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Section 1: 10-Q (FORM 10-Q)

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2010

¨	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 or organization)		(I.R.S. Employer Identification No.)

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

(212) 798-6100

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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 ¨

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). ¨ Yes No ¨

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 ¨

Accelerated filer x

Non-accelerated filer ¨

(Do not check if a smaller reporting company)

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 ¨ No x

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: 158,836,075 outstanding as of May 4, 2010.

Class B Shares: 300,273,852 outstanding as of May 4, 2010.

FORTRESS INVESTMENT GROUP LLC

FORM 10-Q

INDEX


		PAGE
	PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements

	Consolidated Balance Sheets as of March 31, 2010 (unaudited) and December 31, 2009	1

	Consolidated Statements of Operations (unaudited) for the three months ended March 31, 2010 and 2009	2

	Consolidated Statement of Equity (unaudited) for the three months ended March 31, 2010	3

	Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2010 and 2009	4

	Notes to Consolidated Financial Statements (unaudited)	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	59

Item 4.	Controls and Procedures	62

	PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	62

Item 1A.	Risk Factors	63

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	92

Item 3.	Defaults upon Senior Securities	92

Item 4.	Reserved	92

Item 5.	Other Information	92

Item 6.	Exhibits	93

SIGNATURES		94

As used in this Quarterly Report on Form 10-Q, unless the context otherwise requires:

“Management Fee Paying Assets Under Management,” or “AUM,” refers to the management fee paying assets we manage, including, as applicable, capital we have the right to call from our investors pursuant to their capital commitments to various funds. Our AUM equals the sum of:

(i)

the capital commitments or invested capital (or NAV, if lower) of our private equity funds 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 of our publicly traded alternative investment vehicles, which we refer to as our “Castles,”

(iii)

the net asset value, or “NAV,” of our hedge funds, including the Value Recovery Funds which pay fees based on realizations (and on certain managed assets); and

(iv)

the NAV of our managed accounts, to the extent management fees are charged.

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

“Fortress,” “we,” “us,” “our,” and the “company” refer, collectively, to Fortress Investment Group LLC and its subsidiaries, including the Fortress Operating Group and all of its subsidiaries.

“Fortress Funds” and “our funds” refers to the private investment funds and alternative asset companies that are managed by the Fortress Operating Group.

“Fortress Operating Group” refers to the combined entities, which were wholly-owned by the principals prior to January 2007, and in each of which Fortress Investment Group LLC acquired an indirect controlling interest in January 2007.

“principals” or “Principals” refers to Peter Briger, Wesley Edens, Robert Kauffman, Randal Nardone and Michael Novogratz, collectively, who prior to the completion of our initial public offering and related transactions directly owned 100% of the Fortress Operating Group units and following completion of our initial public offering and related transactions own a majority of the Fortress Operating Group units and of the Class B shares, representing a majority of the total combined voting power of all of our outstanding Class A and Class B shares. The principals’ ownership percentage is subject to change based on, among other things, equity offerings and grants by Fortress and dispositions by the principals.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements under Part II, Item 1A, “Risk Factors,” Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” Part I, Item 3, “Quantitative and Qualitative Disclosures About Market Risk” and elsewhere in this Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q, 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 Quarterly Report on Form 10-Q and the Company’s other public filings, which are available without charge through the SEC’s website at http://www.sec.gov.

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

FORTRESS INVESTMENT GROUP LLC

CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except share data)


	March 31, 2010 (Unaudited)			December 31, 2009
Assets
Cash and cash equivalents	$	223,421		$	197,099
Due from affiliates		101,130			64,511
Investments		878,467			867,215
Deferred tax asset		443,359			440,639
Other assets		89,150			90,803

	$	1,735,527		$	1,660,267

Liabilities and Equity
Liabilities
Accrued compensation and benefits	$	64,828		$	131,134
Due to affiliates		362,568			345,976
Deferred incentive income		227,303			160,097
Debt obligations payable		369,876			397,825
Other liabilities		58,054			25,921

		1,082,629			1,060,953

Commitments and Contingencies
Equity
Class A shares, no par value, 1,000,000,000 shares authorized, 151,070,002 and 145,701,622 shares issued and outstanding at March 31, 2010 and December 31, 2009, respectively		—			—
Class B shares, no par value, 750,000,000 shares authorized, 307,773,852 shares issued and outstanding at March 31, 2010		—			—
Paid-in capital		1,130,850			1,029,536
Retained earnings (accumulated deficit)		(852,145	)		(767,994	)
Accumulated other comprehensive income (loss)		(635	)		(325	)

Total Fortress shareholders’ equity		278,070			261,217
Principals’ and others’ interests in equity of consolidated subsidiaries		374,828			338,097

Total equity		652,898			599,314

	$	1,735,527		$	1,660,267

See notes to consolidated financial statements

FORTRESS INVESTMENT GROUP LLC

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(dollars in thousands, except share data)


	Three Months Ended March 31,
	2010			2009
Revenues
Management fees from affiliates	$	106,536		$	105,652
Incentive income from affiliates		17,556			—
Expense reimbursements from affiliates		23,067			13,047
Other revenues (affiliate portion disclosed in Note 6)		13,029			3,597

		160,188			122,296

Expenses
Interest expense		3,796			8,186
Compensation and benefits		179,393			109,236
Principals agreement compensation		234,759			234,759
General, administrative and other		21,108			17,185
Depreciation and amortization		2,682			2,641

		441,738			372,007

Other Income (Loss)
Gains (losses) from investments		572			(2,473	)
Tax receivable agreement liability adjustment		1,317			(55	)
Earnings (losses) from equity method investees		19,881			(34,849	)

		21,770			(37,377	)

Income (Loss) Before Income Taxes		(259,780	)		(287,088	)
Income tax benefit (expense)		(1,552	)		407

Net Income (Loss)	$	(261,332	)	$	(286,681	)

Principals’ and Others’ Interests in Income (Loss) of Consolidated Subsidiaries	$	(177,181	)	$	(219,522	)

Net Income (Loss) Attributable to Class A Shareholders	$	(84,151	)	$	(67,159	)

Dividends declared per Class A share	$	—		$	—

Earnings Per Class A share - Fortress Investment Group
Net income (loss) per Class A share, basic	$	(0.56	)	$	(0.71	)

Net income (loss) per Class A share, diluted	$	(0.58	)	$	(0.71	)

Weighted average number of Class A shares outstanding, basic		157,821,895			95,202,243

Weighted average number of Class A shares outstanding, diluted		465,595,747			95,202,243

See notes to consolidated financial statements

FORTRESS INVESTMENT GROUP LLC

CONSOLIDATED STATEMENT OF EQUITY (Unaudited)

FOR THE THREE MONTHS ENDED MARCH 31, 2010

(dollars in thousands)


	Class A Shares	Class B Shares	Paid-In Capital			Retained Earnings (Accumulated Deficit)			Accumulated Other Comprehensive Income (Loss)			Total Fortress Shareholders’ Equity			Principals’ and Others’ Interests in Equity of Consolidated Subsidiaries			Total Equity
Equity - December 31, 2009	145,701,622	307,773,852	$	1,029,536		$	(767,994	)	$	(325	)	$	261,217		$	338,097		$	599,314
Contributions from principals’ and others’ interests in equity	—	—		—			—			—			—			44,880			44,880
Distributions to principals’ and others’ interests in equity	—	—		(572	)		—			—			(572	)		(28,998	)		(29,570	)
Net deferred tax effects resulting from acquisition of Fortress Operating Group units	—	—		2,261			—			—			2,261			—			2,261
Director restricted share grant	15,991	—		57			—			—			57			119			176
Capital increase related to equity-based compensation, net	5,352,389	—		96,135			—			—			96,135			202,423			298,558
Dilution impact of Class A share issuance	—	—		3,433			—			—			3,433			(3,433	)		—
Comprehensive income (loss) (net of tax)
Net income (loss)	—	—		—			(84,151	)		—			(84,151	)		(177,181	)		(261,332	)
Foreign currency translation	—	—		—			—			(144	)		(144	)		(534	)		(678	)
Comprehensive income (loss) from equity method investees	—	—		—			—			(166	)		(166	)		(545	)		(711	)

Total comprehensive income (loss)																			(262,721	)

Equity - March 31, 2010	151,070,002	307,773,852	$	1,130,850		$	(852,145	)	$	(635	)	$	278,070		$	374,828		$	652,898

See notes to consolidated financial statements

FORTRESS INVESTMENT GROUP LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(dollars in thousands)


	Three Months Ended March 31,
	2010			2009
Cash Flows From Operating Activities
Net income (loss)	$	(261,332	)	$	(286,681	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities
Depreciation and amortization		2,682			2,641
Other amortization and accretion		877			3,414
(Earnings) losses from equity method investees		(19,881	)		34,849
Distributions of earnings from equity method investees		2,707			11
(Gains) losses from investments		(572	)		2,473
Deferred incentive income		(17,944	)		—
Deferred tax (benefit) expense		(726	)		(3,759	)
Tax receivable agreement liability adjustment		(1,317	)		55
Equity-based compensation		298,566			287,803
Allowance for doubtful accounts		1,122			—
Cash flows due to changes in
Due from affiliates		(45,653	)		(25,932	)
Other assets		(1,292	)		(1,257	)
Accrued compensation and benefits		(21,211	)		(108,216	)
Due to affiliates		3,128			(1,367	)
Deferred incentive income		85,150			—
Other liabilities		32,302			32,657

Net cash provided by (used in) operating activities		56,606			(63,309	)

Cash Flows From Investing Activities
Contributions to equity method investees		(28,485	)		(31,792	)
Distributions of capital from equity method investees		41,616			10,538
Purchase of fixed assets		(388	)		(1,110	)
Proceeds from disposal of fixed assets		—			6

Net cash provided by (used in) investing activities		12,743			(22,358	)

Cash Flows From Financing Activities
Repayments of debt obligations		(27,950	)		(125,000	)
Payment of deferred financing costs		—			(4,162	)
Principals’ and others’ interests in equity of consolidated subsidiaries - contributions		37			25
Principals’ and others’ interests in equity of consolidated subsidiaries - distributions		(15,114	)		(5,225	)

Net cash provided by (used in) financing activities		(43,027	)		(134,362	)

Net Increase (Decrease) in Cash and Cash Equivalents		26,322			(220,029	)
Cash and Cash Equivalents, Beginning of Period		197,099			263,337

Cash and Cash Equivalents, End of Period	$	223,421		$	43,308

Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest	$	3,384		$	3,730

Cash paid during the period for income taxes	$	2,464		$	3,008

Supplemental Schedule of Non-cash Investing and Financing Activities
Employee compensation invested directly in subsidiaries	$	45,095		$	1,701

Investments of receivable amounts into Fortress Funds	$	7,652		$	—

Dividends, dividend equivalents and Fortress Operating Group unit distributions declared but not yet paid	$	31,335		$	—

See notes to consolidated financial statements

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2010

(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 global alternative asset management firm whose predecessor was founded in 1998. Its primary business is to sponsor the formation of, and provide investment management services for, various investment funds and companies (the “Fortress Funds”). Fortress generally makes principal investments in these funds.

Fortress has three primary sources of income from the Fortress Funds: management fees, incentive income, and investment income on its principal investments in the funds. The Fortress Funds fall into the following business segments in which Fortress operates:

Private equity:

Private equity funds, which make significant, control-oriented investments in debt and equity securities of public or privately held entities in North America and Western Europe, with a focus on acquiring and building assets-based businesses with significant cash flows; and

Publicly traded alternative investment vehicles, which Fortress refers to as “Castles,” which are companies that invest primarily in real estate and real estate related debt investments.

Liquid hedge funds, which invest globally in fixed income, currency, equity and commodity markets, and related derivatives to capitalize on imbalances in the financial markets.

Credit funds:

Credit hedge funds, which make highly diversified investments globally in assets, opportunistic lending situations and securities throughout the capital structure with a value orientation, as well as in investment funds managed by external managers, and which include non-Fortress originated funds for which Fortress has been retained as manager as part of an advisory business; and

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), and an Asian fund.

Principal investments in the above described funds.

Financial Statement Guide


Selected Financial Statement Captions	Note Reference	Explanation
Balance Sheet

Due from Affiliates	6	Generally, management fees, expense reimbursements and incentive income due from Fortress Funds.

Investments	3	Primarily the carrying value of Fortress’s principal investments in the Fortress Funds.

Deferred Tax Asset	5	Relates to potential future tax benefits.

Due to Affiliates	6	Generally, amounts due to the Principals related to their interests in Fortress Operating Group and the tax receivable agreement.

Deferred Incentive Income	2	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	4	The balance outstanding on the credit agreement.

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2010

(dollars in tables in thousands, except share data)


Selected Financial Statement Captions	Note Reference	Explanation
Principals’ and Others’ Interests in Equity of Consolidated Subsidiaries	6	The GAAP basis of the Principals’ ownership interests in Fortress Operating Group as well as employees’ ownership interests in certain subsidiaries.

Statement of Operations

Management Fees from Affiliates	2	Fees earned for managing Fortress Funds, generally determined based on the size of such funds.

Incentive Income from Affiliates	2	Income earned from Fortress Funds, based on the performance of such funds.

Compensation and Benefits	7	Includes equity-based, profit-sharing and other compensation to employees.

Principals Agreement Compensation	N/A	As a result of the principals agreement, the value of a significant portion of the Principals’ equity in Fortress prior to the Nomura Transaction is being recorded as an expense over a five year period. Fortress is not a party to this agreement. It is an agreement between the Principals to further incentivize them to remain with Fortress. This GAAP expense has no economic effect on Fortress or its shareholders.

Gains (Losses) from Investments	N/A	The result of asset dispositions or changes in the fair value of assets which are marked to market (primarily the Castles and GAGFAH).

Tax Receivable Agreement Liability Adjustment	5	Represents a change in the amount due to the Principals under the tax receivable agreement.

Earnings (Losses) from Equity Method Investees	3	Fortress’s share of the net earnings (losses) of the Fortress Funds resulting from its principal investments.

Income Tax Benefit (Expense)	5	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) Loss of Consolidated Subsidiaries	6	Primarily the Principals’ and employees’ share of Fortress’s earnings based on their ownership interests in subsidiaries, including Fortress Operating Group.

Earnings Per Share	8	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.

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2010

(dollars in tables in thousands, except share data)


Other

Distributions	8	A summary of dividends and distributions, and the related outstanding shares and units, is provided.

Distributable Earnings	10	A presentation of our financial performance by segment (fund type) is provided, on the basis of the operating performance measure used by Fortress’s management committee.

The accompanying consolidated financial statements and related notes of Fortress have been prepared in accordance with accounting principles generally accepted in the United States for interim financial reporting and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared under U.S. generally accepted accounting principles have been condensed or omitted. In the opinion of management, all adjustments considered necessary for a fair presentation of Fortress’s financial position, results of operations and cash flows have been included and are of a normal and recurring nature. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. These financial statements should be read in conjunction with Fortress’s consolidated and combined financial statements for the year ended December 31, 2009 and notes thereto included in Fortress’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 1, 2010. Capitalized terms used herein, and not otherwise defined, are defined in Fortress’s consolidated financial statements for the year ended December 31, 2009.

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2010

(dollars in tables in thousands, except share data)

2. MANAGEMENT AGREEMENTS AND FORTRESS FUNDS

Fortress has two principal sources of income from its agreements with the Fortress Funds: contractual management fees, which are generally based on a percentage of fee paying assets under management, and related incentive income, which is generally based on a percentage of profits subject to the achievement of performance criteria. Substantially all of Fortress’s net assets, after deducting the portion attributable to principals’ and others’ interests, are a result of principal investments in, or receivables from, these funds.

The Fortress Funds are divided into segments and Fortress’s agreements with each are detailed below.

Management Fees, Incentive Income and Related Profit Sharing Expense

Fortress recognized management fees and incentive income as follows:


	Three Months Ended March 31,
	2010			2009
Private Equity
Private Equity Funds
Management fees - affil.	$	33,465		$	37,669
Incentive income - affil.		—			—
Castles
Management fees - affil.		11,780			11,390
Incentive income - affil.		—			—
Management fees - non-affil. (A)		884			646
Liquid Hedge Funds
Management fees - affil.		17,466			22,604
Incentive income - affil.		(259	)		—
Management fees - non-affil. (A)		1,336			25
Incentive income - non-affil. (A)		—			—
Credit Funds
Credit Hedge Funds
Management fees - affil.		33,668			27,908
Incentive income - affil.		(129	)		—
Management fees - non-affil. (A)		381			215
Incentive income - non-affil. (A)		7,928			822
Credit PE Funds
Management fees - affil.		10,157			6,081
Incentive income - affil.		17,944			—
Management fees - non-affil. (A)		—			—
Total
Management fees - affil.	$	106,536		$	105,652
Incentive income - affil. (B)	$	17,556		$	—
Management fees - non-affil. (A)	$	2,601		$	886
Incentive income - non-affil. (A)	$	7,928		$	822

(A)	Included in Other Revenues on the statement of operations.

(B)	See “Deferred Incentive Income” below.

Deferred Incentive Income

Incentive income from certain Fortress Funds, primarily private equity funds and credit PE funds, is received when such funds realize 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.

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2010

(dollars in tables in thousands, except share data)

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), is generally received subsequent to year end, and has not been recognized for these funds during the three months ended March 31, 2010 and 2009. If the amount of incentive income contingent on achieving annual performance criteria was not contingent on the results of the subsequent quarters, $6.2 million and $0.0 million of additional incentive income from affiliates would have been recognized during the three months ended March 31, 2010 and 2009, respectively. Incentive income based on achieving annual performance criteria that has not yet been recognized, if any, is not recorded on the balance sheet and is included as “undistributed” deferred incentive income in the table below.

During the three months ended March 31, 2010 and 2009, Fortress recognized $17.9 million and $0 million, respectively, of incentive income distributions from its credit PE funds which represented “tax distributions.” These tax distributions are not subject to clawback and reflect a cash amount equal to the amount expected to be paid out by Fortress for taxes or tax-related distributions on the allocated income from such funds.

Deferred incentive income from the Fortress Funds, subject to contingent repayment, 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, 2009	$	480,211	$	(320,114	)	$	160,097		$	168,686
Share of income (loss) of Fortress Funds		—		—			—			82,732
Distribution of incentive income		85,150		—			85,150			(85,150	)
Recognition of previously deferred incentive income		—		(17,944	)		(17,944	)		—

Deferred incentive income as of March 31, 2010	$	565,361	$	(338,058	)	$	227,303		$	166,268

(A)	All related contingencies have been resolved.

(B)	Reflected on the balance sheet.

(C)

At March 31, 2010, the net undistributed incentive income is comprised of $249.6 million of gross undistributed incentive income, net of $83.3 million of intrinsic clawback (see next page). The net undistributed incentive income amount represents the amount that would be received by Fortress from the related funds if such funds were liquidated on March 31, 2010 at their net asset values.

(D)

From inception to March 31, 2010, Fortress has paid $172.4 million of compensation expense under its employee profit sharing arrangements (Note 7) in connection with distributed incentive income, of which $27.9 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 employees. If the $249.6 million of gross undistributed incentive income were realized, Fortress would recognize and pay an additional $128.6 million of compensation expense.

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2010

(dollars in tables in thousands, except share data)

The following tables summarize information with respect to the Fortress Funds, other than the Castles, and their related incentive income thresholds as of March 31, 2010:


Fund (Vintage) (A)	Maturity Date (B)	Inception to Date Capital Invested		Inception to Date Distributions			Net Asset Value (“NAV”)		NAV Surplus (Deficit) (C)			Current Preferred Return Threshold (D)		Gain to Cross Incentive Income Threshold (E)		Undistributed Incentive Income (F)		Distributed Incentive Income (G)		Distributed Incentive Income Subject to Clawback (H)		Gross Intrinsic Clawback (I)		Net Intrinsic Clawback (I)
Private Equity Funds
NIH (1998)	Indefinite	$	415,574	$	(782,065	)	$	34,957		N/A		$	—		N/A	$	—	$	94,513	$	—	$	—	$	—
Fund I (1999) (J )	Apr-10		1,062,177		(2,711,651	)		181,010	$	1,830,484			—		N/A		32,054		292,099		1,664		—		—
Fund II (2002)	Feb-13		1,974,296		(2,915,346	)		496,763		1,437,813			—		N/A		32,105		250,811		75,083		—		—
Fund III (2004)	Jan-15		2,762,993		(1,307,362	)		1,525,504		69,873			803,470	$	733,597		—		66,903		66,903		66,903	$	45,108
Fund III Coinvestment (2004)	Jan-15		273,648		(90,925	)		186,979		4,256			107,874		103,618		—		—		—		—		—
Fund IV (2006)	Jan-17		3,639,561		(119,772	)		2,619,639		(900,150	)		907,683		1,807,833		—		—		—		—		—
Fund IV Coinvestment (2006)	Jan-17		762,696		(12,661	)		522,522		(227,513	)		196,897		424,410		—		—		—		—		—
GAGACQ Fund (2004)	Nov-09		545,663		(595,401	)		N/A		N/A			N/A		N/A		N/A		51,476		N/A		N/A		N/A
FRID (2005)	Apr-15		1,220,228		(480,604	)		452,808		(286,816	)		384,577		671,393		—		16,447		16,447		16,447		10,041
FRIC (2006)	May-16		328,754		(17,460	)		187,925		(123,369	)		106,010		229,379		—		—		—		—		—
FICO (2006)	Jan-17		724,525		—			7,189		(717,336	)		214,820		932,156		—		—		—		—		—
FHIF (2006)	Jan-17		1,436,386		(63,154	)		1,078,430		(294,802	)		380,258		675,060		—		—		—		—		—
Mortgage Opportunities Fund III (2008)	Jun-13		193,861		(29,718	)		111,277		(52,866	)		N/A		52,866		—		—		—		—		—

																$	64,159	$	772,249	$	160,097	$	83,350	$	55,149

PE Funds in Investment Period
Fund V (2007)	Feb-18	$	3,613,881	$	(2,521	)	$	1,904,616	$	(1,706,744	)	$	541,910	$	2,248,654	$	—	$	—	$	—	$	—	$	—
Fund V Coinvestment (2007)	Feb-18		936,145		(113	)		453,003		(483,029	)		160,114		643,143		—		—		—		—		—
FECI (2007)	Feb-18		982,779		(139	)		729,291		(253,349	)		220,516		473,865		—		—		—		—		—

																$	—	$	—	$	—	$	—	$	—

Credit PE Funds
Long Dated Value Fund I (2005)	Apr-30	$	267,325	$	(45,627	)	$	255,683	$	33,985		$	60,228	$	26,243	$	—	$	—	$	—	$	—	$	—
Long Dated Value Fund II (2005)	Nov-30		263,823		(39,575	)		244,698		20,450			46,320		25,870		—		412		—		—		—
Long Dated Value Fund III (2007)	Feb-32		334,532		(73,453	)		309,087		48,008			—		N/A		8,140		1,219		—		—		—
LDVF Patent Fund (2007)	Nov-27		38,934		(9,543	)		51,679		22,288			—		N/A		1,567		484		—		—		—

																$	9,707	$	2,115	$	—	$	—	$	—

Credit PE Funds in Investment Period
Real Assets Fund (2007)	Jun-17	$	270,349	$	(89,988	)	$	213,524	$	33,163		$	—		N/A	$	3,880	$	1,316	$	—	$	—	$	—
Assets Overflow Fund (2008)	May-18		90,500		(56,498	)		50,299		16,297			—		N/A		1,536		90		—		—		—
Credit Opportunities Fund (2008)	Oct-20		3,218,487		(3,076,564	)		1,264,338		1,122,415			—		N/A		143,628		78,916		45,871		—		—
FTS SIP L.P. (2008)	Oct-18		610,505		(646,208	)		224,599		260,302			—		N/A		26,013		25,940		21,335		—		—
Credit Opportunities Fund II (2009)	Jul-22		101,736		(3,223	)		104,553		6,040			—		N/A		1,421		—		—		—		—
Japan Opportunity Fund (2009)	Jun-19		299,799		(62,169	)		275,156		37,526			—		N/A		7,303		—		—		—		—

																$	183,781	$	106,262	$	67,206	$	—	$	—

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2010

(dollars in tables in thousands, except share data)


	Incentive Income Eligible NAV (K)		Gain to Cross Incentive Income Threshold (L)		Percentage of Incentive Income Eligible NAV Above Incentive Income Threshold (M)		Undistributed Incentive Income (N)		Year to date Incentive Income Crystallized (O)
Liquid Hedge Funds
Macro Funds (P)
Main fund investments	$	2,126,601	$	7,969	66.5	%	$	4,689	$	407
Sidepocket investments (Q)		81,602		48,910	7.4	%		295		—
Sidepocket investments - redeemers (R)		233,299		135,436	7.7	%		796		—
Fortress Commodities Funds (S)
Main fund investments		911,701		35,064	0.0	%		—		—
Credit Hedge Funds
Special Opportunities Funds (S)
Main fund investments (T)	$	2,457,868	$	34,863	4.8	%	$	92	$	—
Sidepocket investments (Q)		194,642		68,997	0.1	%		—		—
Sidepocket investments - redeemers (R)		223,371		62,561	8.4	%		580		—
Main fund investments (liquidating) (U)		2,152,801		322,847	0.0	%		—		—
Fortress Partners Funds (S)
Main fund investments		291,229		73,668	26.4	%		357		—
Sidepocket investments (Q)		100,630		24,649	8.0	%		43		—
Worden Fund
Main fund investments		76,938		—	100.0	%		74		—

(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)	Represents the gain needed to cross the incentive income threshold (as described in (E) below), excluding the impact of any relevant performance (i.e. preferred return) thresholds (as described in (D) below).

(D)	Represents the gain needed to achieve the current relevant performance thresholds, assuming the gain described in (C) above is already achieved.

(E)

Represents the immediate increase in NAV needed 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 (I) below), if any. Incentive income is not recorded as revenue until it is received and any related contingencies are resolved (see (H) below).

(F)	Represents the amount of additional incentive income Fortress would receive if the fund were liquidated at the end of the period at its NAV.

(G)	Represents the amount of incentive income previously received from the fund since inception.

(H)

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”).

(I)

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 March 31, 2010, Fortress held $37.9 million of such amounts on behalf of employees related to all of the private equity funds.

(J)	Fund I undistributed and distributed incentive income amounts are presented for the total fund, of which Fortress is entitled to approximately 50%. Distributed incentive income subject to clawback for Fund I is presented with respect to Fortress’s portion only.

(K)	Represents the portion of a fund’s NAV that is eligible to earn incentive income.

(L)

Represents, for those fund investors whose NAV is below the performance threshold Fortress needs to obtain before it can earn incentive income from such investors (their “incentive income threshold” or “high water mark”), the amount by which their aggregate incentive income thresholds exceed their aggregate NAVs. 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.

(M)

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 varies, and may vary significantly.

(N)

Represents the amount of additional incentive income Fortress would earn from the fund 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.

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2010

(dollars in tables in thousands, except share data)

(O)	Represents the amount of incentive income Fortress has earned in the current period from the fund which is no longer subject to contingencies.

(P)

Represents the Drawbridge Global Macro Funds and Fortress Macro Funds. The Drawbridge Global Macro SPV (the “SPV”), which was established in February 2009 to liquidate illiquid investments and distribute the proceeds to then existing investors, is not subject to incentive income and is therefore not presented in the table. However, realized gains or losses within the SPV can decrease or increase, respectively, the gain needed to cross the incentive income threshold for investors with a corresponding investment in the main fund. The impact of the unrealized gains and losses within the SPV at March 31, 2010, as if they became realized, was immaterial to the amounts presented in the table for the Macro main fund.

(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, realized and unrealized losses from individual sidepockets reduce the incentive income earned from main fund investments. For the Macro Funds, only realized losses from individual sidepockets reduce the incentive income earned from main fund investments. Base on current unrealized losses in Macro Fund sidepockets, if all of the Macro Fund sidepockets were liquidated at their NAV at March 31, 2010, the undistributed incentive income from the Macro main fund would be reduced by $0.9 million.

(R)	Represents investments held in sidepockets for investors with no corresponding investment in the related main fund investments (other than the SPV, see (P) above).

(S)	Includes onshore and offshore funds.

(T)

Subsequent to March 31, 2010, these funds recorded earnings which resulted in 100% of the offshore main fund investors exceeding their incentive income thresholds or high water marks and 100% of the onshore main fund investors being approximately 1% from exceeding their incentive income thresholds or high water marks.

(U)	Relates to accounts where investors have provided withdrawal notices and are subject to payout as underlying fund investments are realized.

Private Equity Funds and Credit PE Funds

During the three months ended March 31, 2010, Fortress formed new private equity funds or credit PE funds which had capital commitments as follows as of March 31, 2010:


Fortress’s commitments	$	510
Fortress’s affiliates’ commitments		19,700
Third party investors’ commitments		102,255

Total capital commitments	$	122,465

Liquid Hedge Funds and Credit Hedge Funds

During the three months ended March 31, 2010, Fortress formed, or became the manager of, hedge funds with net asset values as follows as of March 31, 2010:


	Liquid		Credit
Fortress	$	—	$	102
Fortress’s affiliates		—		—
Third party investors		—		76,937

Total NAV (A)	$	—	$	77,039

(A)	Or other fee paying basis, as applicable.

Redemption notices received, and redemption payments which are made in periods after notices are received, including affiliates, have been as follows:


	Liquid Hedge Funds				Credit Hedge Funds
Three Months Ended March 31,	Redemption Notices Received		Redemptions Paid During the Period		Redemption Notices Received		Redemptions Paid During the Period
2010	$	263,180	$	715,385	$	16,995	$	450,847
2009	$	582,785	$	2,801,035	$	—	$	141,092

The differences between notices received and redemptions paid are a result of timing (notices received prior to quarter end, paid afterwards) and the contractual agreements regarding redemptions, which in some cases allow for delayed payment.

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2010

(dollars in tables in thousands, except share data)

3. INVESTMENTS

Investments consist primarily of investments in equity method investees and options in these investees. The investees are primarily Fortress Funds.

Investments can be summarized as follows:


	March 31, 2010			December 31, 2009
Equity method investees	$	820,512		$	809,757
Equity method investees, held at fair value		56,652			56,710

Total equity method investments		877,164			866,467
Options in equity method investees		1,303			748

Total investments	$	878,467		$	867,215


Gains (losses) from investments can be summarized as follows:

	Three Months Ended March 31,
	2010			2009
Net realized gains (losses)	$	400		$	(396	)
Net realized gains (losses) from affiliate investments		(329	)		(248	)
Net unrealized gains (losses)		—			—
Net unrealized gains (losses) from affiliate investments		501			(1,829	)

Total gains (losses) from investments	$	572		$	(2,473	)

Investments in Equity Method Investees

Fortress holds investments in certain Fortress Funds which are 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 as described below, plus any receivables from such entities as described in Note 6. In addition, unconsolidated affiliates also hold ownership interests in certain of these entities. Summary financial information related to these investments is as follows:


	Fortress’s Investment				Fortress’s Equity in Net Income (Loss)
	March 31,		December 31,		Three Months Ended March 31,
	2010		2009		2010			2009
Private equity funds, excluding NIH (A)	$	533,985	$	506,383	$	9,242		$	(32,308	)
NIH		2,332		2,486		(149	)		(279	)
Newcastle (B)		3,313		2,144		N/A			N/A
Eurocastle (B)		2,256		2,616		N/A			N/A

Total private equity		541,886		513,629		9,093			(32,587	)
Liquid hedge funds		9,902		12,296		266			1,012
Credit hedge funds		212,549		220,511		9,334			(2,149	)
Credit PE funds		107,938		115,896		(48	)		(1,528	)
Other		4,889		4,135		1,236			403

		$877,164	$	866,467	$	19,881		$	(34,849	)

(A)	Includes Fortress’s direct investment in GAGFAH (XETRA:GFJ) common stock (a private equity portfolio company).

(B)	Fortress elected to record these investments, as well as its direct investment in GAGFAH, at fair value pursuant to the fair value option for financial instruments.

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2010

(dollars in tables in thousands, except share data)

A summary of the changes in Fortress’s investments in equity method investees is as follows:


	Three Months Ended March 31, 2010
	Private Equity									Liquid Hedge Funds			Credit						Other			Total
	NIH			Other Funds (A)			Castles (B)			Liquid Hedge Funds			Hedge Funds			PE Funds			Other			Total
Investment, beginning	$	2,486		$	506,383		$	4,760		$	12,296		$	220,511		$	115,896		$	4,135		$	866,467
Earnings from equity method investees		(149	)		9,242			N/A			266			9,334			(48	)		1,236			19,881
Other comprehensive income from equity method investees		(5	)		—			N/A			—			—			(865	)		—			(870	)
Contributions to equity method investees		—			19,422			—			6,820			932			12,517			21			39,712
Distributions of earnings from equity method investees		—			—			N/A			(91	)		(5	)		(2,608	)		(3	)		(2,707	)
Distributions of capital from equity method investees		—			(194	)		N/A			(9,389	)		(18,223	)		(16,954	)		(500	)		(45,260	)

Total distributions from equity method investees		—			(194	)		N/A			(9,480	)		(18,228	)		(19,562	)		(503	)		(47,967	)

Mark to fair value - during period (C)		N/A			2,128			958			N/A			N/A			N/A			N/A			3,086
Translation adjustment		—			(2,996	)		(149	)		—			—			—			—			(3,145	)

Investment, ending	$	2,332		$	533,985		$	5,569		$	9,902		$	212,549		$	107,938		$	4,889		$	877,164

Ending balance of undistributed earnings	$	—		$	274			N/A		$	9		$	2,987			2,240		$	1,523		$	7,033

(A)	Includes Fortress’s direct investment in GAGFAH (XETRA:GFJ) common stock (a private equity portfolio company).

(B)	Fortress elected to record these investments, as well as its direct investment in GAGFAH, at fair value pursuant to the fair value option for financial instruments.

(C)	Recorded to Other Investments – Net Unrealized Gains (Losses) from Affiliate Investments.

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. NIH, the Castles, GAGFAH and Other are not presented as they are insignificant to Fortress’s investments.


	*Private Equity Funds excluding NIH*
	March 31, 2010			December 31, 2009
Assets	$	11,399,417		$	10,993,214
Debt		(273,874	)		(705,432	)
Other liabilities		(254,790	)		(275,702	)

Equity	$	10,870,753		$	10,012,080

Fortress’s Investment (A)	$	533,985		$	506,383

Ownership (B)		4.9	%		5.1	%


	Three Months Ended March 31,
	2010			2009
Revenues and gains (losses) on investments	$	301,821		$	(767,348	)
Expenses		(56,796	)		(121,035	)

Net Income (Loss)	$	245,025		$	(888,383	)

Fortress’s equity in net income (loss)	$	9,242		$	(32,308	)

(A)	Includes Fortress’s direct investment in GAGFAH (XETRA:GFJ) common stock (a private equity portfolio company). GAGFAH’s summary financial information is not included in this table.

(B)	Excludes ownership interests held by other Fortress Funds, the Principals, employees and other affiliates.

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2010

(dollars in tables in thousands, except share data)


	*Liquid Hedge Funds*						*Credit Hedge Funds*						*Credit PE Funds (B)*
	March 31, 2010			December 31, 2009			March 31, 2010			December 31, 2009			March 31, 2010			December 31, 2009
Assets	$	11,702,099		$	9,641,111		$	10,889,781		$	11,048,076		$	3,978,684		$	6,243,776
Debt		—			—			(2,732,070	)		(2,938,213	)		(530,053	)		(1,767,331	)
Other liabilities		(7,761,818	)		(6,187,965	)		(643,828	)		(667,604	)		(125,558	)		(95,807	)
Non-controlling interest		—			—			(4,003	)		(16,600	)		(2,828	)		(153,016	)

Equity	$	3,940,281		$	3,453,146		$	7,509,880		$	7,425,659		$	3,320,245		$	4,227,622

Fortress’s Investment	$	9,902		$	12,296		$	212,549		$	220,511		$	107,938		$	115,896

Ownership (A)		0.3	%		0.4	%		2.8	%		3.0	%		3.3	%		2.7	%


	Three Months Ended March 31,						Three Months Ended March 31,						Three Months Ended March 31,
	2010			2009			2010			2009			2010			2009
Revenues and gains (losses) on investments	$	128,834		$	158,965		$	425,999		$	172,679		$	436,771		$	(18,429	)
Expenses		(46,982	)		(48,119	)		(66,014	)		(77,849	)		(78,305	)		(31,590	)

Net Income (Loss)	$	81,852		$	110,846		$	359,985		$	94,830		$	358,466		$	(50,019	)

Fortress’s equity in net income (loss)	$	266		$	1,012		$	9,334		$	(2,149	)	$	(48	)	$	(1,528	)

(A)	Excludes ownership interests held by other Fortress Funds, the Principals, employees and other affiliates.

(B)

Includes one entity which is recorded on a one quarter lag (i.e., the balances reflected for this entity are for the periods ended December 31, 2009 and 2008, respectively) and two entities which are recorded on a one month lag. They are recorded on a lag because they are foreign entities and do not provide financial reports under U.S. GAAP within the reporting timeframe necessary for U.S. public entities.

Investments in Variable Interest Entities

Fortress is not considered the primary beneficiary of, and, therefore, does not consolidate, any of the variable interest entities in which it holds an interest. No reconsideration events occurred during the three months ended March 31, 2010 which caused a change in Fortress’s accounting, except as described below.

The following table sets forth certain information as of March 31, 2010 regarding entities formed during the three months ended March 31, 2010 that were determined to be VIEs in which Fortress holds a variable interest. The amounts presented below are included in, and not in addition to, the equity method investment tables above.


	Fortress is not Primary Beneficiary
Business Segment	Gross Assets		Financial Obligations (A)		Fortress Investment (B)		Notes
Credit Hedge Funds	$	88,597	$	2,619	$	126	(C) (D)

(A)	Represents financial obligations at the fund level, which are not recourse to Fortress. Financial obligations include financial borrowings, derivative liabilities and short securities. In many cases, these funds have additional debt within unconsolidated subsidiaries.

(B)

Represents Fortress’s maximum exposure to loss with respect to these entities, which includes direct and indirect investments in the funds. 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 these entities.

(C)

Fortress is not the primary beneficiary of this entity, which represents a master fund, because the feeder fund (which is not consolidated) is more closely associated with this fund than Fortress based on both a quantitative and qualitative analysis. The master fund was formed for the sole purpose of acting as an investment vehicle for the related feeder fund.

(D)	Fortress’s investment includes $24,000 of other receivables from the credit hedge funds.

In June 2009, the FASB issued new guidance on consolidation which became effective for Fortress on January 1, 2010. This guidance changes the definition of a variable interest entity (“VIE”) and changes the methodology to determine who is the primary beneficiary of, or in other words who consolidates, a VIE. Generally, the changes are expected to cause more entities to be defined as VIE’s and to shift consolidation to those entities that exercise day-to-day control over the VIE’s, such as investment managers. In February 2010, the FASB updated this guidance to defer its application to certain managed entities, particularly investment companies and similar entities. As a result, this guidance had no material impact on Fortress’s financial position, results of operations or liquidity.

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2010

(dollars in tables in thousands, except share data)

The following table sets forth certain information regarding VIEs in which Fortress held a variable interest. The March 31, 2010 amounts presented below include VIEs formed during the period (as shown in the immediately preceding table) in which Fortress holds a variable interest. The amounts presented below are included in, and not in addition to, the equity method investment tables above.


	Fortress is not Primary Beneficiary
	March 31, 2010						December 31, 2009
Business Segment	Gross Assets		Financial Obligations (A)		Fortress Investment (B)		Gross Assets		Financial Obligations (A)		Fortress Investment (B)		Notes
Private Equity Funds	$	346,506	$	195,699	$	2,518	$	352,787	$	197,791	$	2,740	(C) (D)
Castles		10,392,052		10,824,385		17,993		11,150,750		12,066,365		13,335	(C) (D)
Liquid Hedge Funds		10,249,585		7,254,359		4,659		7,773,895		5,090,344		7,170	(C) (D)
Credit Hedge Funds		2,386,481		452,022		2,368		2,153,220		598,216		3,132	(C) (D)
Credit PE Funds		349,024		—		3,294		268,919		5,300		3,710	(C) (D)

(A)

Represents financial obligations at the fund level, which are not recourse to Fortress. Financial obligations include financial borrowings, derivative liabilities and short securities. In many cases, these funds have additional debt within unconsolidated subsidiaries. Of the financial obligations represented herein as of March 31, 2010, $195.7 million, $10,218.9 million, and $420.3 million represent financial borrowings which have weighted average maturities of 1.1, 4.2, and 3.0 years for the private equity funds, Castles and credit hedge funds, respectively. Of the financial obligations represented herein as of December 31, 2009, $197.8 million, $11,438.7 million, $551.4 million, and $5.3 million represent financial borrowings which have weighted average maturities of 1.4, 4.5, 3.2, and 0.5 years for the private equity funds, Castles, credit hedge funds, and credit PE funds, respectively.

(B)

Represents Fortress’s maximum exposure to loss with respect to these entities, which includes direct and indirect investments in these funds. In addition to the table above, Fortress is exposed to potential changes in cash flow and revenues attributable to the management fee and/or incentive income Fortress earns from those entities.

(C)

Fortress is not the primary beneficiary of the Castles and NIH because it does not absorb a majority of their expected income or loss based on a quantitative analysis. Of the remaining entities represented herein, which represent investing vehicles, intermediate entities and master funds, Fortress is not the primary beneficiary because the related funds, intermediate entities and feeder funds (which are not consolidated) are more closely associated with these funds than Fortress based on both a quantitative and qualitative analysis. The investing vehicles, intermediate entities and master funds were formed for the sole purpose of acting as investment vehicles for the related funds.

(D)

As of March 31, 2010, Fortress’s investment includes $7.7 million, $0.1 million, $0.5 million, and $0.2 million of management fees receivable from the Castles, liquid hedge funds, credit hedge funds, and credit PE funds, respectively, as well as $0.4 million in incentive income receivable from the liquid hedge funds. As of March 31, 2010, Fortress’s investment also includes $0.2 million, $3.4 million, $2.2 million, $0.6 million and $0.4 million of expense reimbursements and other receivables from the private equity funds, Castles, liquid hedge funds, credit hedge funds and credit PE funds, respectively. As of December 31, 2009, Fortress’s investment includes $4.1 million, $0.5 million, and $1.0 million of management fees receivable from the Castles, credit hedge funds, and credit PE funds, respectively, as well as $3.7 million and $0.9 million in incentive income receivable from the liquid hedge funds and credit hedge funds, respectively. As of December 31, 2009, Fortress’s investment also includes $0.2 million, $3.7 million, $1.5 million, $0.6 million and $0.7 million of expense reimbursements and other receivables from the private equity funds, Castles, liquid hedge funds, credit hedge funds and credit PE funds, respectively. In addition, Fortress has remaining capital commitments to certain credit PE funds which are VIEs which aggregated $2.7 million at March 31, 2010.

In March 2010, Fortress determined that a reconsideration event had occurred with respect to an operating subsidiary (“FCF”) of one of its private equity funds. FCF provides operating services to all of Fortress’s private equity funds and is reimbursed for related costs by the private equity funds based on a contractual formula. Therefore, FCF by design does not produce net income or have equity. Historically, Fortress has provided temporary advances to FCF as a result of certain funds having insufficient current liquidity to make their required reimbursements on a timely basis; these advances were deemed fully collectable. In March 2010, Fortress determined it would make advances to FCF related to a fund from which reimbursement was subject to significant uncertainty. Management determined that these advances would represent the provision of financial support to FCF. As a result of this reconsideration event, FCF was deemed to be a VIE and Fortress, as a result of directing the operations of FCF through its management contracts with the private equity funds, and providing financial support to FCF beginning in March 2010, was deemed to be its primary beneficiary. Therefore, Fortress consolidated FCF beginning in March 2010, which resulted in a gross up of reimbursement revenues, compensation and miscellaneous expenses, receivables, and payables, but had no impact on Fortress’s net income or equity. As of March 31, 2010, FCF’s gross assets were approximately $9.6 million, primarily comprised of affiliate receivables. Fortress’s exposure to loss from FCF is limited to its outstanding advances, which were approximately $1.0 million at March 31, 2010, plus any future advances. Subsequent to Fortress’s consolidation of FCF, these advances are eliminated in consolidation. FCF’s creditors do not have recourse to Fortress’s other assets.

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2010

(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 Net Unrealized Gains (Losses) from Affiliate Investments.


	Fair Value				Valuation Method
	March 31, 2010		December 31, 2009
Assets - Carried at Fair Value
Newcastle and Eurocastle common shares	$	3,761	$	2,662	Level 1 - Quoted prices in active markets for identical assets
GAGFAH common shares	$	51,082	$	51,950	Level 1 - Quoted prices in active markets for identical assets
Eurocastle convertible debt (A)	$	1,808	$	2,098	Level 3 - Internal model using significant unobservable inputs
Newcastle and Eurocastle options	$	1,303	$	748	Level 2 - Lattice-based option valuation models using significant observable inputs

(A)

The debt bears interest at 20% per annum and is perpetual, but ECT may redeem the securities after June 2011 at a premium of 20%. As of March 31, 2010, it had a face amount of €1.2 million ($1.6 million) and was convertible into ECT common shares at €0.30 per share. The fair value was determined using the market approach.

Fortress’s investments in instruments measured at fair value using Level 3 inputs changed during the three months ended March 31, 2010 as follows:


Balance at December 31, 2009	$	2,098
Total gains (losses) included in net income (including foreign currency translation)		(290	)

Balance at March 31, 2010	$	1,808

4. DEBT OBLIGATIONS

The following table presents summarized information regarding Fortress’s debt obligations:


							March 31, 2010
	Face Amount and Carrying Value				Contractual Interest Rate	Final Stated Maturity	Weighted Average Funding Cost (A)		Weighted Average Maturity (Years)
Debt Obligation	March 31, 2010		December 31, 2009		Contractual Interest Rate	Final Stated Maturity	Weighted Average Funding Cost (A)		Weighted Average Maturity (Years)
Credit agreement (B)
Revolving debt (C)	$	—	$	—	LIBOR + 2.50% (D)	May 2012	—		—
Term loan		350,000		350,000	LIBOR + 2.50%	May 2012	3.55	%	1.92
Delayed term loan (C)		19,876		47,825	LIBOR + 2.50%	May 2012	3.18	%	0.37

Total	$	369,876	$	397,825			3.53	%	1.84

(A)	The weighted average funding cost is calculated based on the contractual interest rate (utilizing the most recently reset LIBOR rate) plus the amortization of deferred financing costs. The most recently reset LIBOR rate was 0.23%.

(B)	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.

(C)

Approximately $66.5 million was undrawn on the revolving debt facility as of March 31, 2010. The revolving debt facility includes a $25 million letter of credit subfacility of which $8.5 million was utilized. Lehman Brothers Commercial Paper, Inc., which is committed to fund $7.2 million (including $0.8 million of the outstanding letters of credit) of the $75 million revolving credit facility, has filed for bankruptcy protection, did not fund its pro rata portion of the last borrowing under this facility, and it is reasonably possible that it will not fund its portion of the commitments. As a result, $60.1 million of the undrawn amount was available.

(D)	Subject to unused commitment fees of 0.50% per annum.

To management’s knowledge, there have not been any market transactions in Fortress’s debt obligations. However, management believes the fair value of this debt was between 95% and 100% of face value at March 31, 2010.

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2010

(dollars in tables in thousands, except share data)

Fortress was in compliance with all of its debt covenants as of March 31, 2010. The following table sets forth the financial covenant requirements as of March 31, 2010 (dollars in millions).


	March 31, 2010 (dollars in millions)				Notes
	Requirement		Actual		Notes
AUM	>$	20,000	$	30,237	(A)
Consolidated Leverage Ratio	<	3.50		1.29	(B)
Required Investment Assets	>$	381	$	894	(C)
Fortress Fund Investments	>$	153	$	566	(C)
Total Investments	>$	229	$	723	(C)

(A)	Impacted by capital raised in funds, redemptions from funds, and valuations of fund investments.

(B)	Impacted by EBITDA, as defined, which is impacted by the same factors as distributable earnings, except EBITDA is not impacted by changes in clawback reserves or gains and losses, including impairment, on investments.

(C)	Impacted by capital investments in funds and the valuation of such funds’ investments.

5. INCOME TAXES AND TAX RELATED PAYMENTS

For the three months ended March 31, 2010, an estimated annual effective tax rate of (1.88)% was used to compute the tax provision. Fortress incurred a loss before income taxes for financial reporting purposes, after deducting the compensation expense arising from the Principals’ forfeiture agreement. However, this compensation expense is not deductible for income tax purposes. Also, a portion of Fortress’s income is not subject to U.S. federal income tax, but is allocated directly to Fortress’s shareholders.

The provision for income taxes consists of the following:


	Three Months Ended March 31,
	2010			2009
Current
Federal income tax expense (benefit)	$	81		$	814
Foreign income tax expense (benefit)		587			411
State and local income tax expense (benefit)		1,610			2,127

		2,278			3,352

Deferred
Federal income tax expense (benefit)		(1,069	)		(1,518	)
Foreign income tax expense (benefit)		3			(96	)
State and local income tax expense (benefit)		340			(2,145	)

		(726	)		(3,759	)

Total expense (benefit)	$	1,552		$	(407	)

The tax effects of temporary differences have resulted in deferred income tax assets and liabilities as follows:


	March 31, 2010			December 31, 2009
Total deferred tax assets	$	550,192		$	545,253
Valuation allowance		(106,833	)		(104,614	)

Net deferred tax assets	$	443,359		$	440,639

Total deferred tax liabilities (A)	$	470		$	456

(A)	Included in Other Liabilities

For the three months ended March 31, 2010, a deferred income tax benefit of $0.2 million was credited to other comprehensive income, primarily related to the equity method investees. A current income tax benefit of $0.3 million was credited to additional paid in capital, related to (i) dividend equivalent payments on RSUs (Note 8), and (ii) distributions to Fortress Operating Group restricted partnership unit holders (Note 7), which are currently deductible for income tax purposes.

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2010

(dollars in tables in thousands, except share data)

Tax Receivable Agreement

Although the tax receivable agreement payments are calculated based on annual tax savings, for the three months ended March 31, 2010, the payments which would have been made pursuant to the tax receivable agreement, if such period was calculated by itself, were estimated to be $3.6 million.

6. RELATED PARTY TRANSACTIONS AND INTERESTS IN CONSOLIDATED SUBSIDIARIES

Affiliate Receivables and Payables

Due from affiliates was comprised of the following:


	Private Equity				Liquid Hedge Funds		Credit				Other		Total
	Funds		Castles		Liquid Hedge Funds		Hedge Funds		PE Funds		Other		Total
March 31, 2010
Management fees and incentive income (A)	$	42,799	$	7,740	$	770	$	4,647	$	9,870	$	—	$	65,826
Expense reimbursements		8,648		3,408		3,162		4,753		4,311		—		24,282
Expense reimbursements - FCF (B)		7,457		—		—		—		—		—		7,457
Dividends and distributions		1,539		—		—		—		—		—		1,539
Other		20		249		—		—		30		1,727		2,026

Total	$	60,463	$	11,397	$	3,932	$	9,400	$	14,211	$	1,727	$	101,130


	Private Equity				Liquid Hedge Funds		Credit				Other		Total
	Funds		Castles		Liquid Hedge Funds		Hedge Funds		PE Funds		Other		Total
December 31, 2009
Management fees and incentive income (C)	$	17,116	$	4,087	$	7,557	$	4,038	$	11,200	$	—	$	43,998
Expense reimbursements (C)		5,471		3,750		1,802		4,752		3,010		—		18,785
Dividends and distributions		—		—		—		—		—		—		—
Other		88		179		—		—		1		1,460		1,728

Total	$	22,675	$	8,016	$	9,359	$	8,790	$	14,211	$	1,460	$	64,511

(A)	Net of allowances for uncollectable management fees of $14.9 million.

(B)	Represents expense reimbursements due to FCF, a consolidated VIE (Note 3).

(C)	Net of allowances for uncollectable management fees and expense reimbursements of $13.8 million and $0.8 million, respectively.

Due to affiliates was comprised of the following:


	March 31, 2010		December 31, 2009
Principals
- Tax receivable agreement - Note 5	$	325,193	$	326,467
- Distributions payable on Fortress Operating Group units		31,335		16,552
Other		6,040		2,957

	$	362,568	$	345,976

As of March 31, 2010, amounts due from Fortress Funds recorded in Due from Affiliates included $42.5 million of past due management fees, excluding $11.3 million which has been subordinated to other liabilities of the related fund and has been fully reserved by Fortress, and $8.6 million of private equity general and administrative expenses advanced on behalf of certain Fortress Funds. Although such funds are currently experiencing liquidity issues, Fortress believes the unreserved fees will ultimately be collectable as the NAV’s of the respective funds exceed the amounts owed.

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2010

(dollars in tables in thousands, except share data)

Other Related Party Transactions

For the three months ended March 31, 2010 and 2009, Other Revenues included approximately $2.1 million and $1.7 million, respectively, of revenues from affiliates, primarily dividends.

Fortress has entered into cost sharing arrangements with the Fortress Funds, including market data services and subleases of certain of its office space. Expenses borne by the Fortress Funds under these agreements are generally paid directly by those entities (i.e. they are generally not paid by Fortress and reimbursed). For the three months ended March 31, 2010 and 2009, these expenses, mainly related to subscriptions to market data services, approximated $3.6 million and $2.9 million, respectively.

In February 2010, two employees terminated their employment at Fortress in order to form their own management company. Effective April 1, 2010, a subsidiary of Fortress entered into a sub-advisory agreement with them and their management company for the purpose of continuing to have them advise on an existing portfolio of illiquid investments in emerging markets on which they previously worked while they were employees. Pursuant to the terms of the agreement, the subsidiary will pay their management company an annual advisory fee and pay them a percentage of realized net proceeds from certain of such investments. As part of the agreement, the former employees have agreed to notify Fortress about certain investment opportunities in which they are involved.

In April 2010, Fortress entered into a software sublicensing agreement on an “as is” basis with a subsidiary of several Fortress Funds. The software is designed to facilitate cash management, legal entity management and data reconciliation. Fortress paid a one-time licensing fee of $150,000. The license is perpetual and irrevocable and for the non-exclusive use of Fortress’s affiliates.

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:


	March 31, 2010		December 31, 2009
Principals’ Fortress Operating Group units	$	295,100	$	301,469
Employee interests in majority owned and controlled fund advisor and general partner entities		78,463		35,789
Other		1,265		839

Total	$	374,828	$	338,097

This statement of operations caption was comprised of shares of consolidated net income (loss) related to the following, on a pre-tax basis:


	Three Months Ended March 31,
	2010			2009
Principals’ Fortress Operating Group units	$	(180,123	)	$	(219,623	)
Employee interests in majority owned and controlled fund advisor and general partner entities		2,654			28
Other		288			73

Total	$	(177,181	)	$	(219,522	)

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2010

(dollars in tables in thousands, except share data)

The purpose of this schedule is to disclose the effects of changes in Fortress’s ownership interest in Fortress Operating Group on Fortress’s equity:


	Three Months Ended March 31,
	2010			2009
Net income (loss) attributable to Fortress	$	(84,151	)	$	(67,159	)
Transfers (to) from the Principals’ and Others’ Interests:
Increase in Fortress’s paid-in capital for delivery of 5,251,558 and 28,890 restricted Class A shares during the three months ended March 31, 2010 and 2009, respectively		3,433			3

Change from net income (loss) attributable to Fortress and transfers (to) from Principals’ and Others’ Interests	$	(80,718	)	$	(67,156	)

7. EQUITY-BASED AND OTHER COMPENSATION

Fortress’s total compensation and benefits expense, excluding Principals Agreement compensation, is comprised of the following:


	Three Months Ended March 31,
	2010		2009
Equity-based compensation, per below	$	63,806	$	53,045
Profit-sharing expense, per below		50,414		3,605
Discretionary bonuses		34,359		22,859
Other payroll, taxes and benefits		30,814		29,727

	$	179,393	$	109,236

Equity-Based Compensation

The following tables set forth information regarding equity-based compensation activities.


	RSUs								Restricted Shares			RPUs
	Employees				Non-Employees				Issued to Directors			Employees
	Number		Value (A)		Number		Value (A)		Number	Value (A)		Number	Value (A)
Outstanding as of December 31, 2009	44,941,811		$	14.59	6,689,054		$	13.42	216,367	$	9.58	31,000,000	$	13.75
Issued	7,233,070			4.70	1,004,551			4.70	15,991		5.35	—		—
Converted to Class A shares	(4,412,525	)		17.02	(782,226	)		14.47	—		—	—		—
Transfers (C)	5,374,289			12.51	(5,374,289	)		12.51	—		—	—		—
Forfeited	(103,544	)		14.54	(212,555	)		8.42	—		—	—		—

Outstanding as of March 31, 2010 (B)	53,033,101		$	12.83	1,324,535		$	10.67	232,358	$	9.29	31,000,000	$	13.75


	Three Months Ended March 31,
	2010		2009
Expense incurred (B)
Employee RSUs	$	38,453	$	24,423
Non-Employee RSUs		1,250		4,461
Restricted Shares		90		148
LTIP		1,696		1,696
RPUs		22,317		22,317

Total equity-based compensation expense	$	63,806	$	53,045

(A)	Represents the weighted average grant date estimated fair value per share or unit. The weighted average estimated fair value per unit as of March 31, 2010 for awards granted to non-employees was $3.99, which is equal to the closing trading price per share of Fortress’s Class A shares on such date.

(B)	In future periods, Fortress will recognize compensation expense on its non-vested equity based awards of $603.9 million, with a weighted average recognition period of 2.9 years. This does not include amounts related to the Principals Agreement.

(C)	Relates to FCF employees who became employees of Fortress (see Note 3).

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2010

(dollars in tables in thousands, except share data)

When Fortress records equity-based compensation expense, including that related to the Principals Agreement, 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.

Profit Sharing Expense

Recognized profit sharing compensation expense is summarized as follows:


	Three Months Ended March 31,
	2010		2009
Private equity funds (A)	$	—	$	(15	)
Castles (A)		—		(137	)
Liquid hedge funds		3,026		2,564
Credit hedge funds		4,145		1,193
Credit private equity funds		43,243		—
Other		—		—

Total	$	50,414	$	3,605

(A)	Negative amounts reflect the reversal of previously accrued profit sharing expense resulting from the determination that this expense is no longer probable of being incurred.

8. EARNINGS PER SHARE AND DISTRIBUTIONS


	Three Months Ended March 31,
	2010						2009
	Basic			Diluted			Basic			Diluted
Weighted average shares outstanding
Class A shares outstanding		146,073,810			146,073,810			94,500,351			94,500,351
Fully vested restricted Class A share units with dividend equivalent rights		11,606,613			11,606,613			631,260			631,260
Fully vested restricted Class A shares		141,472			141,472			70,632			70,632
Fortress Operating Group units exchangeable into Fortress Investment Group LLC Class A shares (1)		—			307,773,852			—			—
Class A restricted shares and Class A restricted share units granted to employees and directors (eligible for dividend and dividend equivalent payments) (2)		—			—			—			—
Class A restricted share units granted to employees (not eligible for dividend and dividend equivalent payments) (3)		—			—			—			—

Total weighted average shares outstanding		157,821,895			465,595,747			95,202,243			95,202,243

Basic and diluted net income (loss) per Class A share
Net income (loss) attributable to Class A shareholders	$	(84,151	)	$	(84,151	)	$	(67,159	)	$	(67,159	)
Dilution in earnings due to RPUs treated as a participating security of Fortress Operating Group and fully vested restricted Class A share units with dividend equivalent rights treated as outstanding Fortress Operating Group units (4)		(4,934	)		(4,934	)		(359	)		(359	)
Dividend equivalents declared on non-vested restricted Class A shares and restricted Class A share units		—			—			—			—
Add back Principals’ and others’ interests in loss of Fortress Operating Group, net of assumed corporate income taxes at enacted rates, attributable to Fortress Operating Group units exchangeable into Fortress Investment Group LLC Class A shares (1)		—			(180,051	)		—			—

Net income (loss) available to Class A shareholders	$	(89,085	)	$	(269,136	)	$	(67,518	)	$	(67,518	)

Weighted average shares outstanding		157,821,895			465,595,747			95,202,243			95,202,243

Basic and diluted net income (loss) per Class A share	$	(0.56	)	$	(0.58	)	$	(0.71	)	$	(0.71	)

(1)

The Fortress Operating Group units not held by Fortress (that is, those held by the Principals) are exchangeable into Class A shares on a one-to-one basis. These units are not included in the computation of basic earnings per share. These units enter into the computation of diluted net income (loss) per Class A share when the effect is dilutive using the if-converted method. 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.

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2010

(dollars in tables in thousands, except share data)

(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 included 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. As a result of the net loss incurred in the periods presented, the effect of the units on the calculation is anti-dilutive for each of the periods. The weighted average restricted Class A share units which are not entitled to receive dividend or dividend equivalent payments outstanding were:


	Three Months Ended March 31,
	2010	2009
Share Units	27,632,927	25,347,250

(4)

Fortress Operating Group RPUs are eligible to receive partnership distribution equivalent payments when distributions are declared and paid on Fortress Operating Group units. The RPUs represent a participating security of Fortress Operating Group and the resulting dilution in Fortress Operating Group earnings available to Fortress is reflected in the computation of both basic and diluted earnings per Class A share using the method prescribed for securities issued by a subsidiary. For purposes of the computation of basic and diluted earnings per Class A share, the fully vested restricted Class A share units with dividend equivalent rights are treated as outstanding Class A shares of Fortress and as outstanding partnership units of Fortress Operating Group.

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 (“FOG”) 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.

Fortress’s dividend paying shares and units were as follows:


	Weighted Average
	Three Months Ended March 31,
	2010	2009
Class A shares (public shareholders)	146,073,810	94,500,351
Restricted Class A shares (directors)	231,292	135,496
Restricted Class A share units (employees) (A)	11,606,613	631,260
Restricted Class A share units (employees) (B)	19,651,275	22,955,132
Fortress Operating Group units (Principals)	307,773,852	312,071,550
Fortress Operating Group RPUs (senior employee)	31,000,000	31,000,000

Total	516,336,842	461,293,789


	As of March 31, 2010	As of December 31, 2009
Class A shares (public shareholders)	150,837,644	145,485,255
Restricted Class A shares (directors)	232,358	216,367
Restricted Class A share units (employees) (A)	6,905,998	1,174,117
Restricted Class A share units (employees) (B)	19,651,275	25,218,073
Fortress Operating Group units (Principals)	307,773,852	307,773,852
Fortress Operating Group RPUs (senior employee)	31,000,000	31,000,000

Total	516,401,127	510,867,664

(A)	Represents fully vested restricted Class A share units which are entitled to dividend equivalent payments.

(B)	Represents nonvested restricted Class A share units which are entitled to dividend equivalent payments.

In January 2010, 11.4 million existing RSUs vested and the related Class A shares will be delivered within six months of vesting pursuant to the plan documents. A portion of these shares was delivered in March 2010.

Dividends and distributions during the three months ended March 31, 2010 are summarized as follows:


			Current Year
	Declared in Prior Year, Paid Current Year		Declared and Paid		Declared but not yet Paid		Total
Dividends on Class A Shares	$	—	$	—	$	—	$	—
Dividend equivalents on restricted Class A share units (A)		—		—		—		—
Distributions to Fortress Operating Group unit holders (Principals) (B)		9,442		—		28,468		28,468
Distributions to Fortress Operating Group RPU holders (Note 7) (B)		951		—		2,867		2,867

Total distributions	$	10,393	$	—	$	31,335	$	31,335

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2010

(dollars in tables in thousands, except share data)

(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 Principals and RPU holders. In the fourth quarter of 2009, Fortress declared $16.6 million of such distributions of which $10.4 million were paid, as reflected in the table, and $6.2 million were not paid as a result of a change in tax estimates.

The following table summarizes our comprehensive income (loss) (net of taxes) for the three months ended March 31, 2009:


	Impact to Total Fortress Shareholders’ Equity			Impact to Principals’ and Others’ Interests in Equity of Consolidated Subsidiaries			Impact to Total Equity
Net income (loss)	$	(67,159	)	$	(219,522	)	$	(286,681	)
Foreign currency translation		(2	)		(244	)		(246	)
Comprehensive income (loss) from equity method investees		(71	)		(355	)		(426	)

Total comprehensive income (loss)	$	(67,232	)	$	(220,121	)	$	(287,353	)

9. COMMITMENTS AND CONTINGENCIES

Other than as described below, Fortress’s commitments and contingencies remain materially unchanged from December 31, 2009.

Private Equity Fund and Credit PE Fund Capital Commitments – Fortress has remaining capital commitments to certain of the Fortress Funds which aggregated $114.8 million as of March 31, 2010. These commitments can be drawn by the funds on demand.

Minimum Future Rentals – Fortress is a lessee under a number of operating leases for office space.

Minimum future rent payments under these leases are as follows:


April 1 to December 31, 2010	$	13,640
2011		12,239
2012		11,726
2013		11,532
2014		10,923
2015		10,458
Thereafter		11,613

Total	$	82,131

Rent expense recognized on a straight-line basis during the three months ended March 31, 2010 and 2009 was $5.0 million and $4.9 million, respectively, and was included in General, Administrative and Other Expense.

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 March 31, 2010, if any, will not materially affect Fortress’s results of operations, liquidity or financial position.

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2010

(dollars in tables in thousands, except share data)

10. SEGMENT REPORTING

Fortress conducts its management and investment business through the following six primary segments: (i) private equity funds, (ii) Castles, (iii) liquid hedge funds, (iv) credit hedge funds, (v) credit private equity (“PE”) funds, and (vi) principal investments in these funds as well as cash that is available to be invested.

“Distributable earnings” is a measure of operating performance used by management in analyzing its segment and overall results. For the existing Fortress businesses it 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 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 chief operating decision maker as described below (net of the reversal of any prior such reserves that are no longer deemed necessary), minus (b) incentive income recorded in accordance with GAAP,

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

Other Income

(ii)

with respect to income from certain principal investments and certain other interests that cannot be readily transferred or redeemed:

for equity method investments in the private equity funds 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, minus (b) impairment with respect to these funds, if necessary, minus (c) equity method earnings (or losses) recorded in accordance with GAAP,

subtracting gains (or adding losses) on stock options held in the Castles,

subtracting unrealized gains (or adding unrealized losses) on direct investments in publicly traded portfolio companies and in the Castles,

(iii)

adding (a) proceeds from the sale of shares received pursuant to the exercise of stock options in certain of the Castles, in excess of their strike price, minus (b) management fee income recorded in accordance with GAAP in connection with the receipt of these options,

Expenses

(iv)

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

(v)

adding back equity-based compensation expense (including Castle options assigned to employees, RSUs and RPUs (including the portion of related dividend and distribution equivalents recorded as compensation expense), restricted shares and the LTIP),

(vi)

adding or subtracting, as necessary, any changes in the fair value of contingent consideration payable with respect to the acquisition of a business, to the extent management intends to pay it in equity and it is recorded on the statement of operations under GAAP,

(vii)

adding back the amortization of intangible assets and any impairment of goodwill recorded under GAAP,

(viii)

adding back compensation expense recorded in connection with the forfeiture arrangements entered into among the principals,

(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 5).

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.

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2010

(dollars in tables in thousands, except share data)

Total segment assets are equal to total GAAP assets adjusted for:

(i)

the 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 cost for nonpublic investments,

(ii)

employee 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 between the GAAP carrying amount for options owned in certain of the Castles and their carrying amount for segment reporting purposes, which is intrinsic value, and

(iv)

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.

Distributable Earnings Impairment

Investment Impairment for DE purposes

During the three months ended March 31, 2010, Fortress recorded $4.3 million of impairment on its direct and indirect investments in private equity funds and credit PE funds for segment reporting purposes. This impairment primarily related to declines in the value of investments that were previously impaired. As of March 31, 2010, Fortress had $0.3 million of unrealized losses on certain indirect investments in hedge fund special investment accounts that have not been recorded as impairment. As of March 31, 2010, Fortress’s share of the net asset value of its direct and indirect investments in private equity funds and credit PE funds exceeded its segment cost basis by $165.7 million, representing unrealized gains.

Clawback Reserve on Incentive Income for DE Purposes

Fortress had recognized incentive income for DE purposes from the following private equity funds, which are subject to contingent clawback, as of March 31, 2010:


Fund	Net Intrinsic Clawback (A)		Periods in Intrinsic Clawback	Prior Year-End Inception-to-Date Net DE Reserve		Current Year-to-Date Gross DE Reserve		Current Year-to-Date Net DE Reserve		Inception-to-Date Net DE Reserve		Notes
Fund I		N/A	N/A	$	—	$	—	$	—	$	—	(B	)
Fund II - A		N/A	N/A		—		—		—		—	(B	)
Fund II - B	$	6,029	6 Quarters		8,520		—		—		8,520	(C	)
Fund III		45,108	9 Quarters		45,108		—		—		45,108	(D	)
FRID		10,041	11 Quarters		10,041		—		—		10,041	(D	)
Credit Opportunities Fund		N/A	N/A		—		—		—		—	(B	)
FTS SIP L.P.		N/A	N/A		—		—		—		—	(B	)

Total	$	61,178		$	63,669	$	—	$	—	$	63,669

(A)	See Note 2.

(B)	This fund had significant unrealized gains at March 31, 2010. As a result, the CODM determined that no reserve for clawback was required.

(C)	The net intrinsic clawback in this fund, after the employee portion, is less than previously recorded reserves. As a result, no further reserve was deemed necessary.

(D)	The potential clawback on these funds has been fully reserved in prior periods.

Impairment Determination

Fortress has recorded a total of approximately $4.3 million of impairment and net reserves for DE purposes on certain private equity funds and credit PE funds as described above during the three months ended March 31, 2010. Fortress expects aggregate returns on its other private equity funds and credit PE funds that are in an unrealized investment loss or intrinsic clawback position to ultimately exceed their carrying amount or breakeven point, as applicable. If such funds were liquidated at their March 31, 2010 NAV (although Fortress has no current intention of doing so), the result would be additional impairment losses and reserves for DE purposes of approximately $0.3 million.

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2010

(dollars in tables in thousands, except share data)

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 3.

March 31, 2010 and the Three Months Then Ended


					Liquid		Credit
	Private Equity				Hedge		Hedge		PE		Principal						Fortress
	Funds		Castles		Funds		Funds		Funds		Investments			Unallocated			Subtotal
Segment revenues
Management fees	$	33,252	$	12,539	$	18,802	$	33,102	$	10,157	$	—		$	—		$	107,852
Incentive income		—		—		5,502		8,321		85,150		—			—			98,973

Segment revenues - total	$	33,252	$	12,539	$	24,304	$	41,423	$	95,307	$	—		$	—		$	206,825

Fund management distributable earnings	$	24,562	$	4,437	$	7,812	$	10,762	$	45,801	$	—		$	(1,230	)	$	92,144

Pre-tax distributable earnings	$	24,562	$	4,437	$	7,812	$	10,762	$	45,801	$	4,249		$	(1,230	)	$	96,393

Total segment assets	$	58,906	$	13,599	$	5,104	$	9,428	$	12,006	$	947,202		$	526,300		$	1,572,545

															(A	)

(A) Unallocated assets include deferred tax assets of $443.4 million. March 31, 2009 and the Three Months Then Ended

					Liquid		Credit
	Private Equity				Hedge		Hedge		PE		Principal						Fortress
	Funds		Castles		Funds		Funds		Funds		Investments			Unallocated			Subtotal
Segment revenues
Management fees	$	37,631	$	11,911	$	22,629	$	28,123	$	6,081	$	—		$	—		$	106,375
Incentive income		—		—		—		822		—		—			—			822

Segment revenues - total	$	37,631	$	11,911	$	22,629	$	28,945	$	6,081	$	—		$	—		$	107,197

Fund management distributable earnings	$	29,289	$	3,989	$	5,975	$	2,904	$	2,233	$	—		$	(151	)	$	44,239

Pre-tax distributable earnings	$	29,289	$	3,989	$	5,975	$	2,904	$	2,233	$	(35,034	)	$	(151	)	$	9,205

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2010

(dollars in tables in thousands, except share data)


	March 31, 2010 and the Three Months Then Ended			Three Months Ended March 31, 2009
Fund management distributable earnings	$	92,144		$	44,239
Investment income (loss)		8,001			(26,909	)
Interest expense		(3,752	)		(8,125	)

Pre-tax distributable earnings		96,393			9,205
Adjust incentive income
Incentive income received from private equity funds and credit PE funds, subject to contingent repayment	$	(85,150	)	$	—
Incentive income accrued from private equity funds and credit PE funds, not subject to contingent repayment		—			—
Incentive income received from private equity funds and credit PE funds, not subject to contingent repayment		17,944			—
Incentive income from hedge funds, subject to annual performance achievement		(6,283	)		—
Incentive income received from the sale of shares related to options		—
Reserve for clawback, gross (see discussion above)		—			—

		(73,489	)		—
Adjust other income
Distributions of earnings from equity method investees**		(5,776	)		—
Earnings (losses) from equity method investees**		12,599			(38,921	)
Gains (losses) on options in equity method investees		556			24
Gains (losses) on other investments		(58	)		(1,853	)
Incentive income guarantee		—			—
Impairment of investments (see discussion above)		4,344			32,274
Adjust income from the receipt of options		—			—

		11,665			(8,476	)
Adjust employee compensation
Adjust employee equity-based compensation expense (including Castle options assigned)		(63,806	)		(53,044	)
Adjust employee portion of incentive income from private equity funds, accrued prior to the realization of incentive income		—			—
Adjust employee portion of incentive income from one private equity fund, not subject to contingent repayment		—			—

		(63,806	)		(53,044	)
Adjust Principals’ equity-based compensation expense		(234,759	)		(234,759	)
Adjust non-controlling interests related to Fortress Operating Group units		180,123			219,623
Adjust tax receivable agreement liability		1,317			(55	)
Adjust income taxes		(1,595	)		347

Total adjustments		(180,544	)		(76,364	)
Net Income (Loss) Attributable to Class A Shareholders		(84,151	)		(67,159	)
Principals’ and Others’ Interests in Income (Loss) of Consolidated Subsidiaries		(177,181	)		(219,522	)

Net Income (Loss)	$	(261,332	)	$	(286,681	)

Total segment assets	$	1,572,545
Adjust equity investments from cost		115,719
Adjust investments gross of employee portion		45,959
Adjust option investments to intrinsic value		1,304

Total assets (GAAP)	$	1,735,527

**	This adjustment relates to all of the Castles, private equity and credit PE Fortress Funds and hedge fund special investment accounts in which Fortress has an investment.

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2010

(dollars in tables in thousands, except share data)

Reconciling items between segment measures and GAAP measures:


	Three Months Ended March 31,
	2010			2009
Segment revenues	$	206,825		$	107,197
Adjust management fees*		1,285			163
Adjust incentive income		(73,489	)		—
Adjust income from the receipt of options		—			—
Other revenues*
Adjust management fees from non-affiliates		(2,601	)		(886	)
Adjust incentive income from non-affiliates		(7,928	)		(822	)
Adjust other revenues (including expense reimbursements)		36,096			16,644

		25,567			14,936

Total revenues (GAAP)	$	160,188		$	122,296

*	Segment revenues do not include GAAP other revenues, except to the extent they represent management fees or incentive income; such revenues are included elsewhere in the calculation of distributable earnings.

Fortress’s depreciation expense by segment was as follows:


	Private Equity				Liquid Hedge Funds		Credit
	Funds		Castles		Liquid Hedge Funds		Hedge Funds		PE Funds		Unallocated		Total
Three Months Ended March 31,
2010	$	278	$	115	$	385	$	834	$	210	$	860	$	2,682
2009	$	284	$	169	$	611	$	696	$	107	$	774	$	2,641

11. SUBSEQUENT EVENTS

These financial statements include a discussion of material events which have occurred subsequent to March 31, 2010 (referred to as “subsequent events”) through the issuance of these consolidated financial statements. Events subsequent to that date have not been considered in these financial statements.

On February 16, 2010, Fortress announced that certain of its consolidated affiliates had agreed to acquire 100% of the equity of Logan Circle Partners, L.P. (“Logan Circle”) and its general partner, Logan Circle Partners GP, LLC, for approximately $22 million (subject to certain adjustments), with the potential for an additional payment at the end of 2011, contingent on the growth and performance of Logan Circle’s business. The closing of the transaction occurred on April 16, 2010. The contingent consideration is payable in cash or Class A shares, at Fortress’s option, and has an estimated current fair value of approximately $4 million (maximum payment of $28 million) and, therefore, the total purchase price was approximately $26 million which is expected to be allocated approximately as follows: $8 million to goodwill, $8 million to amortizable intangible assets, $7 million to net deferred tax assets, and $3 million to miscellaneous net assets. In addition, Fortress incurred approximately $1 million of acquisition-related costs which were expensed as incurred to General, Administrative and Other Expense.

Logan Circle is a fixed income asset manager with approximately $11.4 billion in assets under management as of April 16, 2010. With this acquisition, Fortress will expand its investment management business to offer fixed income products to investors worldwide. Logan Circle will initially be reported in the “unallocated” section of Fortress’s segments until such time as it becomes material to Fortress’s operations.

In connection with the acquisition of Logan Circle, Fortress established an equity compensation plan for Fortress employees who were formerly employed by Logan Circle. No awards had been granted under this plan through March 31, 2010.

In April 2010, certain Principals exchanged an aggregate of 7,500,000 FOG units and Class B shares for an equal number of Class A shares and simultaneously contributed these shares to a charitable organization.

FORTRESS INVESTMENT GROUP LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2010

(dollars in tables in thousands, except share data)

NOTE 12 – CONSOLIDATING FINANCIAL INFORMATION

The consolidating financial information presents the balance sheet, statement of operations and statement of cash flows for Fortress Operating Group (on a combined basis) and Fortress Investment Group LLC (including its consolidated subsidiaries other than those within Fortress Operating Group) on a deconsolidated basis, as well as the related eliminating entries for intercompany balances and transactions, which sum to Fortress Investment Group’s consolidated financial statements as of, and for the three months ended, March 31, 2010.

Fortress Operating Group includes all of Fortress’s operating and investing entities. The upper tier Fortress Operating Group entities are the obligors on Fortress’s credit agreement (Note 4). Segregating the financial results of this group of entities provides a more transparent view of the capital deployed in Fortress’s businesses and the relevant ratios for borrowing entities.

The consolidating balance sheet information is as follows:


	As of March 31, 2010
	Fortress Operating Group Combined			Fortress Investment Group LLC Consolidated (A)			Intercompany Eliminations			Fortress Investment Group LLC Consolidated
Assets
Cash and cash equivalents	$	220,500		$	2,921		$	—		$	223,421
Due from affiliates		102,439			17,004			(18,313	)		101,130
Investments		878,467			145,834			(145,834	)		878,467
Deferred tax asset		13,332			430,027			—			443,359
Other assets		80,365			9,161			(376	)		89,150

	$	1,295,103		$	604,947		$	(164,523	)	$	1,735,527

Liabilities and Equity
Liabilities
Accrued compensation and benefits	$	64,828		$	—		$	—		$	64,828
Due to affiliates		54,380			326,877			(18,689	)		362,568
Deferred incentive income		227,303			—			—			227,303
Debt obligations payable		369,876			—			—			369,876
Other liabilities		58,054			—			—			58,054

		774,441			326,877			(18,689	)		1,082,629
Commitments and Contingencies
Equity
Paid-in capital		3,324,620			1,130,850			(3,324,620	)		1,130,850
Retained earnings (accumulated deficit)		(2,878,267	)		(852,145	)		2,878,267			(852,145	)
Accumulated other comprehensive income (loss)		(5,419	)		(635	)		5,419			(635	)

Total Fortress shareholders’ equity (B)		440,934			278,070			(440,934	)		278,070
Principals’ and others’ interests in equity of consolidated subsidiaries		79,728

Section 1: 10-Q (FORM 10-Q)

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