordance with GAAP in connection with the receipt of options from the publicly traded permanent capital vehicles, if any,


(iv)	for 2015, subtracting the gain on transfer of Graticule,

Expenses


(v)	adding or subtracting, as necessary, the employee profit sharing portion of incentive income described in (i) above to match the timing of the expense with the revenue,


(vi)	adding back equity-based compensation expense (including options in the publicly traded permanent capital vehicles assigned to employees, RSUs (including the portion of related dividend and distribution equivalents recorded as compensation expense) and restricted shares),


(vii)	adding back the amortization of intangible assets and any impairment of goodwill or intangible assets recorded under GAAP,


(viii)	for 2015, adding back the expense related to the transfer of interest in Graticule,


(ix)	adding the income (or subtracting the loss) allocable to the interests in consolidated subsidiaries attributable to Fortress Operating Group units, and


(x)	adding back income tax benefit or expense and any income or expense recorded in connection with the tax receivable agreement (Note 6).

Fund management DE is equal to distributable earnings excluding investment-related results (specifically, investment income (loss) and interest expense) and is used by management to measure performance of the operating (management) business on a stand-alone basis. Fortress defines its segment operating margin to be equal to fund management DE divided by segment revenues.

Management believes only the incentive income related to realized fund income should be considered available for distribution, subject to a possible reserve, determined on a fund by fund basis, as necessary, for potential future clawbacks deemed to have more than a remote likelihood of occurring by Fortress’s CODM as described below. As such, distributable earnings generally includes incentive income to the extent it relates to paid or declared distributions from Fortress Funds’ investments that have been monetized through sale or financing. This type of incentive income is not recorded as revenue for GAAP purposes, under the revenue recognition method Fortress has selected, until the possibility of a clawback is resolved. This GAAP method is not completely reflective of value created during the period which is available for distribution as it disregards the likelihood that any contingent repayment will in fact occur.

Distributable earnings is limited in its usefulness in measuring earnings because it recognizes as revenue amounts which are subject to contingent repayment, it ignores potentially significant unrealized gains and losses and it does not fully reflect the economic costs to Fortress by ignoring certain equity-based compensation expenses. Fund management DE is further limited due to its exclusion of the performance of Fortress's investments and related financing, which are material.

Management utilizes distributable earnings and fund management DE as well as net income in its analysis of the overall performance of Fortress and notes that the measures are each useful for different purposes.

Total segment assets are equal to total GAAP assets adjusted for:


(i)	any difference between the GAAP carrying amount of equity method investments and their carrying amount for segment reporting purposes, which is generally fair value for publicly traded investments and net asset value for nonpublic investments,


(ii)	employees’ and others’ portions of investments, which are reported gross for GAAP purposes (as assets offset by Principals’ and others’ interests in equity of consolidated subsidiaries) but net for segment reporting purposes,


(iii)	the difference, if any, between the GAAP carrying amount of intangible assets and goodwill and their carrying amount for segment reporting purposes resulting from the distributable earnings adjustments listed above, and


(iv)	at interim periods, the accrued incentive income recorded for distributable earnings purposes in relation to the incentive income reconciling item in (i)(b) above.

173

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)

Distributable Earnings Impairment

For purposes of this discussion, the term “private equity funds” includes hedge fund special investment accounts, which have investment profiles that are generally similar to private equity funds, permanent capital vehicles and credit PE funds.

Pursuant to the definition of Distributable Earnings (“DE”) above, impairment is taken into account in the calculation in two ways: first, in section (i)(a) regarding private equity and credit PE incentive income, and, second, in section (ii)(a) regarding equity method investments in private equity funds and credit PE funds. Pursuant to section (ii)(a), distributable earnings does not include unrealized losses from investments in private equity funds and credit PE funds, unless an impairment is required to be recognized.

Investments in Private Equity Funds and Credit PE Funds

Unrealized changes in the value of investments in private equity funds and credit PE funds are not recorded through distributable earnings, subject to potential impairment. An analysis for potential impairment is performed whenever the reported net asset value (“NAV”) of a fund or the fair market value of the publicly traded permanent capital vehicle attributable to Fortress’s investment is less than its cost basis in such investment. The NAV of a fund is equal to the fair value of its assets less its liabilities. Fortress analyzes these investments for impairment using the “other than temporary” impairment criteria in a manner similar to the one specified for accounting for certain debt and equity securities under GAAP. As a result, a fund investment is considered impaired for DE purposes whenever it is determined by the CODM that Fortress does not have the intent and ability to hold the investment to an anticipated recovery in value, if any, to or above Fortress’s cost basis.

Private Equity and Credit PE Incentive Income

For DE purposes, incentive income is recognized from private equity funds and credit PE funds as it is realized, subject to a reserve for potential clawback if the likelihood of clawback is determined to be greater than remote by the CODM. Incentive income from the private equity funds and Credit PE funds is paid to Fortress as particular investments are realized. However, it is subject to contingent repayment (or clawback) if the fund as a whole does not meet certain performance criteria.

Fortress’s CODM has defined “remote” in this context to mean that management does not believe there is a reasonable likelihood of a clawback and therefore its base case expectations of a fund’s performance do not include a promote clawback. This is an easier threshold to meet than the “other than temporary” threshold used for estimating investment impairment. Management’s base case expectations are generally not greatly impacted by short-term volatility in the value of a fund’s portfolio companies, including the market prices of the shares of publicly traded portfolio companies, unless either (a) the operating performance of the underlying company, or the value of its assets, are expected to be impacted on a long-term basis (long-term being defined in relation to the remaining life of a given fund), or (b) the value has been depressed below a breakeven point (as described below) for a period in excess of 6-9 months (as circumstances and other factors dictate). These criteria reflect the CODM’s belief that short term changes in the values of portfolio companies do not have a material impact on the likelihood of a clawback, absent deterioration in such companies’ operating performance or in the value of their underlying assets.

Fortress conducts an analysis at each quarter end to determine whether a clawback reserve is required. The factors that enter into this analysis include: the amount of intrinsic unrealized gains or losses within each fund, the period of time until expected final realization, the diversification of the fund’s investments, the expected future performance of the fund, the period of time the fund has been in an intrinsic clawback position (i.e. liquidation at NAV would indicate a clawback, if any), and others as determined by management and the CODM. The point at which a liquidation at NAV would indicate no clawback and no additional promote payment is referred to as the breakeven point.

174

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)

Clawback Reserve on Incentive Income for DE Purposes

Fortress had recognized incentive income for DE purposes from certain private equity funds and credit PE funds, which are subject to contingent clawback, as of December 31, 2015:



Fund (A)	Net Intrinsic Clawback (B)		Periods in Intrinsic Clawback	Prior Year End Inception-to-Date Net DE Reserve		Current Year-to-Date Gross DE Reserve (Reversal)		Current Year-to-Date Net DE Reserve (Reversal)		Inception-to-Date Net DE Reserve		Notes
Fund III	$	45,108	32 Quarters	$	45,108	$	—	$	—	$	45,108	(C)
Total	$	45,108		$	45,108	$	—	$	—	$	45,108

(A)

Fortress has recognized incentive income for DE purposes from the following funds, which do not have intrinsic clawback and for which the Fortress CODM has determined no clawback reserve is necessary: Credit Opportunities Fund, Credit Opportunities Fund II, certain FCO Managed Accounts, Real Estate Opportunities Fund, Real Estate Opportunities REOC Fund, Global Opportunities Fund and Japan Opportunity Fund.


(B)	See Note 3.


(C)	The potential clawback on this fund has been fully reserved in prior periods. Subsequent to December 31, 2015, Fortress paid all prior net incentive income distributions received from the fund. Following such payment, no remaining clawback exists for Fund III (Note 3).

Impairment Determination and Embedded Gain/Loss

During the years ended December 31, 2015, 2014 and 2013 Fortress recorded $6.3 million, $2.7 million and $1.1 million, respectively, of impairment on its direct and indirect investments in its funds for segment reporting purposes. During the year ended December 31, 2015, Fortress also recognized an impairment charge of $2.8 million related to its holdings of digital currency (Bitcoin). As of December 31, 2015, Fortress had $4.3 million of unrealized losses on certain investments that have not been recorded as impairment. As of December 31, 2015, Fortress’s share of the net asset value of its direct and indirect investments exceeded its segment cost basis by $484.7 million, representing net unrealized gains.

Embedded Incentive Income

As of December 31, 2015, Fortress had $965.3 million of gross undistributed incentive income, or $898.4 million net of intrinsic clawback (Note 3). In addition, if Fortress had (i) exercised all of its in-the-money publicly traded capital vehicle options (Note 4) and sold all of the resulting shares and (ii) sold all of its publicly traded permanent capital vehicle shares which it received as incentive income, it would have recorded $20.5 million of gross additional distributable earnings, or $18.1 million net of employee interests, based on their respective December 31, 2015 closing price.

Segment Results of Operations

Summary financial data on Fortress’s segments is presented on the following pages, together with a reconciliation to revenues, assets and net income (loss) for Fortress as a whole. Fortress’s investments in, and earnings (losses) from, its equity method investees by segment are presented in Note 4.

175

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)



	Private Equity				Credit
	Funds		Permanent Capital Vehicles		Hedge Funds		PE Funds		Liquid Hedge Funds			Logan Circle			Unallocated				Total
December 31, 2015 and the Year then Ended
Segment revenues
Management fees	$	115,627	$	96,263	$	134,054	$	117,740	$	64,208		$	53,995		$	—			$	581,887
Incentive income	691		105,603		84,588		244,308		912			211			—				436,313
Segment revenues - total	$	116,318	$	201,866	$	218,642	$	362,048	$	65,120		$	54,206		$	—			$	1,018,200

Fund management distributable earnings (loss) before earnings from Affiliated Managers and Principal Performance Payments (B)	$	71,850	$	122,103	$	98,252	$	125,635	$	(19,406	)	$	(1,163	)	$	—			$	397,271

Fund management distributable earnings (loss) before Principal Performance Payments (B)	$	71,850	$	122,103	$	98,252	$	125,635	$	(10,814	)	$	(1,163	)	$	—			$	405,863

Fund management distributable earnings (loss)	$	71,850	$	102,708	$	82,873	$	118,625	$	(10,814	)	$	(1,163	)	$	—			$	364,079

Pre-tax distributable earnings (loss)	$	72,146	$	104,529	$	84,934	$	139,327	$	(3,410	)	$	(2,120	)	$	(4,581	)		$	390,825

Total segment assets	$	709,677	$	121,986	$	118,993	$	277,038	$	169,119		$	51,928		$	852,136		(A)	$	2,300,877

December 31, 2014 and the Year then Ended
Segment revenues
Management fees	$	136,110	$	69,360	$	113,825	$	96,715	$	137,908		$	46,996		$	—			$	600,914
Incentive income	2,854		65,448		121,768		254,461		16,067			106			—				460,704
Segment revenues - total	$	138,964	$	134,808	$	235,593	$	351,176	$	153,975		$	47,102		$	—			$	1,061,618

Fund management distributable earnings (loss) before Principal Performance Payments (B)	$	88,081	$	44,577	$	106,346	$	111,442	$	25,443		$	(6,582	)	$	—			$	369,307

Fund management distributable earnings (loss)	$	88,081	$	38,990	$	87,244	$	108,765	$	23,851		$	(6,582	)	$	—			$	340,349

Pre-tax distributable earnings (loss)	$	183,078	$	40,976	$	85,988	$	121,669	$	22,371		$	(5,267	)	$	(2,757	)		$	446,058

Total segment assets	$	763,115	$	173,627	$	143,428	$	277,907	$	235,409		$	63,413		$	869,859		(A)	$	2,526,758

December 31, 2013 and the Year then Ended
Segment revenues
Management fees	$	134,176	$	61,200	$	101,890	$	95,925	$	110,622		$	35,833		$	—			$	539,646
Incentive income	13,211		18,101		190,846		120,137		150,700			—			—				492,995
Segment revenues - total	$	147,387	$	79,301	$	292,736	$	216,062	$	261,322		$	35,833		$	—			$	1,032,641

Fund management distributable earnings (loss) before Principal Performance Payments (B)	$	95,547	$	32,235	$	139,339	$	57,299	$	125,482		$	(11,819	)	$	—			$	438,083

Fund management distributable earnings (loss)	$	95,547	$	29,834	$	120,863	$	56,112	$	112,934		$	(11,819	)	$	—			$	403,471

Pre-tax distributable earnings (loss)	$	109,089	$	31,319	$	127,450	$	63,766	$	116,488		$	(8,542	)	$	(5,184	)		$	434,386


(A)	As of December 31, 2015, unallocated assets included cash of $334.4 million and net deferred tax assets of $427.1 million. As of December 31, 2014, unallocated assets included cash of $382.2 million and net deferred tax assets of $417.6 million.


(B)	See Note 8. Fund management distributable earnings (loss) is only reduced for the profit sharing component of the Principal Performance Payments.

176

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)

Reconciling items between segment measures and GAAP measures:



	Year Ended December 31,
	2015			2014			2013
Fund management distributable earnings	$	364,079		$	340,349		$	403,471
Investment income	31,026			108,914			36,082
Interest expense	(4,280		)	(3,205		)	(5,167		)
Pre-tax distributable earnings	390,825			446,058			434,386

Adjust incentive income
Incentive income received from private equity funds, the private permanent capital vehicle through IPO in May 2015 vehicle and credit PE funds, subject to contingent repayment	(245,447		)	(255,533		)	(126,479		)
Incentive income received from third parties, subject to contingent repayment	(4,299		)	(652		)	(264		)
Incentive income from private equity funds, the private permanent capital vehicle through IPO in May 2015 and credit PE funds, not subject to contingent repayment	219,032			171,387			107,276
Incentive income from third parties, not subject to contingent repayment	3,524			—			—
Incentive income received related to the exercise of options	(57,999		)	(8,735		)	(1,921		)
Reserve for clawback, gross (see discussion above)	—			(1,999		)	(7,397		)
	(85,189		)	(95,532		)	(28,785		)
Adjust other income
Distributions of earnings from equity method investees*	(34,852		)	(71,810		)	(15,316		)
Earnings (losses) from equity method investees*	(46,255		)	68,452			124,401
Gains (losses) on options in equity method investees	(5,888		)	(29,913		)	25,295
Gains (losses) on other investments	(6,900		)	(14,069		)	14,774
Impairment of investments (see discussion above)	6,301			2,701			1,117
Adjust income from the receipt of options	25,158			6,310			42,516
Gain on transfer of Graticule (see Note 1)	134,400			—			—
	71,964			(38,329		)	192,787
Adjust employee, Principal and director compensation
Adjust employee, Principal and director equity-based compensation expense (including publicly traded permanent capital vehicle options assigned)	(34,260		)	(30,610		)	(45,947		)
Adjust employee portion of incentive income from private equity funds, private permanent capital vehicle through IPO in May 2015 and credit PE funds, accrued prior to the realization of incentive income	1,711			(5,550		)	(790		)
	(32,549		)	(36,160		)	(46,737		)

Adjust for the transfer of interest in Graticule (see Note 1)	(101,000		)	—			—
Adjust amortization of intangible assets and impairment of goodwill and intangible assets	(1,261		)	(81		)	(46		)
Adjust non-controlling interests related to Fortress Operating Group units	(102,507		)	(135,029		)	(276,683		)
Adjust tax receivable agreement liability	(6,141		)	(33,116		)	(8,787		)
Adjust income taxes	(55,650		)	(6,845		)	(65,688		)
Total adjustments	(312,333		)	(345,092		)	(233,939		)
Net Income Attributable to Class A Shareholders	78,492			100,966			200,447
Principals’ and Others’ Interests in Income of Consolidated Subsidiaries	103,129			139,956			283,144
Redeemable non-controlling interests in Income (Loss) of Consolidated Subsidiaries	(6		)	(709		)	—
Net Income (GAAP)	$	181,615		$	240,213		$	483,591


*	This adjustment relates to all of the private equity, private permanent capital vehicle through IPO in May 2015, credit PE Fortress Funds and hedge fund special investment accounts in which Fortress has an investment.

177

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)

Reconciling items between segment measures and GAAP measures:



	December 31,
	2015			2014
Total segment assets	$	2,300,877		$	2,526,758
Adjust equity investments from segment carrying amount	(11,323		)	(37,169		)
Adjust investments gross of employees' and others' portion	9,825			35,632
Adjust intangible assets to cost	(24,098		)	(22,837		)
Total assets (GAAP)	$	2,275,281		$	2,502,384



	December 31,
	2015			2014			2013
Total segment revenues	$	1,018,200		$	1,061,618		$	1,032,641
Adjust management fees	(456		)	1,324			917
Adjust incentive income*	(90,448		)	(96,392		)	(28,785		)
Adjust income from the receipt of options	25,158			6,310			42,516
Adjust other revenues (including expense reimbursements)**	261,402			232,720			217,694
Total revenues (GAAP)	$	1,213,856		$	1,205,580		$	1,264,983


*	Incentive income received from third parties, not subject to contingent repayment of $5.2 million, $0.9 million and $0.0 million during the years ended December 31, 2015, 2014 and 2013 are included in segment measures as part of incentive income, while included in GAAP as part of other revenues.


**	Segment revenues do not include GAAP other revenues, except to the extent they represent management fees or incentive income paid during the current period; such revenues are included elsewhere in the calculation of distributable earnings.

Fortress’s depreciation and amortization expense by segment prior to the allocation of corporate and intra-segment depreciation and amortization expense to the business segments was as follows. Amortization expense, related to intangible assets, is not a component of distributable earnings.




	Private Equity				Credit
Year Ended December 31,	Funds		Permanent Capital Vehicles		Hedge Funds		PE Funds		Liquid Hedge Funds (A)		Logan Circle		Corporate		Total
2015
Depreciation	$	1,619	$	1,570	$	5,383	$	1,531	$	24,705	$	503	$	2,671	$	37,982
Amortization	—		—		930		—		—		331		—		1,261
Total	$	1,619	$	1,570	$	6,313	$	1,531	$	24,705	$	834	$	2,671	$	39,243

2014
Depreciation	$	1,585	$	851	$	5,462	$	1,125	$	7,436	$	334	$	2,955	$	19,748
Amortization	—		—		—		—		—		81		—		81
Total	$	1,585	$	851	$	5,462	$	1,125	$	7,436	$	415	$	2,955	$	19,829

2013
Depreciation	$	1,525	$	606	$	5,557	$	422	$	2,223	$	271	$	3,040	$	13,644
Amortization	—		—		—		—		—		46		—		46
Total	$	1,525	$	606	$	5,557	$	422	$	2,223	$	317	$	3,040	$	13,690


(A)	Liquid hedge funds include an $18.2 million write-off for the impairment of software and technology related assets for the year ended December 31, 2015.

178

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(dollars in tables in thousands, except share data)

12. SUBSEQUENT EVENTS

These financial statements include a discussion of material events, if any, which have occurred subsequent to December 31, 2015 (referred to as "subsequent events") through the issuance of these consolidated financial statements. Events subsequent to that have not been considered in these financial statements.

Subsequent events are described in Notes 1, 3, 4, 5, 7, 8 and 9.

13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

The following is unaudited summary information on Fortress’s quarterly operations.



	Quarter Ended												Year Ended
	March 31			June 30			September 30			December 31			December 31
2015
Total revenues (A)	$	226,689		$	308,488		$	264,019		$	414,660		$	1,213,856
Total expenses	329,039			258,100			223,934			241,805			1,052,878
Total other income (loss)	207,669			(50,608		)	(62,473		)	(18,163		)	76,425
Income (Loss) Before Income Taxes	105,319			(220		)	(22,388		)	154,692			237,403
Income tax benefit (expense)	(18,399		)	5,199			(3,584		)	(39,004		)	(55,788		)
Net Income (Loss)	$	86,920		$	4,979		$	(25,972	)	$	115,688		$	181,615

Principals’ and Others’ Interests in Income (Loss) of Consolidated Subsidiaries	$	52,223		$	1,653		$	(11,727	)	$	60,980		$	103,129
Redeemable Non-controlling Interests in Income (Loss) of Consolidated Subsidiaries	(16		)	10			—			—			(6		)
Net Income (Loss) Attributable to Class A Shareholders	34,713			3,316			(14,245		)	54,708			78,492
	$	86,920		$	4,979		$	(25,972	)	$	115,688		$	181,615
Net income (loss) per Class A share, basic	$	0.15		$	0.01		$	(0.07	)	$	0.24		$	0.35
Net income (loss) per Class A share, diluted (B)	$	0.15		$	0.00		$	(0.07	)	$	0.20		$	0.28
Weighted average number of Class A shares outstanding, basic	215,785,776			216,183,181			216,439,077			217,587,096			216,503,554
Weighted average number of Class A shares outstanding, diluted	221,535,189			449,210,362			216,439,077			425,302,366			442,686,774



	Quarter Ended												Year Ended
	March 31			June 30			September 30			December 31			December 31
2014
Total revenues (A)	$	237,110		$	270,344		$	243,180		$	454,946		$	1,205,580
Total expenses	231,334			216,284			234,475			309,653			991,746
Total other income (loss)	9,319			27,312			10,975			(14,280		)	33,326
Income (Loss) Before Income Taxes	15,095			81,372			19,680			131,013			247,160
Income tax benefit (expense)	(5,994		)	(7,916		)	(3,024		)	9,987			(6,947		)
Net Income	$	9,101		$	73,456		$	16,656		$	141,000		$	240,213

Principals’ and Others’ Interests in Income of Consolidated Subsidiaries	$	6,077		$	42,100		$	12,623		$	79,156		$	139,956
Redeemable Non-controlling Interests in Income (Loss) of Consolidated Subsidiaries	—			157			(2,042		)	1,176			(709		)
Net Income Attributable to Class A Shareholders	3,024			31,199			6,075			60,668			100,966
	$	9,101		$	73,456		$	16,656		$	141,000		$	240,213
Net income per Class A share, basic	$	0.01		$	0.15		$	0.03		$	0.28		$	0.47
Net income per Class A share, diluted (B)	$	0.01		$	0.12		$	0.02		$	0.23		$	0.43
Weighted average number of Class A shares outstanding, basic	216,934,917			207,783,751			208,014,692			208,607,680			210,303,241
Weighted average number of Class A shares outstanding, diluted	229,033,778			444,566,847			220,792,711			449,618,855			455,154,136

(A) Includes incentive income from hedge funds, which is recognized at the end of the fourth quarter as annual performance criteria are achieved, as well as non-clawbackable incentive income, including “tax distributions”, from credit PE funds, as described in Note 3.


(B)	Fortress's diluted income (loss) per share for all periods presented includes the income tax effects to net income (loss) attributable to Class A shareholders from the assumed conversion of Fortress Operating Group Units (see Note 8).

179

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures

Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. The Company’s disclosure controls and procedures are designed to provide reasonable assurance that information is recorded, processed, summarized and reported accurately and on a timely basis. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended, as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States and includes those policies and procedures that:


•	pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;


•	provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and


•	provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2015. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in the 2013 Internal Control-Integrated Framework.

Based on this assessment, management concluded that, as of December 31, 2015, the Company’s internal control over financial reporting was effective.

180

The effectiveness of the Company’s internal control over financial reporting as of December 31, 2015 has been audited by Ernst & Young LLP, the Company’s independent registered public accounting firm, as stated in their report which appears in Item 8 in this Annual Report on Form 10-K.

By: /s/ Randal A. Nardone

Randal A. Nardone

Chief Executive Officer and Director

By: /s/ Daniel N. Bass

Daniel N. Bass

Chief Financial Officer

Item 9B. Other Information.

None.

181

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

The name, age and background of each of our directors nominated for election will be contained under the caption “PROPOSAL NUMBER ONE - ELECTION OF DIRECTORS” in our definitive proxy statement for the 2016 annual meeting of shareholders, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A of the Exchange Act, within 120 days after the fiscal year ended December 31, 2015 (our “2016 Proxy Statement”). The identification of our Audit Committee and our Audit Committee financial experts will be contained in our 2016 Proxy Statement under the caption “CORPORATE GOVERNANCE - Committees of the Board of Directors - The Audit Committee.” Information on compliance with Section 16(a) of the Exchange Act will be contained in our 2016 Proxy Statement under the caption “OWNERSHIP OF THE COMPANY’S SHARES - Section 16(a) Beneficial Ownership Reporting Compliance”. The requisite information pertaining to our executive officers will be contained under the caption "EXECUTIVE OFFICERS" in our 2015 Proxy Statement. All of the foregoing information is incorporated herein by reference.

We have adopted a Code of Business Conduct and Ethics (which is posted on our website at http://www.fortress.com under "Investor Relations - Governance Documents") that applies to all employees, directors and officers, including our chief executive officer, our chief financial officer, our principal accounting officer or controller, or persons performing similar functions, as well as a Code of Ethics for Principal Executive and Senior Financial Officers (which is available in print to any shareholder of the Company upon request) that applies to our Chief Executive Officer, Presidents, Chief Financial Officer, Principal Accounting Officer and Chief Accounting Officer (or persons performing similar functions). We intend to post to our website any amendment to, or waiver from, any provision of such codes of ethics granted to a director, principal executive officer, principal financial officer, principal accounting officer or controller, or person performing similar functions.

Item 11. Executive Compensation.

Information required by this item concerning compensation of our directors and certain named executive officers will be contained in our 2016 Proxy Statement under the captions “DIRECTOR COMPENSATION” and “EXECUTIVE COMPENSATION,” respectively, and the Compensation Committee report will be contained in our 2016 Proxy Statement under the caption "COMPENSATION COMMITTEE REPORT" and is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Information required by this item concerning the number of Fortress shares beneficially owned by beneficial owners of more than five percent, each director, each named executive officer and by all directors and executive officers as a group will be provided in our 2016 Proxy Statement under the caption “OWNERSHIP OF THE COMPANY’S SHARES - Security Ownership of Certain Beneficial Owners and Management,” and is incorporated herein by reference.

Equity Compensation Plan Information

The following table summarizes the total number of outstanding securities in the Fortress Investment Group LLC 2007 Omnibus Equity Compensation (the "Plan"), and the number of securities remaining for future issuance as of December 31, 2015. Initially, 115,000,000 Class A shares were authorized for issuance under the Plan.



			Number of Securities
			Remaining Available for
			Future Issuance Under
	Number of Class A	Number of Class A	Equity Compensation
Plan Category	Restricted Shares	Restricted Share Units (A)	Plans (B)
Equity Compensation Plans
Approved by Security Holders:
Fortress Investment Group LLC 2007 Omnibus Equity Compensation Plan	1,177,392	21,249,447	58,100,769
Not Approved by Security Holders:
None	N/A	N/A	N/A

182


(A)	All restricted share units represented in this table are convertible, subject to vesting and other applicable conditions, into Class A shares for no consideration. No options, warrants or other rights are outstanding.

(B)

In addition, 70,066,240 Class A Restricted Share Units and 31,000,000 Restricted Partnership Units which were previously issued have vested. Beginning in 2008, the Class A shares reserved under the Plan will be increased on the first day of each fiscal year during the Plan's term by the lesser of (x) the excess of (i) 15% of the number of outstanding Class A and Class B shares of the Company on the last day of the immediately preceding fiscal year over (ii) the number of shares reserved and available for issuance under the Plan as of such date or (y) 60,000,000 shares. As a result, 66,593,848 additional Class A shares were reserved for issuance under the Plan as of December 31, 2015. On January 1, 2016, no additional Class A shares were reserved for issuance under the Plan. The number of shares reserved under the Plan is also subject to adjustment in the event of a share split, share dividend, or other change in our capitalization. Generally, employee share units that are forfeited or canceled from awards under the Plan will be available for future awards. The table reflects forfeited share units as available for future issuance.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

Information required by this item relating to certain transactions between Fortress and its affiliates and certain other persons will be contained in our 2016 Proxy Statement under the caption “CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS,” and is incorporated herein by reference.

Information required by this item relating to director independence will be contained in our 2016 Proxy Statement under the caption “PROPOSAL NUMBER ONE - ELECTION OF DIRECTORS - Director Independence,” and is incorporated herein by reference.

Item 14. Principal Accounting Fees and Services.

Information required by this item relating to audit fees, audit-related fees, tax fees and all other fees billed in fiscal year 2015 by Ernst & Young LLP for services rendered to Fortress will be contained in our 2016 Proxy Statement under the caption “PROPOSAL NUMBER TWO - APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM - Audit Fees, Audit Related Fees, Tax Fees and All Other Fees,” and is incorporated herein by reference. In addition, information relating to the pre-approval policies and procedures of the Audit Committee will be contained in our 2016 Proxy Statement under the caption “PROPOSAL NUMBER TWO - APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM - Audit Committee Pre-Approval Policies and Procedures,” and is incorporated herein by reference.

183

PART IV

Item 15. Exhibits, Financial Statement Schedules.

For Item 15(a) and Item 15(c), see “Financial Statements and Supplementary Data.”

Item 15(b) - Exhibits filed with this Annual Report on Form 10-K:



3.1			Certificate of Formation of the Registrant (incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-138514), Exhibit 3.1).

3.2			Certificate of Amendment to Certificate of Formation of the Registrant (incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-138514), Exhibit 3.2).

3.3			Fourth Amended and Restated Limited Liability Company Agreement of the Registrant (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 filed with the SEC on August 10, 2009 (File No. 001-33294), Exhibit 3.3).

4.1			Specimen Certificate evidencing the Registrant’s Class A shares (incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-138514), Exhibit 4.1).

4.2			Form of Shareholders Agreement, by and among the Registrant, Peter Briger, Wesley Edens, Randal Nardone, Robert Kauffman, and Michael Novogratz (incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-138514), Exhibit 4.2).

4.3			Amendment No. 1 to Shareholders Agreement (incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 filed with the SEC on May 1, 2014 (File No. 001-33294), Exhibit 4.3).

10.1			Form of Agreement Among Principals, by and among Peter Briger, Wesley Edens, Randal Nardone, Robert Kauffman, and Michael Novogratz (incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-138514), Exhibit 10.1).

10.2			Amended and Restated Tax Receivable Agreement dated February 1, 2007, by and among FIG Corp., FIG Asset Co. LLC, the entities set forth on the signature pages thereto and each of the parties thereto identified as partners (incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-138514), Exhibit 10.3).

10.3			Certificate of Incorporation of FIG Corp. (incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-138514), Exhibit 10.13).

10.4			By-Laws of FIG Corp. (incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-138514), Exhibit 10.14).

10.5			Certificate of Formation of FIG Asset Co. LLC (incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-138514), Exhibit 10.15).

10.6			Operating Agreement of FIG Asset Co. LLC (incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-138514), Exhibit 10.16).

10.7			Amended and Restated Limited Partnership Agreement of Fortress Operating Entity I LP (incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-138514), Exhibit 10.17).

10.8			First Amendment to the Amended Restated Agreement of Limited Partnership of Fortress Operating Entity I LP (incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC on February 27, 2014 (File No. 001-33294), Exhibit 10.9).

10.9			Second Amendment to the Amended Restated Agreement of Limited Partnership of Fortress Operating Entity I LP (incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC on February 27, 2014 (File No. 001-33294), Exhibit 10.10).

10.10			Amended and Restated Agreement of Limited Partnership of Fortress Operating Entity II LP (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 filed with the SEC on August 2, 2012 (File No. 001-33294), Exhibit 10.9).

184



10.11			First Amendment to Amended and Restated Agreement of Limited Partnership of FOE II (New) LP (formerly known as Fortress Operating Entity II LP) (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 filed with the SEC on August 2, 2012 (File No. 001-33294), Exhibit 10.10).

10.12			Second Amendment to the Amended Restated Agreement of Limited Partnership of FOE II (New) LP (incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC on February 27, 2014 (File No. 001-33294), Exhibit 10.13).

10.13			Third Amendment to the Amended Restated Agreement of Limited Partnership of the FOE II (New) LP (incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC on February 27, 2014 (File No. 001-33294), Exhibit 10.14).

10.14			Amended and Restated Limited Partnership Agreement of Principal Holdings I LP (incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-138514), Exhibit 10.20).

10.15			First Amendment to the Amended and Restated Agreement of Limited Partnership of Principal Holdings I LP (incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC on February 27, 2014 (File No. 001-33294), Exhibit 10.16).

10.16			Second Amendment to the Amended and Restated Agreement of Limited Partnership of Principal Holdings I LP (incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC on February 27, 2014 (File No. 001-33294), Exhibit 10.17).

10.17			Third Amendment to the Amended Restated Agreement of Limited Partnership of Principal Holdings I LP (incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC on February 27, 2014 (File No. 001-33294), Exhibit 10.18).

10.18			Amended and Restated Exchange Agreement among FIG Corp., FIG Asset Co. LLC, Peter Briger, Wesley Edens, Randal Nardone, Robert Kauffman, Michael Novogratz, Adam Levinson, Fortress Operating Entity I LP, and Principal Holdings I LP (incorporated by reference to the Registrant’s Annual Report on Form 10-K filed with the SEC on March 1, 2011 (File No. 001-33294), Exhibit 10.17).

10.19			Joinder to Amended and Restated Exchange Agreement (incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 filed with the SEC on May 1, 2014 (File No. 001-33294), Exhibit 10.20).

10.20			Employment Agreement by and between Daniel Bass and the Registrant (incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-138514), Exhibit 10.24).

10.21			Employment Agreement by and between David Brooks and the Registrant (incorporated by reference to the Registrant’s Annual Report on Form 10-K filed with the SEC on March 28, 2008 (File No. 001-33294), Exhibit 10.25).

10.22			Amended and Restated Fortress Investment Group LLC 2007 Omnibus Equity Incentive Plan (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 filed with the SEC on August 10, 2009 (File No. 001-33294), Exhibit 10.4).

10.23			Form of Indemnification Agreement, by and between Fortress Investment Group LLC and the executive officers and directors of the Registrant (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 filed with the SEC on August 10, 2009 (File No. 001-33294), Exhibit 10.6).

10.24			Principal Compensation Plan, effective as of January 1, 2012 (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 filed with the SEC on August 4, 2011 (File No. 001-33294), Exhibit 10.17).

10.25			Employment, Non-Competition and Non-Solicitation Agreement of Peter L. Briger, Jr., dated August 4, 2011 (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 filed with the SEC on August 4, 2011 (File No. 001-33294), Exhibit 10.18).

10.26			Employment, Non-Competition and Non-Solicitation Agreement of Wesley R. Edens, dated August 4, 2011 (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 filed with the SEC on August 4, 2011 (File No. 001-33294), Exhibit 10.19).

185




10.27			Employment, Non-Competition and Non-Solicitation Agreement of Randal A. Nardone, dated August 4, 2011 (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 filed with the SEC on August 4, 2011 (File No. 001-33294), Exhibit 10.21).

10.28			Employment, Non-Competition and Non-Solicitation Agreement of Michael E. Novogratz, dated August 4, 2011 (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 filed with the SEC on August 4, 2011 (File No. 001-33294), Exhibit 10.22).

10.29			Separation Agreement and Release Agreement dated November 24, 2015, by and between Michael E. Novogratz and FIG LLC.

10.30			Purchase Agreement dated November 24, 2015, by and among Fortress Operating Group Entity I LP, FOE II (New) LP, Principal Holdings I LP, Michael E. Novogratz and the trusts party thereto.

10.31			Credit Agreement, dated as of February 26, 2013, among FIG LLC, a Delaware limited liability company, as borrower, certain subsidiaries and affiliates of the borrower, as guarantors, Bank of America, N.A., individually and as administrative agent and letter of credit issuer, Citibank, N.A., individually and as syndication agent, Barclays Bank Plc, as documentation agent, and the lenders party thereto (incorporated by reference to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 filed with the SEC on February 27, 2013 (File No. 001-33294), Exhibit 10.28).

10.32			First Amendment to Credit Agreement, Consent and Waiver, dated as January 29, 2014 (incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC on February 27, 2014 (File No. 001-33294), Exhibit 10.34).

10.33			Consent and Waiver Agreement, dated as of November 23, 2015, among FIG LLC, certain of its subsidiaries and affiliates, the lenders party thereto and Bank of America, N.A., as administrative agent.

10.34			Credit Agreement, dated as of January 15, 2016, among FIG LLC, as borrower, certain subsidiaries and affiliates of the borrower, as guarantors, Bank of America, N.A., as administrative agent and letter of credit issuer, Citibank, N.A., as syndication agent, Industrial and Commercial Bank of China Ltd, New York Branch, as documentation agent, and the lenders party thereto.

21.1			Subsidiaries of the Registrant.

23.1			Consent of Ernst & Young LLP, independent registered public accounting firm.

31.1			Certification of Chief Executive Officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2			Certification of Chief Financial Officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1			Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2			Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS**			XBRL Instance Document.

101.SCH**			XBRL Taxonomy Extension Schema Document.

101.CAL**			XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF**			XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB**			XBRL Taxonomy Extension Label Linkbase Document.

101.PRE**			XBRL Taxonomy Extension Presentation Linkbase Document.


**	XBRL (Extensible Business Reporting Language) information is filed for purposes of Sections 11 and 12 of the Securities Act of 1934 and Section 18 of the Securities Exchange Act of 1934.

186

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized:



FORTRESS INVESTMENT GROUP LLC

	February 25, 2016

	By:	/s/ Randal A. Nardone
	Randal A. Nardone
	Chief Executive Officer and Director

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



By:	/s/ Daniel N. Bass	By:	/s/ Douglas L. Jacobs
Daniel N. Bass		Douglas L. Jacobs
Chief Financial Officer		Director

February 25, 2016		February 25, 2016

By:	/s/ John A. Konawalik	By:	/s/ David Barry
John A. Konawalik		David Barry
Principal Accounting Officer		Director

February 25, 2016		February 25, 2016

By:	/s/ Wesley R. Edens	By:	/s/ George W. Wellde, Jr.
Wesley R. Edens		George W. Wellde, Jr.
Co-Chairman of the Board		Director

February 25, 2016		February 25, 2016

By:	/s/ Peter L. Briger, Jr.
Peter L. Briger, Jr.
Co-Chairman of the Board

February 25, 2016

By:	/s/ Michael G. Rantz
Michael G. Rantz
Director

February 25, 2016

187

SPECIAL NOTE REGARDING EXHIBITS

In reviewing the agreements included as exhibits to this Annual Report on Form 10-K, please remember they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about the Company or the other parties to the agreements. The agreements contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:


•	should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements provide to be inaccurate;


•	have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;


•	may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and


•	were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made of at any other time. Additional information about the Company may be found elsewhere in this Annual Report on Form 10-K and the Company's other public filings, which are available without charge through the SEC's website at http://www.sec.gov. See "Business - Where Readers Can Find Additional Information."

188

Exhibit Index



3.1			Certificate of Formation of the Registrant (incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-138514), Exhibit 3.1).

3.2			Certificate of Amendment to Certificate of Formation of the Registrant (incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-138514), Exhibit 3.2).

3.3			Fourth Amended and Restated Limited Liability Company Agreement of the Registrant (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 filed with the SEC on August 10, 2009 (File No. 001-33294), Exhibit 3.3).

4.1			Specimen Certificate evidencing the Registrant’s Class A shares (incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-138514), Exhibit 4.1).

4.2			Form of Shareholders Agreement, by and among the Registrant, Peter Briger, Wesley Edens, Randal Nardone, Robert Kauffman, and Michael Novogratz (incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-138514), Exhibit 4.2).

4.3			Amendment No. 1 to Shareholders Agreement (incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 filed with the SEC on May 1, 2014 (File No. 001-33294), Exhibit 4.3).

10.1			Form of Agreement Among Principals, by and among Peter Briger, Wesley Edens, Randal Nardone, Robert Kauffman, and Michael Novogratz (incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-138514), Exhibit 10.1).

10.2			Amended and Restated Tax Receivable Agreement dated February 1, 2007, by and among FIG Corp., FIG Asset Co. LLC, the entities set forth on the signature pages thereto and each of the parties thereto identified as partners (incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-138514), Exhibit 10.3).

10.3			Certificate of Incorporation of FIG Corp. (incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-138514), Exhibit 10.13).

10.4			By-Laws of FIG Corp. (incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-138514), Exhibit 10.14).

10.5			Certificate of Formation of FIG Asset Co. LLC (incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-138514), Exhibit 10.15).

10.6			Operating Agreement of FIG Asset Co. LLC (incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-138514), Exhibit 10.16).

10.7			Amended and Restated Limited Partnership Agreement of Fortress Operating Entity I LP (incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-138514), Exhibit 10.17).

10.8			First Amendment to the Amended Restated Agreement of Limited Partnership of Fortress Operating Entity I LP (incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC on February 27, 2014 (File No. 001-33294), Exhibit 10.9).

10.9			Second Amendment to the Amended Restated Agreement of Limited Partnership of Fortress Operating Entity I LP (incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC on February 27, 2014 (File No. 001-33294), Exhibit 10.10).

10.10			Amended and Restated Agreement of Limited Partnership of Fortress Operating Entity II LP (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 filed with the SEC on August 2, 2012 (File No. 001-33294), Exhibit 10.9).

10.11			First Amendment to Amended and Restated Agreement of Limited Partnership of FOE II (New) LP (formerly known as Fortress Operating Entity II LP) (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 filed with the SEC on August 2, 2012 (File No. 001-33294), Exhibit 10.10).

10.12			Second Amendment to the Amended Restated Agreement of Limited Partnership of FOE II (New) LP (incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC on February 27, 2014 (File No. 001-33294), Exhibit 10.13).

189



10.13			Third Amendment to the Amended Restated Agreement of Limited Partnership of the FOE II (New) LP (incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC on February 27, 2014 (File No. 001-33294), Exhibit 10.14).

10.14			Amended and Restated Limited Partnership Agreement of Principal Holdings I LP (incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-138514), Exhibit 10.20).

10.15			First Amendment to the Amended and Restated Agreement of Limited Partnership of Principal Holdings I LP (incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC on February 27, 2014 (File No. 001-33294), Exhibit 10.16).

10.16			Second Amendment to the Amended and Restated Agreement of Limited Partnership of Principal Holdings I LP (incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC on February 27, 2014 (File No. 001-33294), Exhibit 10.17).

10.17			Third Amendment to the Amended Restated Agreement of Limited Partnership of Principal Holdings I LP (incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC on February 27, 2014 (File No. 001-33294), Exhibit 10.18).

10.18			Amended and Restated Exchange Agreement among FIG Corp., FIG Asset Co. LLC, Peter Briger, Wesley Edens, Randal Nardone, Robert Kauffman, Michael Novogratz, Adam Levinson, Fortress Operating Entity I LP, and Principal Holdings I LP (incorporated by reference to the Registrant’s Annual Report on Form 10-K filed with the SEC on March 1, 2011 (File No. 001-33294), Exhibit 10.17).

10.19			Joinder to Amended and Restated Exchange Agreement (incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 filed with the SEC on May 1, 2014 (File No. 001-33294), Exhibit 10.20).

10.20			Employment Agreement by and between Daniel Bass and the Registrant (incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-138514), Exhibit 10.24).

10.21			Employment Agreement by and between David Brooks and the Registrant (incorporated by reference to the Registrant’s Annual Report on Form 10-K filed with the SEC on March 28, 2008 (File No. 001-33294), Exhibit 10.25).

10.22			Amended and Restated Fortress Investment Group LLC 2007 Omnibus Equity Incentive Plan (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 filed with the SEC on August 10, 2009 (File No. 001-33294), Exhibit 10.4).

10.23			Form of Indemnification Agreement, by and between Fortress Investment Group LLC and the executive officers and directors of the Registrant (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 filed with the SEC on August 10, 2009 (File No. 001-33294), Exhibit 10.6).

10.24			Principal Compensation Plan, effective as of January 1, 2012 (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 filed with the SEC on August 4, 2011 (File No. 001-33294), Exhibit 10.17).

10.25			Employment, Non-Competition and Non-Solicitation Agreement of Peter L. Briger, Jr., dated August 4, 2011 (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 filed with the SEC on August 4, 2011 (File No. 001-33294), Exhibit 10.18).

10.26			Employment, Non-Competition and Non-Solicitation Agreement of Wesley R. Edens, dated August 4, 2011 (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 filed with the SEC on August 4, 2011 (File No. 001-33294), Exhibit 10.19).

10.27			Employment, Non-Competition and Non-Solicitation Agreement of Randal A. Nardone, dated August 4, 2011 (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 filed with the SEC on August 4, 2011 (File No. 001-33294), Exhibit 10.21).

190



10.28			Employment, Non-Competition and Non-Solicitation Agreement of Michael E. Novogratz, dated August 4, 2011 (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 filed with the SEC on August 4, 2011 (File No. 001-33294), Exhibit 10.22).

10.29			Separation Agreement and Release Agreement dated November 24, 2015, by and between Michael E. Novogratz and FIG LLC.

10.30			Purchase Agreement dated November 24, 2015, by and among Fortress Operating Group Entity I LP, FOE II (New) LP, Principal Holdings I LP, Michael E. Novogratz and the trusts party thereto.

10.31			Credit Agreement, dated as of February 26, 2013, among FIG LLC, a Delaware limited liability company, as borrower, certain subsidiaries and affiliates of the borrower, as guarantors, Bank of America, N.A., individually and as administrative agent and letter of credit issuer, Citibank, N.A., individually and as syndication agent, Barclays Bank Plc, as documentation agent, and the lenders party thereto (incorporated by reference to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 filed with the SEC on February 27, 2013 (File No. 001-33294), Exhibit 10.28).

10.32			First Amendment to Credit Agreement, Consent and Waiver, dated as January 29, 2014 (incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC on February 27, 2014 (File No. 001-33294), Exhibit 10.34).

10.33			Consent and Waiver Agreement, dated as of November 23, 2015, among FIG LLC, certain of its subsidiaries and affiliates, the lenders party thereto and Bank of America, N.A., as administrative agent.

10.34			Credit Agreement, dated as of January 15, 2016, among FIG LLC, as borrower, certain subsidiaries and affiliates of the borrower, as guarantors, Bank of America, N.A., as administrative agent and letter of credit issuer, Citibank, N.A., as syndication agent, Industrial and Commercial Bank of China Ltd, New York Branch, as documentation agent, and the lenders party thereto.

21.1			Subsidiaries of the Registrant.

23.1			Consent of Ernst & Young LLP, independent registered public accounting firm.

31.1			Certification of Chief Executive Officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2			Certification of Chief Financial Officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1			Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2			Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS**			XBRL Instance Document.

101.SCH**			XBRL Taxonomy Extension Schema Document.

101.CAL**			XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF**			XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB**			XBRL Taxonomy Extension Label Linkbase Document.

101.PRE**			XBRL Taxonomy Extension Presentation Linkbase Document.


**	XBRL (Extensible Business Reporting Language) information is filed for purposes of Sections 11 and 12 of the Securities Act of 1934 and Section 18 of the Securities Exchange Act of 1934.

191