Oaktree Capital Management
Annual Report 2013

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549Form 10-KxANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.For the fiscal year ended December 31, 2013oroTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.For the transition period from to .Commission File Number 001-35500 Oaktree Capital Group, LLC (Exact name of registrant as specified in its charter)Delaware26-0174894(State or other jurisdiction ofincorporation or organization)(I.R.S. EmployerIdentification Number)333 South Grand Avenue, 28th FloorLos Angeles, CA 90071Telephone: (213) 830-6300(Address, zip code, and telephone number, includingarea code, of registrant’s principal executive offices) Securities registered pursuant to Section 12(b) of the Act:Title of each className of each exchange on which registeredClass A units representing limited liability company interestsNew York Stock ExchangeSecurities registered pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No xIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 and 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past90 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 besubmitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit andpost such files). Yes x No ¨Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein and will not becontained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendmentto this Form 10-K. xIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See thedefinitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act: Large accelerated filer xAccelerated filer ¨ Non-accelerated filer ¨Smaller reporting company ¨(Do not check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No xThe aggregate market value of the Class A units of the registrant held by non-affiliates as of June 30, 2013 was approximately $2.0 billion.As of February 25, 2014, there were 38,479,670 Class A units and 114,226,521 Class B units of the registrant outstanding.DOCUMENTS INCORPORATED BY REFERENCENoneTABLE OF CONTENTS PagePART I. Item 1.Business6Item 1A.Risk Factors23Item 1B.Unresolved Staff Comments59Item 2.Properties59Item 3.Legal Proceedings59Item 4.Mine Safety Disclosures59PART II. Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities60Item 6.Selected Financial Data62Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations65Item 7A.Quantitative and Qualitative Disclosures about Market Risk113Item 8.Financial Statements and Supplementary Data116Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure173Item 9A.Controls and Procedures173Item 9B.Other Information174PART III. Item 10.Directors, Executive Officers and Corporate Governance174Item 11.Executive Compensation181Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters194Item 13.Certain Relationships and Related Transactions, and Director Independence197Item 14.Principal Accounting Fees and Services203PART IV. Item 15.Exhibits, Financial Statement Schedules203Signatures 2FORWARD-LOOKING STATEMENTSThis annual report contains forward-looking statements within the meaning of Section 27A of the U.S. Securities Act of 1933, asamended (the “Securities Act”) and Section 21E of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), which reflectour current views with respect to, among other things, our future results of operations and financial performance. In some cases, you canidentify forward-looking statements by words such as “anticipate,” “approximately,” “believe,” “continue,” “could,” “estimate,” “expect,”“intend,” “may,” “outlook,” “plan,” “potential,” “predict,” “seek,” “should,” “will” and “would” or the negative version of these words or othercomparable or similar words. These statements identify prospective information. Important factors could cause actual results to differ,possibly materially, from those indicated in these statements. Forward-looking statements are based on our beliefs, assumptions andexpectations of our future performance, taking into account all information currently available to us. Such forward-looking statements aresubject to risks and uncertainties and assumptions relating to our operations, financial results, financial condition, business prospects,growth strategy and liquidity, including, but not limited to, changes in our anticipated revenue and income, which are inherently volatile;changes in the value of our investments; the pace of our raising of new funds; changes in assets under management; the timing and receiptof, and impact of taxes on, carried interest; distributions from and liquidation of our existing funds; changes in our operating or otherexpenses; the degree to which we encounter competition; and general economic and market conditions. The factors listed in the itemcaptioned “Risk Factors” in this annual report provide examples of risks, uncertainties and events that may cause our actual results to differmaterially from the expectations described in our forward-looking statements.Forward-looking statements speak only as of the date of this annual report. Except as required by law, we do not undertake anyobligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments orotherwise.MARKET AND INDUSTRY DATAThis annual report includes market and industry data and forecasts that are derived from independent reports, publicly availableinformation, various industry publications, other published industry sources and our internal data, estimates and forecasts. Independentreports, industry publications and other published industry sources generally indicate that the information contained therein was obtainedfrom sources believed to be reliable. We have not commissioned, nor are we affiliated with, any of the sources cited herein.Our internal data, estimates and forecasts are based upon information obtained from investors in our funds, partners, trade andbusiness organizations and other contacts in the markets in which we operate and our management's understanding of industry conditions.3In this annual report, unless the context otherwise requires:“Oaktree,” “OCG,” “we,” “us,” “our” or “our company” refers to Oaktree Capital Group, LLC and, where applicable, itspredecessor, Oaktree Capital Management, LLC, and the respective subsidiaries and affiliates of such entities.“Oaktree Operating Group,” or “Operating Group,” refers collectively to the entities that control the general partners and investmentadvisers of our funds in which we have a minority economic interest and indirect control.“OCGH” refers to Oaktree Capital Group Holdings, L.P., a Delaware limited partnership, which holds an interest in the OaktreeOperating Group and all of our Class B units.“OCGH unitholders” refers collectively to our Principals, current and former employees and certain other investors who hold theirinterest in the Oaktree Operating Group through OCGH.“2007 Private Offering” refers to the sale completed on May 25, 2007 of 23,000,000 of our Class A units to Goldman, Sachs & Co.,as initial purchaser, as more fully described in “Management's Discussion and Analysis of Financial Condition and Results of Operations—The May 2007 Restructuring and The 2007 Private Offering—The 2007 Private Offering.”“assets under management,” or “AUM,” generally refers to the assets we manage and equals the NAV (as defined below) of theassets we manage, the fund-level leverage on which management fees are charged and the undrawn capital that we are entitled to call frominvestors in our funds pursuant to their capital commitments. Our AUM amounts include AUM for which we charge no fees. Our definition ofAUM is not based on any definition contained in our operating agreement or the agreements governing the funds that we manage. Ourcalculation of AUM and the two AUM-related metrics described below may not be directly comparable to the AUM metrics of other investmentmanagers.•“management fee-generating assets under management,” or “management fee-generating AUM,” is a forward-looking metric andreflects the AUM on which we will earn management fees in the following quarter, as more fully described in“Management's Discussion and Analysis of Financial Condition and Results of Operations—Segment and Operating Metrics—Assets Under Management—Management Fee-generating Assets Under Management.”•“incentive-creating assets under management,” or “incentive-creating AUM,” refers to the AUM that may eventually produceincentive income, as more fully described in “Management's Discussion and Analysis of Financial Condition andResults of Operations—Segment and Operating Metrics—Assets Under Management—Incentive-creating AssetsUnder Management.”“consolidated funds” refers to those funds that Oaktree consolidates through a majority voting interest or otherwise, including thosefunds in which Oaktree as the general partner is presumed to have control.“funds” refers to investment funds and, where applicable, separate accounts that are managed by us or our subsidiaries.“Intermediate Holding Companies” collectively refers to the subsidiaries wholly owned by us.“May 2007 Restructuring” refers to the series of transactions that occurred immediately prior to the 2007 Private Offering wherebyOCGH contributed our business to the Oaktree Operating Group in exchange for limited partnership interests in each Oaktree OperatingGroup entity, as more fully described in “Management's Discussion and Analysis of Financial Condition and Results of Operations—TheMay 2007 Restructuring and The 2007 Private Offering—The May 2007 Restructuring.”“net asset value,” or “NAV,” refers to the value of all the assets of a fund (including cash and accrued interest and dividends) less allliabilities of the fund (including accrued expenses and any reserves established by us, in our discretion, for contingent liabilities) withoutreduction for accrued incentives (fund level) because they are reflected in the partners’ capital of the fund. “Relevant Benchmark” refers, with respect to:•our U.S. High Yield Bond strategy, to the Citigroup U.S. High Yield Cash-Pay Capped Index;4•our European High Yield Bond strategy, to the BofA Merrill Lynch Global Non-Financial High Yield European Issuers excludingRussia 3% Constrained Index (USD Hedged);•our Global High Yield Bond strategy, to an Oaktree custom global high yield index that represents 60% BofA Merrill Lynch HighYield Master II Constrained Index and 40% BofA Merrill Lynch Global Non-Financial High Yield European Issuers 3%Constrained, ex-Russia Index – USD Hedged from inception through December 31, 2012, and the BofA Merrill Lynch Non-Financial Developed Markets High Yield Constrained Index – USD Hedged thereafter;•our U.S. Senior Loan strategy (with the exception of the closed-end funds), to the Credit Suisse Leveraged Loan Index;•our European Senior Loan strategy, to the Credit Suisse Western European Leveraged Loan Index (EUR Hedged);•our U.S. Convertible Securities strategy, to an Oaktree custom convertible index that represents the Credit Suisse ConvertibleSecurities Index from inception through December 31, 1999, the Goldman Sachs/Bloomberg Convertible 100 Index fromJanuary 1, 2000 through June 30, 2004 and the BofA Merrill Lynch All U.S. Convertibles Index thereafter;•our non-U.S. Convertible Securities strategy, to the JACI Global ex-U.S. (Local) Index;•our High Income Convertible Securities strategy, to the Citigroup U.S. High Yield Market Index; and•our Emerging Markets Equity strategy, to the Morgan Stanley Capital International Emerging Markets Index (Net).“Sharpe Ratio” refers to a metric used to calculate risk-adjusted return. The Sharpe Ratio is the ratio of excess return to volatility, withexcess return defined as the return above that of a riskless asset (based on the three-month U.S. Treasury bill, or for our European SeniorLoan strategy, the Euro Overnight Index Average) divided by the standard deviation of such return. A higher Sharpe Ratio indicates a returnthat is higher than would be expected for the level of risk compared to the risk-free rate.This annual report and its contents do not constitute and should not be construed as an offer of securities of any Oaktree funds.5Part I.Item 1. BusinessOverviewOaktree is a leader among global investment managers specializing in alternative investments, with $83.6 billion in AUM as ofDecember 31, 2013. The firm emphasizes an opportunistic, value-oriented and risk-controlled approach to investments in distressed debt,corporate debt (including high yield debt and senior loans), control investing, convertible securities, real estate and listed equities. Over morethan a quarter-century we have developed a large and growing client base through our ability to identify and capitalize on opportunities forattractive investment returns in less efficient markets. Our investment approach, based on the primacy of risk control, and the strong risk-adjusted performance record it has produced appeal to the many investors who seek attractive returns with less-than-commensurate risk.Oaktree's growth and success are byproducts of our proven investment approach and our policy of putting clients' interests first.Our founding Principals were pioneers in the management of high yield bonds, convertible securities and distressed debt. From thoseroots we have developed an array of specialized credit- and equity-oriented strategies. Our 247 investment professionals include 128 seniorinvestment professionals with an average 19 years of industry experience. These individuals possess the investing, research, analytical,legal, trading and other skills, relationships and experience that are necessary for long-term success in our complex markets. Additionally,our compensation and other personnel practices foster a collaborative culture that facilitates complementary investment strategies benefitingfrom shared knowledge and insights.We manage assets on behalf of many of the most significant institutional investors in the world. Our clientele has more thandoubled over the past decade, to over 2,000, including 75 of the 100 largest U.S. pension plans, 37 states in the United States, approximately425 corporations, over 300 university, charitable and other endowments and foundations, 11 sovereign wealth funds and approximately 300other non-U.S. institutional investors. Our 25 largest clients participate in an average of four different investment strategies, reflecting theconfidence engendered by our consistent firm-wide investment approach. Approximately 13% of our AUM represents high-net-worthindividuals or sub-advisory relationships with mutual funds, indicating both the broadening appeal of alternatives to individual investors andour heightened focus on that market.Since Oaktree's founding in 1995, our AUM has grown significantly, even as we have distributed more than $67 billion from ourclosed-end funds. Although we limit our AUM when appropriate in order to better position us to generate superior risk-adjusted returns, wehave a long-term track record of organically growing our investment strategies, increasing our AUM and expanding our client base. Over thepast seven years, we have raised gross assets of $89 billion, with no single calendar year below approximately $10 billion.As shown in the chart below, our AUM has grown to $83.6 billion as of December 31, 2013 from $27.9 billion a decade earlier. Overthe same period, management fee-generating AUM grew from $25.6 billion to $72.0 billion, and incentive-creating AUM increased from$10.8 billion to $32.4 billion.Year-end AUM6We have systematically broadened employee ownership since our founding to help align interests among employees, our clients andother stakeholders, as well as to facilitate a smooth generational transfer of management and ownership. We have over 800 employees,including over 190 employee-owners, with offices in 16 cities across 12 countries, of which the largest offices are in Los Angeles(headquarters), London, New York and Hong Kong.Oaktree Capital Group, LLC is a Delaware limited liability company that was formed in 2007. Please see “Management's Discussionand Analysis of Financial Condition and Results of Operations—The May 2007 Restructuring and The 2007 Private Offering” for additionalinformation.Structure and Operation of Our BusinessOur business is comprised of one segment, our investment management segment, which consists of the investment managementservices that we provide to our clients. Our segment revenue flows from the management fees and incentive income generated by the fundsthat we manage, as well as the investment income from the funds we manage and other third-party funds and companies in which weinvest. The management fees that we receive are based on the contractual terms of the relevant fund and are typically calculated as a fixedpercentage of the capital commitments (as adjusted for distributions during a fund's liquidation period), drawn capital or NAV of the particularfund. Incentive income represents our share (typically 20%) of the investors' profits in most of the closed-end and evergreen funds.Investment income refers to the investment return on a mark-to-market basis on the amounts that we invest in Oaktree and third-partyfunds, as well as certain companies, and our equity income participation from equity-method investments in other companies.Structure of FundsClosed-end FundsOur closed-end funds are typically structured as limited partnerships that have a 10- or 11-year term and have a specified period duringwhich clients can subscribe for limited partnership interests in the fund. Once a client is admitted as a limited partner, that client is required tocontribute capital when called by us as the general partner, and generally cannot withdraw its investment. Our closed-end funds have aninvestment period that generally ranges from three to five years during which we are permitted to invest the committed capital of those funds.As closed-end funds liquidate their investments, we typically distribute the proceeds to the clients, although during the investment period wehave the ability to retain or recall such proceeds to make additional investments. Once we have committed to invest approximately 80% ofthe capital in a particular fund, we typically raise a new fund in the same strategy, generally ensuring that we always have capital to invest innew opportunities. From time to time, we may provide discretionary management services for clients within our closed-end fund strategiesthrough a separate account or a limited partnership or limited liability company managed by us with the client as the sole limited partner orsole non-managing member (a “fund-of-one”).Open-end FundsOur commingled open-end funds are typically structured as limited partnerships that are designed to admit clients as new limitedpartners (or accept additional capital from existing limited partners) on an ongoing basis during the fund's life. Clients in commingled open-end funds typically contribute all of their committed capital upon being admitted to the fund. These funds do not have an investment periodand do not distribute proceeds of realized investments to clients. We are permitted to commit the fund's capital (including realized proceeds) tonew investments at any time during the fund's life. Clients in commingled open-end funds generally have the right to withdraw their capitalfrom the fund at any time on a monthly basis (quarterly for our Senior Loan strategy).We also provide discretionary management services for clients through separate accounts within the open-end fund strategies. Clientsestablish accounts with us by depositing funds or securities into accounts maintained by qualified independent custodians and granting usdiscretionary authority to invest such funds pursuant to their investment needs and objectives, as stated in an investment managementagreement. Separate account clients generally may terminate our services at any time by providing us with prior notice of 30 days or less.Most of the separate accounts we currently manage are in the open-end fund strategies.Evergreen FundsWe use the term evergreen funds to describe funds that invest in marketable securities, private debt or equity on a long and shortbasis. As with open-end funds, commingled evergreen funds are designed to accept new capital on an ongoing basis and generally do notdistribute proceeds of realized investments to clients. We also provide discretionary management services for clients through separateaccounts or fund-of-ones within our7evergreen fund strategies. Clients in evergreen funds are generally subject to a lock-up, which restricts their ability to withdraw their entirecapital for a certain period of time after their initial subscription.Management FeesWe receive management fees monthly or quarterly based on annual fee rates. While we typically earn management fees for each ofthe funds that we manage, the contractual terms of those management fees vary by certain factors, such as fund structure. In the case ofclosed-end funds, management fees are typically calculated as a fixed percentage, in the range of 1.25% to 1.75% per year, of total committedcapital during the investment period of the fund (through the final close, these fees are earned on a retroactive basis to the start of the fund'sinvestment period). However, for some of our newer closed-end funds, such as Oaktree European Dislocation Fund, L.P., Oaktree RealEstate Debt Fund, L.P. and Oaktree Mezzanine Fund IV, L.P., management fees during the investment period of these funds will becalculated based on drawn, rather than committed, capital. During the liquidation period of a closed-end fund, the management fee remainsthe same fixed percentage, applied against the lesser of the total funded capital and the cost basis of assets during the liquidation period. Ourright to receive management fees typically ends after 10 or 11 years from the start of the investment period, even if assets remain to beliquidated. For open-end and evergreen funds, the management fee is generally based on the NAV of the fund. Open-end funds paymanagement fees of approximately 0.50% of NAV per year, paid monthly or quarterly. Evergreen funds pay a management fee quarterly,ranging from 1.0% to 2.0% per year, based on a fixed percentage of the NAV of the relevant fund. In the case of certain open-end andevergreen fund accounts, in lieu of charging the regular management fee applicable to the relevant strategy, we have the potential to earnperformance-based fees, typically in reference to a relevant benchmark index or hurdle rate.Incentive IncomeWe have the potential to earn incentive income from closed-end funds, most of which follow the so-called European-style waterfall,whereby we receive incentive income only after the fund first distributes all contributed capital plus an annual preferred return, typically 8%.Once this occurs, we generally receive as incentive income 80% of all distributions otherwise attributable to our investors, and thoseinvestors receive the remaining 20% until we have received, as incentive income, 20% of all such distributions in excess of the contributedcapital from the inception of the fund. Thereafter, provided the preferred return continues to be met, all such future distributions attributable toour investors are distributed 80% to those investors and 20% to us as incentive income. As a result, we generally receive incentive income,if any, in the latter part of a fund's life, although earlier in a fund's term we may receive tax distributions, which we recognize as incentiveincome, to cover our allocable share of income taxes until we are otherwise entitled to payment of incentive income.Certain of our evergreen funds pay annual incentive income equal to 20% of the year's profits, subject to either a high-water mark orhurdle rate. The high-water mark refers to the highest historical NAV attributable to a limited partner's account. We do not earn annualincentive income with respect to a limited partner if its year-end NAV is lower than any prior year's NAV, excluding any contributions orredemptions.Investment IncomeWe earn segment investment income from our corporate investments in funds and companies, with Oaktree-managed fundsconstituting the bulk of our corporate investments. Our investments in Oaktree-managed funds generally fall into one of three categories:general partner interests in commingled funds, seed capital for new investment strategies prior to third-party capital raising, and corporatecash management. In the case of general partner interests in our closed-end or evergreen funds, we typically invest the greater of 2.5% ofcommitted capital or $20 million in each fund, not to exceed $100 million per fund. For strategic purposes, we also invest in a handful ofthird-party managed funds or companies. Our investments in companies include a one-fifth equity stake in DoubleLine Capital LP and itsaffiliates (collectively, “DoubleLine”), an investment manager that sought our start-up consulting and financial involvement shortly after itsfounding in December 2009.Our Investment ApproachAt our core, we are contrarian, value-oriented investors focused on buying securities and companies at prices below their intrinsicvalue and selling or exiting those investments when they become fairly or fully valued. We believe we can do this best by investing inmarkets where specialization and superior analysis can offer an investing edge.8In our investing activities, we adhere to the following fundamental tenets:•Focus on Risk-Adjusted Returns. Our primary goal is not simply to achieve superior investment performance, but to do so withless-than-commensurate risk. We believe that the best long-term records are built more through the avoidance of losses in badtimes than the achievement of superior relative returns in good times. Thus, our overriding belief is that “if we avoid the losers, thewinners will take care of themselves.”•Focus on Fundamental Analysis. We employ a bottom-up approach to investing, based on proprietary, company-specificresearch. We seek to generate outperformance from in-depth knowledge of companies and their securities, not from macro-forecasting. Our 247 investment professionals have developed a deep and thorough understanding of a wide number of companiesand industries, providing us with a significant institutional knowledge base.•Specialization. We offer a broad array of specialized investment strategies. We believe this offers the surest path to the results weand our clients seek. Clients interested in a single investment strategy can limit themselves to the risk exposure of that particularstrategy, while clients interested in more than one investment strategy can combine investments in our funds to achieve theirdesired mix. Our focus on specific strategies has allowed us to build investment teams with extensive experience and expertise. Atthe same time, our teams access and leverage each other's expertise, affording us both the benefits of specialization and thestrengths of a larger organization.Our Asset Classes and Investment StrategiesWe manage investments in a number of strategies within six asset classes: Distressed Debt, Corporate Debt, Control Investing,Convertible Securities, Real Estate and Listed Equities. The diversity of our investment strategies allows us to meet a wide range of investorneeds suited for different market environments globally and, for certain strategies, targeted regions, while providing us with a long-termdiversified revenue base. Nearly all of our largest investment strategies (as measured by AUM) invest on an unlevered basis at the fundlevel. As of December 31, 2013, our AUM by asset class and investment strategy is shown below: StrategyInception Date StrategyInceptionDate AUM AUM (in billions) (in billions)Distressed Debt: Convertible Securities: Distressed Debt1988 $19.1 U.S. Convertible Securities1987 $4.7Value Opportunities2007 1.9 Non-U.S. Convertible Securities1994 2.7Emerging Market Opportunities2012 0.8 High Income Convertible Securities1989 1.0 21.8 8.4Corporate Debt: Real Estate: U.S. High Yield Bonds1986 12.7 Real Estate Opportunities1994 5.5Global High Yield Bonds2010 6.3 Real Estate Debt2012 0.4European High Yield Bonds1999 0.6 5.9U.S. Senior Loans2007 5.0 Listed Equities: European Senior Loans2009 1.5 Emerging Markets Equities2011 1.0Mezzanine Finance2001 2.1 Emerging Markets Absolute Return1997 0.3Strategic Credit2012 2.0 OthersVarious 0.2European Private Debt2013 0.9 1.5 31.1 Control Investing: Total $83.6Global Principal Investments1994 6.4 European Principal Investments2006 6.8 Asia Principal Investments2006 0.4 Power Opportunities1999 1.3 14.9 This array of specialized credit- and equity-oriented strategies allows us to focus on downside risk protection while at the same timecreating value and the ability to realize accrued incentives, as is demonstrated by the9diversified holdings of our incentive-creating closed-end and evergreen funds. As of December 31, 2013, senior and secured debt,subordinated debt, and equities represented 36%, 5% and 59%, respectively, of the $32.4 billion of incentive-creating AUM.Our longest managed investment strategies are described below:Distressed DebtOur Distressed Debt team was an industry pioneer and has been one of its leaders since the inception of the strategy in 1988. Theteam focuses primarily on investments in distressed companies that are perceived to have substantial asset values or business franchises,are in industries going through periods of transition or dislocation and have competent management. We take an opportunistic approach toinvesting, with the flexibility and expertise to choose from a broad range of investments, including leveraged loans, bonds, equity securities,companies or hard assets. Building on our Distressed Debt team's experience in the U.S., we have established a significant presence inEurope to capitalize on opportunities in that region.Value OpportunitiesWe launched Value Opportunities (“VOF”) in September 2007 for investors who had expressed interest in a more liquid version ofthe Distressed Debt strategy. The fund is managed by the Distressed Debt team and invests mainly in distressed debt and other value-oriented investments for which there is a liquid market. Inasmuch as this strategy is intended to be opportunistic, the composition of theportfolio may change with market conditions. In general, this strategy employs similar strategies and tactics with regard to distressedinvestments as the Distressed Debt strategy, but it may be more aggressive and more oriented to short-term trading (and may make greateruse of leverage, shorting and derivatives) with respect to its non-distressed investments.High Yield BondsWe view high yield bond investing as the conscious bearing of risk for potential profit, and we follow a defensive, downside-orientedstrategy focused on gauging credit risk. Rather than stretching for higher yields, our primary focus is managing risk and avoiding defaults. Since the inception of the U.S. strategy in 1986, our holdings have experienced an average default rate equal to approximately one-third thehigh yield bond market as a whole. Our team's analytical and investment skills also are evidenced by the fact that in each of our strategy's28 years, its portfolio holdings have garnered a larger percentage of rating-agency upgrades than downgrades. U.S. and European Senior LoansIn September 2007 we formed the U.S. Senior Loan strategy to capitalize on the backlog of unsold or “hung” bridge loans held byinvestment banks near the start of the global financial crisis. As the market environment subsequently changed, we expanded the strategy toinclude investing in senior bank loans. Investments include bank loans and senior debt from the middle- and upper-quality tiers of the non-investment grade debt market. In most instances, these instruments constitute the most senior position in the capital structure of theborrower. In May 2009, we capitalized on our experience in senior loans and European high yield bonds by forming the European SeniorLoan strategy to take advantage of opportunities in the primary and secondary loan markets.Mezzanine FinanceIn 2001 we created the Mezzanine Finance strategy to capitalize on our expertise in credit analysis after we observed a gap in theavailability of mezzanine capital to many attractive companies that were considered too small for the high yield bond market. Our strongrelationships with small-cap and mid-cap private equity sponsors constitutes a major advantage in our Mezzanine investment process. Thestrategy's targeted investment size is $20 million to $100 million, where we believe many attractive opportunities exist to help financeleveraged buyouts, recapitalizations, acquisitions and corporate growth. The Mezzanine Finance strategy seeks to earn a high current returnand achieve long-term capital appreciation without subjecting principal to undue risk.Principal InvestmentsThe Global and European Principal Investment strategies typically target investments through capital infusions into distressed or“stressed” companies, acquisition of distressed securities with an expected outcome of a debt for equity conversion (“distress-for-control”), orprivate equity investments in targeted industries. Our team's private equity and distressed debt experience allows us a competitive advantagein accessing distressed debt, negotiating through the bankruptcy process for control of a business and maximizing the value of an investmentonce we obtain control. Our European investments have focused on complex business restructurings and10industries in which we have particular expertise. We have experienced in-house portfolio enhancement teams in both the U.S. and Europethat are dedicated to identifying and implementing operational, strategic and financial enhancements at portfolio companies.Power OpportunitiesBeginning in 1996, the Control Investing strategy made a number of power infrastructure investments jointly with an independentfirm, GFI Energy Ventures (“GFI”). In 2009, GFI personnel joined us and, starting with Oaktree Power Opportunities Fund III, L.P. (“PowerFund III”), we became the sole manager of the strategy. The Power Opportunities funds seek to make controlling equity investments incompanies providing equipment, software and services used in marketing, distribution, transmission, trading or consumption of power andother similar services. The strategy invests in proven performers and market leaders, not start-up ventures or turnarounds.Convertible SecuritiesConvertible securities are part debt and part equity. Applying our risk-control investment approach to these securities, we attempt tocapture most of the performance of equities in rising markets and to outperform equities in flat or down markets. Our goal is to capture thevast majority of the performance of equities over full market cycles with reduced volatility and/or substantially outperform straight bonds withsimilar levels of volatility. To reduce risk, we broadly diversify and focus on convertibles that provide pronounced downside protection. Highincome, or “busted,” convertibles offer a unique combination of high current yield and yield-to-maturity, plus the potential for significantequity-driven capital appreciation. As a neglected niche within the convertible universe, high income convertibles are often available atattractive prices.Real EstateSometimes in partnership with certain other strategies, the Real Estate team targets a diverse range of global investments, includingdirect property investments, investments in companies with extensive real estate assets, undervalued debt and equity securities, andopportunities to develop and re-position properties in association with aligned, high-quality partners. In recent years we have developedstrategic business relationships with third-party servicing companies for commercial and residential mortgage pools, which have enabled usto acquire and profitably manage portfolios of non-performing mortgage loans sold at discounted prices by banks.Emerging Markets Absolute ReturnThe Emerging Markets Absolute Return (“EMAR”) strategy is based on our belief that certain countries have non-mainstreamfinancial markets where companies are often poorly analyzed and securities mispriced. Moreover, we believe that emerging markets tend topossess attractive investment environments on a fundamental basis given their generally higher rates of economic growth (as compared todeveloped countries). This strategy utilizes long and, to a lesser extent, short positions in the equity and other securities of companies basedin emerging and growing countries, without significant leverage, in its effort to achieve substantial absolute total returns while reducingexposure to macro factors.Development of New Investment StrategiesWe add to Oaktree's list of investment strategies when we identify a market with potential for attractive returns that we believe can beexploited in a limited-risk fashion, and where we have access to the investment talent capable of producing the results we seek. Because ofthe high priority we place on assuring that these requirements are met, we prefer that new products represent “step-outs” from our currentinvestment strategies into highly related fields with people with whom we have had extensive experience or for whom we can validatequalifications. Strategies recently launched or developed include the following:Emerging Market Opportunities. We launched this strategy in 2012 and began managing assets in September 2013 to targetstressed, distressed and other value-oriented fixed income and equity investments in emerging markets. This strategy is managed by a U.S.-based, dedicated group that leverages our Distressed Debt team's experience and expertise in the U.S. and Europe, and employs anestablished, flexible external network of local advisers to enhance deal flow, access local market intelligence and address the intricacies ofjurisdictional differences and industry and local regulatory developments.Emerging Markets Equities. As a step-out from EMAR, we added the long-only Emerging Markets Equity (“EME”) strategy in 2011.First selected to sub-advise part of Vanguard's Emerging Markets Select Stock Fund, we have broadened our EME clientele through funds,sub-advisory relationships and separate accounts. The strategy11invests on a long-only basis in the equities of emerging market companies in the Asia Pacific region, Latin America, Eastern Europe, theMiddle East, Africa and Russia.Enhanced Income. In 2012, we added a new product under the Senior Loan umbrella, Enhanced Income, to create a portfolio ofbelow investment grade loans using a moderate amount of leverage. Enhanced Income utilizes the same investment approach as our U.S.Senior Loan strategy.European Private Debt. We introduced European Private Debt in 2013 to capitalize on opportunities resulting from the decline inEuropean bank lending and our significant industry experience, knowledge and deep relationships across the continent. The strategy seeksto achieve attractive, risk-adjusted absolute returns by making primary investments in high-yielding debt or preferred equity of companiesthat require liquidity for acquisitions, buyout of minority investors, debt restructurings, recapitalizations or acquisitions of hard assets.Global High Yield. We were among the first firms to establish a dedicated European High Yield Bond strategy in 1999. Over theyears, many of our U.S. investors acquired units of the European fund to enhance performance and increase portfolio diversification. In2010, we established a single portfolio approach to invest in the U.S. and European markets, capitalizing on the expertise of our researchteams. Rather than combining two diversified portfolios, the new discipline combines the best relative value opportunities within the twomarkets into a single account.Real Estate Debt. Our management of Oaktree PPIP Fund, L.P. (“PPIP”), organized pursuant to the U.S Treasury Department'sprogram to address troubled real estate-related assets during the global financial crisis, spurred us to offer Real Estate Debt as a successorstrategy. This strategy invests primarily in performing commercial mortgage-backed securities, first mortgages, junior secured debt,unsecured debt and mezzanine debt.Strategic Credit. In 2012, we introduced Strategic Credit as an opportunistic credit strategy that invests in marketable securities andprivate debts of stressed U.S. and non-U.S. companies. The strategy seeks returns above those on high yield bonds but below those for moredistress-oriented strategies. Our Investment PerformanceOur investment professionals have generated impressive investment performance through multiple market cycles, almost entirelywithout the use of fund-level leverage. As of December 31, 2013, our closed-end funds had produced an aggregate gross IRR of 19.9% onover $62 billion of drawn capital.All 50 of the closed-end funds we manage that commenced prior to 2013 had positive gross IRRs as of December 31, 2013, and 49 ofthose 50 closed-end funds had positive net IRRs as of that date, an achievement that reflects, among many factors, our practice of sizingfunds in proportion to our view of the supply of potential attractive investment opportunities. Our oldest and largest closed-end fund strategy isDistressed Debt, whose performance by fund is shown below:12Gross IRRs of Oaktree Distressed Debt Funds as of December 31, 2013 (1) (1)Excludes Oaktree Opportunities Fund IX, L.P., which had its first drawdown in March 2013 and thus did not have a meaningful IRRas of December 31, 2013. The TCW Special Credits Funds, or SCF funds, were managed by certain Oaktree investmentprofessionals while employed at the Trust Company of the West prior to Oaktree's founding in 1995. When these employees joinedOaktree upon, or shortly after, its founding, they continued to manage the fund through the end of its term pursuant to a sub-advisory relationship between the Trust Company of the West and Oaktree.Performance of our open-end funds is measured in relation to applicable benchmark returns. We have a long track record of achievingcompetitive returns in up markets and substantial relative outperformance in down markets. We believe this pattern of results leads tosignificant outperformance over full market cycles. Our oldest and largest open-end fund strategy is U.S. High Yield Bonds, whoseperformance is shown below in comparison to its Relevant Benchmark.13Cumulative Gross Returns of U.S. High Yield Bond Strategyand Relevant Benchmark through December 31, 2013The outperformance by our investment team was achieved with relatively less risk, as demonstrated by the fact that our U.S. HighYield Bond strategy had a Sharpe Ratio since inception through December 31, 2013 of 0.82, as compared to 0.56 for its RelevantBenchmark.SynergiesWe emphasize cross-group cooperation and collaboration among our investment professionals. Many of our investment strategies arecomplementary, and our investment professionals often identify and communicate potential opportunities to other groups, allowing our fundsto benefit from the synergies created by the scale of our business and our proprietary research. The High Yield Bond group, for instance,sometimes alerts the Distressed Debt group to issuers facing financial difficulties, alternatively the Distressed Debt group sometimesidentifies companies emerging from bankruptcy that could be attractive to the High Yield group.This cross-pollination among our investment groups occurs both formally and informally. For example, members of the DistressedDebt, Principal Investments and Real Estate groups typically attend each other's meetings in order to ensure that each group keeps abreastof the others’ activities and has ready access to specialized expertise for more informed investment decisions. These groups periodicallyinvest jointly, permitting us to make larger or more specialized investments than we could undertake in the absence of such collaboration.Our investment professionals also cooperate informally, consulting each other on a regular basis with respect to existing and proposedinvestments. Our culture encourages such cooperation, as does the broad ownership by all of our senior investment professionals, whichgives each of them an indirect stake in the success of all of our investment strategies.We have a shared trading desk in the U.S. for the Distressed Debt, High Yield Bond, Senior Loan, Principal Investments, Real Estateand Strategic Credit strategies. The shared trading desk provides all of these strategies the benefit of our traders’ deep experience with bothperforming and distressed securities, facilitates communication among the groups, and allows us to combine trades for larger orders with thepreferential access and pricing that sometimes comes with larger orders. Additionally, the shared nature of the trading desk allows us topursue individual opportunities without revealing to the broader market which of our strategies may be purchasing the targeted security,providing an advantage over our competitors who invest exclusively in distressed or distress-for-control strategies, thus revealing theirexpectations for their investments.14The scale of our investing activities makes us a significant client of many investment banks, brokers and consultants, and thus helpseach group access opportunities that might not be available were it not part of our larger organization. Finally, the scale of our activities haspermitted us to create significant shared resources.Marketing and Client RelationsOur client relationships are fundamental to our business. We strive to act with professionalism and integrity and believe our successflows from the success of our fund investors. We have developed a loyal following among many of the nation's most significant institutionalinvestors, and believe that their and our other investors' loyalty flows from our superior investment record, our reputation for integrity, andthe fairness and transparency of our fee structures.As of December 31, 2013, the $83.6 billion of AUM was divided by client type and geographic origin as follows:AUM by Client TypeAUM % AUM by Client Location AUM % (in millions) (in millions) Public funds$23,586 28% North America $61,468 73%Corporate and corporate pension23,105 28 Europe 11,632 14Insurance companies6,932 8 Asia & Australia 8,985 11Sovereign wealth funds6,386 8 Africa & Middle East 1,475 2Endowments/foundations6,154 7 South America 45 0Sub-advisory – mutual funds5,548 7 Total $83,605 100%Private – high net worth/family office4,983 6 Fund of funds1,893 2 Unions1,136 1 Oaktree and other3,882 5 Total$83,605 100% Our extensive in-house global Marketing and Client Relations group, comprised of 51 individuals dedicated to relationshipmanagement and sales, client service or sales strategy in Europe, the Middle East, Asia/Pacific and the Americas, appropriately reflects theincreasingly global composition of our client base. This team is augmented by 40 dedicated marketing support, portfolio analytics and clientreporting professionals.EmployeesWe strive to maintain a work environment that fosters integrity, professionalism, excellence, candor and collegiality among ouremployees. We consider our labor relations to be good. As of December 31, 2013, we had 809 employees as follows: All Employees EmployeeOwners (1) EmployeesLocatedOutside theU.S.Investment professionals247 119 88Other professionals411 77 59Support staff151 — 32Total809 196 179 (1) Represents employees that hold OCGH units.15CompetitionWe compete with many other firms in every aspect of our business, including raising funds, seeking investments and hiring andretaining professionals. Many of our competitors are substantially larger than us and have considerably greater financial, technical andmarketing resources. Certain of these competitors periodically raise significant amounts of capital in investment strategies that are similar toours. Some of these competitors also may have a lower cost of capital and access to funding sources that are not available to us, which maycreate further competitive disadvantages for us with respect to investment opportunities. In addition, some of these competitors may havehigher risk tolerances or make different risk assessments than we do, allowing them to consider a wider variety of investments and establishbroader networks of business relationships. In short, we operate in a highly competitive business and many of our competitors may be betterpositioned than we are to take advantage of opportunities in the marketplace. For additional information regarding the competitive risks thatwe face, please see “Risk Factors—Risks Relating to Our Business—The investment management business is intensely competitive.”Organizational StructureOaktree Capital Group, LLC is owned by its Class A and Class B unitholders. Class A units are entitled to one vote per unit. ClassB units are entitled to ten votes per unit. All issued and outstanding Class B units are held by OCGH. However, if the Oaktree controlcondition (as defined below) is no longer satisfied, our Class B units will be entitled to only one vote per unit. Holders of our Class A unitsand Class B units generally vote together as a single class on the limited set of matters on which our unitholders have a vote. Such matters,which must be approved by a majority (or, in the case of election of directors when the Oaktree control condition is no longer satisfied, aplurality) of the votes entitled to be cast by all Class A units and Class B units present in person or represented by proxy at a meeting ofunitholders, include a proposed sale of all or substantially all of our assets, certain mergers and consolidations, certain amendments to ouroperating agreement and an election by our board of directors to dissolve the company. The Class B units do not represent an economicinterest in Oaktree Capital Group, LLC. The number of Class B units held by OCGH, however, increases or decreases with correspondingchanges in OCGH's economic interest in the Oaktree Operating Group.Our operating agreement provides that so long as our Principals, or their successors or affiliated entities (other than us or oursubsidiaries), including OCGH, collectively hold, directly or indirectly, at least 10% of the aggregate outstanding Oaktree Operating Groupunits, our manager, Oaktree Capital Group Holdings GP, LLC, which is 100% owned and controlled by our Principals, will be entitled todesignate all the members of our board of directors. We refer to this ownership condition as the “Oaktree control condition.” Holders of ourClass A units and Class B units have no right to elect our manager. So long as the Oaktree control condition is satisfied, our manager willcontrol the membership of our board of directors, which will manage all of our operations and activities and will have discretion oversignificant corporate actions, such as the issuance of securities, payment of distributions, sale of assets, making certain amendments to ouroperating agreement and other matters.16The diagram below depicts our organizational structure as of December 31, 2013.______________________(1)Holds 100% of the Class B units and 0.03% of the Class A units, which together represent 96.7% of the total combined voting power of our outstanding Class A andClass B units. The Class B units have no economic interest in us. The general partner of Oaktree Capital Group Holdings, L.P. is Oaktree Capital GroupHoldings GP, LLC, which is controlled by our Principals. Oaktree Capital Group Holdings GP, LLC also acts as our manager and in that capacity has theauthority to designate all the members of our board of directors for so long as the Oaktree control condition is satisfied.(2)The percent economic interest represents the applicable number of Class A units as a percentage of the Oaktree Operating Group units. As of December 31,2013, there were 151,056,717 Oaktree Operating Group units outstanding.(3)The percent economic interest in Oaktree Operating Group represents the aggregate number of Oaktree Operating Group units held, directly or indirectly, as apercentage of the total number of Oaktree Operating Group units outstanding.(4)Oaktree Capital Group, LLC holds 1,000 shares of non-voting Class A common stock of Oaktree AIF Holdings, Inc., which are entitled to receive 100% of anydividends. Oaktree Capital Group Holdings, L.P. holds 100 shares of voting Class B common stock of Oaktree AIF Holdings, Inc., which do not participate individends or otherwise represent an economic interest in Oaktree AIF Holdings, Inc.(5)Owned indirectly by Oaktree Holdings, LLC through an entity not reflected in this diagram that is treated as a partnership for U.S. federal income tax purposes.Through this entity, each of Oaktree Holdings, Inc. and Oaktree Holdings, Ltd. owns a less than 1% indirect interest in Oaktree Capital I, L.P.Regulatory Matters and ComplianceOur business, as well as the financial services industry generally, is subject to extensive regulation in the United States andelsewhere. Our indirect subsidiary, Oaktree Capital Management, L.P., is registered as an investment adviser with the U.S. Securities andExchange Commission (“SEC”). Registered investment advisers are subject to the requirements and regulations of the U.S. InvestmentAdvisers Act of 1940, as amended (the “Advisers Act”). These requirements relate to, among other things, fiduciary duties to clients,maintaining an effective compliance program, solicitation agreements, conflicts of interest, recordkeeping and reporting, disclosure,17limitations on agency cross and principal transactions between an adviser and advisory clients and general anti-fraud prohibitions. Inaddition, Oaktree Capital Management, L.P. is registered as a commodity pool operator and a commodity trading adviser with the U.S.Commodity Futures Trading Commission (“CFTC”). Registered commodity pool operators and commodity trading advisers are each subjectto the requirements and regulations of the U.S. Commodity Exchange Act, as amended (the “Commodity Exchange Act”). Theserequirements relate to, among other things, maintaining an effective compliance program, recordkeeping and reporting, disclosure, businessconduct, and general anti-fraud prohibitions. In addition, as a registered commodity pool operator and a commodity trading adviser with theCFTC, we are also required to be a member of the National Futures Association (the “NFA”), a self-regulatory organization for the U.S.derivatives industry. The NFA also promulgates and enforces rules governing the conduct of, and examines the activities of, its memberfirms.One of our indirect subsidiaries, OCM Investments, LLC, is registered as a broker-dealer with the SEC and in all 50 states, theDistrict of Columbia and Puerto Rico, and is a member of the U.S. Financial Industry Regulatory Authority (“FINRA”). As a broker-dealer,this subsidiary is subject to regulation and oversight by the SEC and state securities regulators. In addition, FINRA, a self-regulatoryorganization that is subject to oversight by the SEC, promulgates and enforces rules governing the conduct of, and examines the activities of,its member firms. Due to the limited authority granted to our subsidiary in its capacity as a broker-dealer, it is not required to comply withcertain regulations covering trade practices among broker-dealers and the use and safekeeping of customers’ funds and securities. As aregistered broker-dealer and member of a self-regulatory organization, we are, however, subject to the SEC’s uniform net capital rule. Rule15c3-1 of the Exchange Act specifies the minimum level of net capital a broker-dealer must maintain and also requires that a significant partof a broker-dealer’s assets be kept in relatively liquid form. The SEC and FINRA impose rules that require notification when net capital fallsbelow certain predefined criteria, limit the ratio of subordinated debt to equity in the regulatory capital composition of a broker dealer andconstrain the ability of a broker-dealer to expand its business under certain circumstances. Additionally, the SEC’s uniform net capital ruleimposes certain requirements that may have the effect of prohibiting a broker-dealer from distributing or withdrawing capital and requiringprior notice to the SEC for certain withdrawals of capital.Another of our subsidiaries, Oaktree Capital Management (UK) LLP, is authorized and regulated by the U.K. Financial ConductAuthority (“FCA”) as an investment manager in the United Kingdom. The U.K. Financial Services and Markets Act 2000 (“FSMA”) and rulespromulgated thereunder govern all aspects of the U.K. investment business, including sales, research and trading practices, the provision ofinvestment advice, the use and safekeeping of client funds and securities, regulatory capital, record keeping, margin practices andprocedures, the approval standards for individuals, anti-money laundering, periodic reporting, and settlement procedures. Similarly, we havea number of other non-U.S. subsidiaries that are regulated by the applicable regulators in their respective jurisdictions.The SEC and other regulators have in recent years aggressively increased their regulatory activities in respect of asset managementfirms. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), among other things, imposes significantnew regulations on nearly every aspect of the U.S. financial services industry, including oversight and regulation of systemic market risk(including the power to liquidate certain institutions); authorizing the Federal Reserve to regulate nonbank institutions that are deemedsystemically important; generally prohibiting insured depository institutions and their affiliates from conducting proprietary trading andinvesting in private equity funds and hedge funds; and imposing new registration, recordkeeping and reporting requirements on private fundinvestment advisers. Some of these provisions are still subject to further rulemaking and to the discretion of regulatory bodies. The Dodd-Frank Act also prohibits investments in private equity and hedge funds by certain banking entities and covered nonbank companies. Whilecertain of our subsidiaries are already registered investment advisers and registered broker-dealers and subject to SEC and FINRAexaminations, compliance with any additional legal or regulatory requirements, including the need to register other subsidiaries asinvestment advisers, could make compliance more difficult and expensive and affect the manner in which we conduct business.Certain of our activities are subject to compliance with laws and regulations of U.S. federal, state and municipal governments, non-U.S. governments, their respective agencies and/or various self-regulatory organizations or exchanges relating to, among other things,antitrust laws, anti-money laundering laws, anti-bribery laws relating to foreign officials, and privacy laws with respect to client information,and some of our funds invest in businesses that operate in highly regulated industries. Any failure to comply with these rules andregulations could expose us to liability and/or reputational damage. Our business has operated for many years within a legal framework thatrequires our being able to monitor and comply with a broad range of legal and regulatory developments that affect our activities. However,additional legislation, changes in rules or changes in the18interpretation or enforcement of existing laws and rules, either in the United States or elsewhere, may directly affect our mode of operationand profitability. Please see “Risk Factors—Risks Relating to Our Business—Regulatory changes in the United States, regulatorycompliance failures and the effects of negative publicity surrounding the financial industry in general could adversely affect our reputation,business and operations.”Available InformationOur website address is www.oaktreecapital.com. Information on our website is not a part of this annual report and is not incorporatedby reference herein. We make available free of charge on our website or provide a link on our website to our Annual Report on Form 10-K,Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and any amendments to those reports filed or furnished pursuant toSection 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after those reports are electronically filed with, or furnished to,the SEC. To access these filings, go to the “Unitholders” section of our website and then click on “SEC Filings.” You may also read and copyany document we file at the SEC's public reference room located at 100 F Street, N.E., Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. In addition these reports and the other documents we file with the SECare available at a website maintained by the SEC at www.sec.gov.19Fund DataInformation regarding our closed-end, open-end and evergreen funds, together with benchmark data where applicable, is set forth below. For ourclosed-end and evergreen funds, no benchmarks are presented in the tables as there are no known comparable benchmarks for these funds'investment philosophy, strategy and implementation.Closed-end Funds As of December 31, 2013 Investment Period TotalCommittedCapital DrawnCapital (1) Fund NetIncomeSinceInception Distri-butionsSinceInception Net AssetValue Manage-ment Fee-gener-ating AUM OaktreeSegmentIncentiveIncomeRecog-nized AccruedIncentives(FundLevel) (2) UnreturnedDrawn CapitalPlusAccruedPreferredReturn (3) IRR SinceInception (4) Multiple ofDrawnCapital (5) Start Date End Date Gross Net (in millions)Distressed Debt Oaktree Opportunities Fund IX, L.P. (6)Jan. 2014 Jan. 2017 $5,066 $1,773 $112 $— $1,885 $4,966 $— $22 $1,819 nm nm 1.1xOaktree Opportunities Fund VIIIb, L.P.Aug. 2011 Aug. 2014 2,692 2,558 591 11 3,138 2,625 1 113 2,856 19.2% 12.5 % 1.3Special Account BNov. 2009 Nov. 2012 1,031 1,073 533 620 986 967 3 62 757 18.7 15.0 1.5Oaktree Opportunities Fund VIII, L.P.Oct. 2009 Oct. 2012 4,507 4,507 2,186 2,365 4,328 3,196 66 360 3,307 17.4 12.4 1.5Special Account ANov. 2008 Oct. 2012 253 253 320 455 118 75 40 23 — 32.1 26.2 2.3OCM Opportunities Fund VIIb, L.P.May 2008 May 2011 10,940 9,844 9,467 15,987 3,324 2,120 1,192 648 — 23.8 18.3 2.0OCM Opportunities Fund VII, L.P.Mar. 2007 Mar. 2010 3,598 3,598 1,642 4,162 1,078 991 25 191 841 11.5 8.3 1.6OCM Opportunities Fund VI, L.P.Jul. 2005 Jul. 2008 1,773 1,773 1,310 2,597 486 546 90 166 151 12.3 9.0 1.8OCM Opportunities Fund V, L.P.Jun. 2004 Jun. 2007 1,179 1,179 959 1,955 183 224 151 36 — 18.7 14.3 1.9Legacy funds (7)Various Various 9,543 9,543 8,179 17,675 47 — 1,109 10 — 24.2 19.3 1.9 23.0% 17.6 % Emerging Market Opportunities Oaktree Emerging Market Opportunities Fund,L.P. (6)Sep. 2013 Sep. 2017 $355 $20 $— $— $20 $19 $— $— $21 nm nm 1.0x Global Principal Investments Oaktree Principal Fund V, L.P. (8)Feb. 2009 Feb. 2015 $2,827 $2,233 $570 $385 $2,418 $2,003 $— $82 $2,311 15.1% 8.4 % 1.4xSpecial Account CDec. 2008 Feb. 2014 505 455 275 175 555 395 10 44 396 20.3 15.0 1.7OCM Principal Opportunities Fund IV, L.P.Oct. 2006 Oct. 2011 3,328 3,328 1,676 2,972 2,032 1,453 — 74 1,939 10.7 8.1 1.6OCM Principal Opportunities Fund III, L.P.Nov. 2003 Nov. 2008 1,400 1,400 977 2,098 279 — 136 54 — 14.8 10.4 1.8Legacy funds (7)Various Various 2,301 2,301 1,838 4,133 6 — 235 1 — 14.5 11.6 1.8 13.7% 10.2 % Asia Principal Investments OCM Asia Principal Opportunities Fund, L.P.May 2006 May 2011 $578 $503 $(1) $100 $402 $354 $— $— $629 4.0% (0.1)% 1.2x European Principal Investments (9) Oaktree European Principal Fund III, L.P. Nov. 2011 Nov. 2016 €3,164 €1,265 €198 €4 €1,459 €3,042 €— €15 €1,440 16.1% 8.2 % 1.3xOCM European Principal Opportunities FundII, L.P.Dec. 2007 Dec. 2012 €1,759 €1,685 €618 €852 €1,451 €1,183 €11 €54 €1,378 12.8 8.3 1.5OCM European Principal Opportunities Fund,L.P.Mar. 2006 Mar. 2009 $495 $460 $438 $661 $237 $98 $4 $80 $112 11.8 8.9 2.1 13.0% 8.4 % Power Opportunities Oaktree Power Opportunities Fund III, L.P.Apr. 2010 Apr. 2015 $1,062 $406 $191 $5 $592 $1,036 $— $36 $457 36.4% 20.5 % 1.6xOCM/GFI Power Opportunities Fund II, L.P.Nov. 2004 Nov. 2009 1,021 541 1,459 1,899 101 39 94 7 — 76.2 59.0 3.9OCM/GFI Power Opportunities Fund, L.P.Nov. 1999 Nov. 2004 449 383 251 634 — — 23 — — 20.1 13.1 1.8 35.3% 27.3 % 20 As of December 31, 2013 Investment Period TotalCommittedCapital DrawnCapital (1) Fund NetIncomeSinceInception Distri-butionsSinceInception Net AssetValue Manage-ment Fee-gener-ating AUM OaktreeSegmentIncentiveIncomeRecog-nized AccruedIncentives(FundLevel) (2) UnreturnedDrawn CapitalPlusAccruedPreferredReturn (3) IRR Since Inception(4) Multiple ofDrawnCapital (5) Start Date End Date Gross Net (in millions)Real Estate Opportunities Oaktree Real Estate Opportunities FundVI, L.P. Aug. 2012 Aug. 2016 $2,677 $1,071 $4 $36 $1,039 $2,610 $— $— $1,093 9.5% 0.4% 1.1xOaktree Real Estate Opportunities FundV, L.P.Mar. 2011 Mar. 2015 1,283 1,283 408 168 1,523 1,251 5 73 1,347 17.1 11.8 1.4Special Account DNov. 2009 Nov. 2012 256 263 158 192 229 130 1 14 155 18.5 15.9 1.6Oaktree Real Estate Opportunities FundIV, L.P.Dec. 2007 Dec. 2011 450 450 283 245 488 326 8 45 374 16.6 10.9 1.8OCM Real Estate Opportunities FundIII, L.P.Sep. 2002 Sep. 2005 707 707 639 1,243 103 — 106 20 — 15.7 11.7 2.0Legacy funds (7)Various Various 1,634 1,610 1,399 3,004 5 — 111 1 56 15.2 12.0 1.9 15.4% 11.9% Real Estate Debt Oaktree Real Estate Debt Fund, L.P.(6)Sep. 2013 Sep. 2016 $297 $54 $(1) $— $53 $50 $— $— $54 nm nm 1.0xOaktree PPIP Fund, L.P. (10) Dec. 2009 Dec. 2012 2,322 1,113 457 1,570 — — 47 — — 28.2% N/A 1.4 Mezzanine Finance Oaktree Mezzanine Fund III, L.P.(11)Dec. 2009 Dec. 2014 $1,592 $1,327 $177 $739 $765 $1,552 $— $— $787 14.8%10.4% / 4.7%1.2xOCM Mezzanine Fund II, L.P.Jun. 2005 Jun. 2010 1,251 1,107 465 1,218 354 446 — — 383 11.2 7.6 1.5OCM Mezzanine Fund, L.P. (12)Oct. 2001 Oct. 2006 808 773 288 1,041 20 — 32 4 — 15.2 10.7 /10.21.5 13.0% 8.6% European Private Debt Oaktree European Dislocation Fund,L.P. (6)Oct. 2013 Oct. 2016 €293 €22 €— €— €22 €22 €— €— €22 nm nm 1.0xSpecial Account E (6)Oct. 2013 Apr. 2015 €379 €29 €— €— €29 €29 €— €— €29 nm nm 1.0 $62,024(13) (14) 33,364(14) 2,261(14) Other (15) 2,633 7 Total (16) $35,997 $2,268 (1)Reflects the capital contributions of investors in the fund, net of any distributions to such investors of uninvested capital.(2)Excludes Oaktree segment incentive income recognized since inception.(3)Reflects the amount the fund needs to distribute to its investors as a return of capital and a preferred return (as applicable) before Oaktree is entitled to receive incentive income (other than tax distributions) from the fund.(4)The internal rate of return (“IRR”) is the annualized implied discount rate calculated from a series of cash flows. It is the return that equates the present value of all capital invested in an investment to the present value of all returns of capital, or thediscount rate that will provide a net present value of all cash flows equal to zero. Fund-level IRRs are calculated based upon the actual timing of cash contributions from/distributions to investors and the residual value of such investor's capitalaccounts at the end of the applicable period being measured. Gross IRRs reflect returns before allocation of management fees, expenses and any incentive allocation to the fund's general partner. To the extent material, gross returns includecertain transaction, advisory, directors or other ancillary fees (“fee income”) paid directly to us in connection with our funds' activities (we credit all such fee income back to the respective fund(s) so that our funds' investors share pro rata in the feeincome's economic benefit). Net IRRs reflect returns to non-affiliated investors after allocation of management fees, expenses and any incentive allocation to the fund's general partner.(5)Calculated as Drawn Capital plus gross income and, if applicable, fee income before fees and expenses divided by Drawn Capital.(6)The IRR is not considered meaningful (“nm”) as the period from the initial contribution through December 31, 2013 is less than one year.(7)Represents certain predecessor funds within the relevant strategy that have substantially or completely liquidated their assets. Includes funds managed by certain Oaktree investment professionals while employed at the Trust Company of the Westprior to Oaktree's founding in 1995. When these employees joined Oaktree upon, or shortly after, its founding, they continued to manage the fund through the end of its term pursuant to a sub-advisory relationship between the Trust Company of theWest and Oaktree.(8)In the fourth quarter of 2013, the investment period for Oaktree Principal Fund V, L.P. was extended for a one-year period until February 2015. However, management fees stepped down to the post-investment period basis effectiveFebruary 2014.(9)Aggregate IRRs based on conversion of OCM European Principal Opportunities Fund II, L.P. and Oaktree European Principal Fund III, L.P. cash flows from Euros to USD at the December 31, 2013 spot rate of $1.38.(10)Due to the differences in allocations of income and expenses to this fund's two primary limited partners, the U.S. Treasury and Oaktree PPIP Private Fund, L.P., a combined net IRR is not presented. Of the $2,322 million in capitalcommitments, $1,161 million relates to the Oaktree PPIP Private Fund, L.P. The gross and net IRR for the Oaktree PPIP Private Fund, L.P. were 24.7% and 18.6%, respectively, as of December 31, 2013. Oaktree PPIP Fund, L.P.had liquidated all of its investments and made its final liquidating distribution as of December 31, 2013, and the general partner had dissolved the Master and Feeder funds as of that date.(11)The fund's partnership interests are divided into Class A and Class B interests, with the Class A interests having priority with respect to the distribution of current income and disposition proceeds. Net IRR for Class A interests is 10.4% and Class Binterests is 4.7%. Combined net IRR for Class A and Class B interests is 8.8%.(12)The fund's partnership interests are divided into Class A and Class B interests, with the Class A interests having priority with respect to the distribution of current income and disposition proceeds. Net IRR for Class A interests is 10.7% and Class Binterests is 10.2%. Combined net IRR for the Class A and Class B interests is 10.5%.(13)The aggregate change in drawn capital for the three months and year ended December 31, 2013 was $1.5 billion and $6.1 billion, respectively.(14)Total based on conversion of Euro amounts to USD at the December 31, 2013 spot rate of $1.38.(15)Includes Oaktree Enhanced Income Fund, L.P., Oaktree Loan Fund 2x, L.P., Oaktree Asia Special Situations Fund, L.P., certain separate accounts and a non-Oaktree fund.(16)Excludes one separate account with management fee-generating AUM of $425 million as of December 31, 2013, which has been included as part of the Strategic Credit strategy within the evergreen funds table.21Open-end Funds Manage-mentFee-gener-ating AUMas ofDec. 31, 2013 Year EndedDecember 31, 2013 Since Inception through December 31, 2013 StrategyInception Rates of Return (1) Annualized Rates of Return (1) Sharpe Ratio Oaktree Rele-vant Bench-mark Oaktree Rele-vant Bench-mark OaktreeGross Rele-vantBench-mark Gross Net Gross Net (in millions) U.S. High Yield BondsJan. 1986 $12,663 7.1% 6.5% 7.1 % 10.0% 9.4% 8.9 % 0.82 0.56Global High Yield BondsNov. 2010 6,261 9.0 8.4 7.6 10.3 9.7 8.9 1.38 1.28European High YieldBondsMay 1999 635 10.6 10.1 9.0 8.5 7.9 6.4 0.65 0.38U.S. ConvertiblesApr. 1987 4,697 21.9 21.3 24.9 10.2 9.6 8.4 0.50 0.34Non-U.S. ConvertiblesOct. 1994 2,726 10.4 9.8 9.6 9.0 8.5 6.0 0.78 0.39High Income ConvertiblesAug. 1989 1,044 14.9 14.3 7.2 12.0 11.5 8.7 1.05 0.60U.S. Senior LoansSep. 2008 2,350 5.6 5.1 6.2 8.0 7.5 6.2 1.24 0.62European Senior LoansMay 2009 1,438 6.6 6.1 8.7 11.5 10.9 12.7 1.90 1.97Emerging MarketsEquitiesJul. 2011 1,016 1.8 0.9 (2.6) 1.3 0.5 (2.8) 0.06 (0.14)Total $32,830 (1)Represents Oaktree’s time-weighted rates of return, including reinvestment of income, net of commissions and transaction costs. Returns for RelevantBenchmarks are presented on a gross basis.Evergreen Funds As of December 31, 2013 Year EndedDecember 31, 2013 Since Inception throughDecember 31, 2013 AUM Manage-mentFee-gener-ating AUM Accrued Incen-tives (FundLevel) (1) StrategyInception Rates of Return Annualized Ratesof Return Gross Net Gross Net (in millions) Strategic Credit (2)Jul. 2012 $1,975 $990 $ N/A 18.2% 16.5% 17.7% 15.9%Value OpportunitiesSep. 2007 1,946 1,860 — 19.8 13.8 14.3 9.3Emerging Market Opportunities (3)Sep. 2013 207 8 — nm nm nm nmEmerging Markets Absolute ReturnApr. 1997 288 265 N/A(4) 3.3 1.1 15.2 10.4 3,123 — Restructured funds (5) — 8 Total (2) $3,123 $8 (1)For the three months and year ended December 31, 2013, segment incentive income recognized by Oaktree totaled $53.2 million and $58.0 million,respectively.(2)Includes a separate account with a closed-end fund structure with $581 million of AUM and $425 million of management fee-generating AUM. Returnspresented are time-weighted rates of return.(3)Rates of return are not considered meaningful (“nm”) since the period of inception is less than 12 months.(4)As of December 31, 2013, the aggregate depreciation below high-water marks previously established for individual investors in the fund totaled approximately$2.0 million.(5)Oaktree manages three restructured evergreen funds that are in liquidation: Oaktree European Credit Opportunities Fund, L.P., Oaktree High Yield PlusFund, L.P. and Oaktree Japan Opportunities Fund, L.P. (Yen class). As of December 31, 2013, these funds had gross and net IRRs since inception of (2.1)%and (4.7)%, 7.8% and 5.4%, and (6.9)% and (7.9)%, respectively, and in the aggregate had AUM of $168.0 million. Additionally, Oaktree High Yield PlusFund, L.P. had accrued incentives (fund level) of $7.5 million as of December 31, 2013.22Item 1A. Risk FactorsWe are subject to a number of significant risks inherent in our business. You should carefully consider the risks anduncertainties described below and other information included in this annual report. If any of the events described below occur, ourbusiness and financial results could be seriously harmed. The trading price of our Class A units could decline as a result of any ofthese risks, and you could lose all or part of your investment.Risks Relating to Our BusinessGiven our focus on achieving superior investment performance with less-than-commensurate risk, and the priority we affordour clients' interests, we may reduce our AUM, restrain its growth, reduce our fees or otherwise alter the terms under whichwe do business when we deem it appropriate—even in circumstances where others might deem such actions unnecessary.Our approach could adversely affect our results of operations.One of the means by which we seek to achieve superior investment performance in each of our strategies is by limiting the AUM inour strategies to an amount that we believe can be invested appropriately in accordance with our investment philosophy and current oranticipated economic and market conditions. Thus, in the past we have often taken affirmative steps to limit the growth of our AUM. Forexample:•from time to time, we have suspended marketing our U.S. High Yield Bond strategy for long periods and have declined toparticipate in searches aggregating billions of dollars since 1998;•from time to time, we have ceased general marketing of our funds in our Convertible Securities strategy and have asked TheVanguard Group to close its Convertible Securities Fund, which we sub-advise, to new money from investors for certain periods oftime;•we returned $5.0 billion from our 2001 and 2002 Distressed Debt funds prior to the end of their respective investment periods and$4.4 billion from OCM Opportunities Fund VIIb, L.P. (“Opps VIIb”) prior to the end of its investment period;•we deferred raising a new Distressed Debt fund by a year from 2003 to 2004, even though a significant amount of capital hadalready been offered;•we intentionally sized Oaktree Opportunities Fund VIII, L.P. (“Opps VIII”) and Oaktree Opportunities Fund VIIIb, L.P. (“Opps VIIIb”)smaller than their predecessors even though we could have raised additional capital (i.e., we capped Opps VIII at $4.5 billion andOpps VIIIb at $2.7 billion); and•we have turned away substantial amounts of capital offered to us for management.Additionally, we may voluntarily reduce management fee rates and terms for certain of our funds or strategies when we deem itappropriate, even when doing so may reduce our short-term revenue. For example, we decided to reduce our maximum annualmanagement fee for Opps VIII and Oaktree Principal Fund V, L.P. (“PF V”) from 1.75% to 1.60%. We also, on our own initiative, waivedmanagement fees for Opps VIII with respect to capital commitments in excess of $4.0 billion and reduced the management fee rate to 1.0%with respect to capital commitments in excess of $2.0 billion for Opps VIIIb. In addition, while management fees for the Oaktree EmergingMarket Opportunities Fund, L.P. (“EMOF”) are based on committed capital during its investment period, we have voluntarily elected toassess management fees for EMOF temporarily based on fund NAV, rather than committed capital, during the initial portion of the fund’sinvestment period. We made these changes not because they were necessary to raise the capital we wanted, but because we deemed itimportant to demonstrate to our clients that we were not financially incentivized to raise more capital than appropriate for the opportunity set.Additionally, we reserve the right in our sole discretion to afford certain clients more favorable economic terms, including with respect tomanagement fee rates and carried interest rates, in cases where such clients have committed a certain amount of capital to our funds orstrategies that in the aggregate exceed certain threshold amounts, if any.Our practice of putting our clients' interests first and forsaking short-term advantage by, for example, reducing assets undermanagement or management fee or carried interest rates may reduce the profits we could otherwise realize in the short term and adverselyaffect our business and financial condition and therefore conflict with the short-term interests of our Class A unitholders. In addition, to protectour current clients' interests, we may not accept all of the capital offered to us, which may damage our relationships and prospects withpotential investors in our funds and may reduce the value of our business and therefore conflict with our Class A unitholders' short-terminterests. Our Class A unitholders should thus understand that in instances in which our clients' interests diverge from the short-terminterests of our Class A unitholders, we intend to act in the interests of our clients.23However, it is our fundamental belief that prioritizing our clients' interests in such instances will maximize the long-term value of ourbusiness, which, in turn, will benefit our Class A unitholders.Our business is materially affected by conditions in the global financial markets and economies, and any disruption ordeterioration in these conditions could materially reduce our revenues and cash flow and adversely affect our overallperformance, ability to raise or deploy capital, financial condition and liquidity position.Our business is materially affected by conditions in the global financial markets and economic conditions throughout the world thatare outside our control, such as interest rates, availability and cost of credit, inflation rates, economic uncertainty, changes in laws (includinglaws relating to taxation), trade barriers, commodity prices, currency exchange rates and controls and national and international politicalcircumstances (including wars, terrorist acts and security operations). The detrimental impact to the U.S. and global financial marketsfollowing the unprecedented turmoil in the global capital markets and the financial services industry in late 2008 and early 2009 serves as anexample of how global market conditions can cause uncertainty and instability for investment management businesses. While there hasbeen significant recovery in the capital markets since then, particularly in the equity markets, such recovery has been slow and uneven asthe global economy continued to grow at a modest pace in 2013. Continued high unemployment rates in the United States and elsewhere,increasing interest rates in the United States, concern over growth prospects in China and emerging markets, growing debt loads for certaincountries and uncertainty about the consequences of the U.S. and other governments eventually withdrawing monetary stimulus measures,all highlight the fact that economic conditions remain unpredictable. These and other conditions in the global financial markets and economyhave resulted in, and may continue to result in, adverse consequences for many of our funds, including restricting such funds' investmentactivities and impeding such funds' ability to effectively achieve their investment objectives.The economic environment in the past has resulted in and may in the future result in decreases in the market value of certain publiclytraded securities held by some of our funds. Illiquidity in certain portions of the financial markets could adversely affect the pace of realizationof our funds' investments or otherwise restrict the ability of our funds to realize value from their investments, thereby adversely affecting ourability to generate incentive or investment income. There can be no assurance that conditions in the global financial markets will not worsenand/or adversely affect our investments and overall performance.Our profitability may also be adversely affected by our fixed costs, such as the base salaries and expenses of our staff, leasepayments on our office space, maintenance on our information technology and infrastructure, and the possibility that we would be unable toscale back other costs and otherwise redeploy our resources within a time frame sufficient to match changes in market and economicconditions to take advantage of the opportunities that may be presented by these changes. As a result, we may not be able to adjust ourresources to take advantage of new investment opportunities that may be created as a result of specific dislocations in the market.Our business depends in large part on our ability to raise capital from investors. If we were unable to raise such capital, wewould be unable to collect management fees or deploy such capital into investments, which would materially reduce ourrevenues and cash flow and adversely affect our financial condition.Our ability to raise capital from investors depends on a number of factors, including many that are outside our control, such as thegeneral economic environment or the number of other investment funds being raised at the same time by our competitors that are focusedon the same investment strategies as our funds. Additionally, investors may downsize their investment allocations to alternativeinvestments, including private funds and hedge funds, to rebalance a disproportionate weighting of their overall investment portfolio amongasset classes. Poor performance of our funds could also make it more difficult for us to raise new capital. Investors in our closed-end fundsmay decline to invest in future closed-end funds we raise, and investors in our open-end and evergreen funds may withdraw theirinvestments in the funds (on specified withdrawal dates) as a result of poor performance. Our investors and potential investors continuallyassess our funds' performance independently and relative to market benchmarks and our competitors, and our ability to raise capital forexisting and future funds and avoid excessive redemptions depends on our funds' performance. To the extent economic and marketconditions deteriorate, we may be unable to raise sufficient amounts of capital to support the investment activities of future funds. If we wereunable to successfully raise capital, our revenue and cash flow would be reduced, and our financial condition would be adversely affected.24We depend on a number of key personnel, and our ability to retain them and attract additional qualified personnel is critical toour success and our growth prospects.We depend on the diligence, skill, judgment, reputation and business contacts of our key personnel. Our future success will dependupon our ability to retain our key personnel and our ability to recruit additional qualified personnel. Our key personnel possess substantialexperience and expertise in investing, are responsible for locating and executing our funds' investments, have significant relationships withthe institutions that are the source of many of our funds' investment opportunities and in certain cases have strong relationships with ourinvestors. Therefore, if our key personnel join competitors or form competing companies, it could result in the loss of significant investmentopportunities and certain existing investors.We have experienced departures of key investment professionals in the past and will do so in the future. Any of those departurescould have a negative impact on our ability to achieve our investment objectives. Indeed, the departure for any reason of any of our mostsenior professionals, such as Howard Marks or Bruce Karsh, or a significant number of our other investment professionals, could have amaterial adverse effect on our ability to achieve our investment objectives, cause certain of our investors to withdraw capital they invest withus or elect not to commit additional capital to our funds or otherwise have a material adverse effect on our business and our prospects. Thedeparture of some or all of those individuals could also trigger certain “key man” provisions in the documentation governing certain of ourclosed-end funds, which would permit the limited partners of those funds to suspend or terminate the funds' investment periods or, in thecase of EMAR, permit investors to withdraw their capital prior to expiration of the applicable lock-up date. Our key man provisions vary byboth strategy and fund and, with respect to each strategy and fund, are typically tied to multiple individuals, meaning that it would require thedeparture of more than one individual to trigger the key man provisions. In the event that our key man provisions were triggered for all of ourfunds with such provisions, the investment period for these funds would be terminated, and as of December 31, 2013, such terminationswould result in a $12.4 billion decrease in AUM. In addition, if the key man provision for EMAR were triggered, investors in EMAR would beallowed to withdraw all of their capital, which represents 0.3% of our AUM as of December 31, 2013. As a part of our May 2007Restructuring, our senior employees exchanged their direct or indirect ownership interest in OCM for a new interest in OCGH that vestedover time. Because 100% of these interests have vested, affected employees may be less motivated to remain at Oaktree.We anticipate that it will be necessary for us to add investment professionals both to grow our team and to replace those who depart.However, the market for qualified investment professionals is extremely competitive, both in the United States and internationally, and wemay not succeed in recruiting additional personnel or we may fail to effectively replace current personnel who depart with qualified or effectivesuccessors. Our efforts to retain and attract investment professionals may also result in significant additional expenses, which couldadversely affect our profitability or result in an increase in the portion of our incentive income that we grant to our investment professionals.Our revenues are highly volatile due to the nature of our business and we do not expect steady earnings growth, each of whichmay cause the value of interests in our business to be variable.Our segment revenues and cash flow are highly volatile, primarily due to the fact that the incentive income we receive from our fundsand the investment income we recognize on our corporate investments in funds and companies, which individually and collectively accountfor a substantial portion of our income, are highly volatile. In the case of our closed-end funds, our incentive income is recognized only whenit is fixed or determinable under the Method 1 approach offered by generally accepted accounting principles in the United States (“GAAP”),which typically occurs in a sporadic and unpredictable fashion. For purposes of adjusted net income, incentive income is recognized when theunderlying fund distributions are known or knowable as of the respective quarter end, which may be later than the time at which the sameincentive income is recognized under Method 1. In addition, we are entitled to incentive income (other than tax distributions, which aretreated as incentive income) only after all contributed capital and profits representing, typically, an 8% annual preferred return on that capitalhave been distributed to our funds' limited partners. In the case of certain evergreen funds, we are generally entitled to receive an annualincentive payment based upon the increase in NAV attributable to each limited partner during a particular calendar year, subject to a high-water mark. Given that the investments made by our funds may be illiquid or volatile and that our investment results and the pace ofrealization of our investments will vary from fund to fund and period to period, our incentive income likely will vary materially from year toyear.We may also experience fluctuations in our operating results, from quarter to quarter or year to year, due to a host of other factors,including changes in the values of our investments, changes in the operating results of25DoubleLine or its funds or other companies in which we have corporate investments, changes in the amount of distributions from our fundsor companies in which we have corporate investments, the pace of raising new funds and liquidation of our old funds, dividends or interestpaid in respect of investments, changes in our operating or other expenses, the degree to which we encounter competition and generaleconomic and market conditions. This variability may cause our results for a particular period not to be indicative of our performance in afuture period.As noted above, the timing and amount of incentive income generated by our closed-end funds are uncertain and will contribute to thevolatility of our net income. Incentive income depends on our closed-end funds' investment performance and opportunities for realizing gains,which may be limited. In addition, it takes a substantial period of time to identify attractive investment opportunities, to raise all the fundsneeded to make an investment and then to realize the cash value of an investment through resale, recapitalization or other exit event. Even ifan investment proves to be profitable, it may be several years or longer before those profits can be realized in cash or other manner ofpayment. We cannot predict when, or if, any realization of investments will occur. If we have a realization event in a particular quarter, it mayhave a significant impact on our revenues and profits for that particular quarter, which may not be replicated in subsequent quarters.A small number of our open-end funds and certain evergreen funds also generate performance-based revenues based on theirinvestment returns as compared with a specified market index, other benchmark or hurdle rate. As a result, we may not earn a performancefee in a particular period even if the fund had a positive return. The incentive income and performance fee revenues we earn are thereforedependent on, among other factors, the NAV of the fund and, in certain cases, its performance relative to its market, which may lead tovolatility in our quarterly or annual financial results.The historical financial information included in this annual report is not necessarily indicative of our future performance.The historical financial information included in this annual report is not necessarily indicative of our future financial results. Thisfinancial information does not purport to represent or predict the results of any future periods.The results of future periods are likely to be materially different as a result of:•future growth that does not follow our historical trends;•changes in the economic environment, competitive landscape and financial markets;•new and additional costs and expenses attributable to our operations, including our operations as a public company and a companywithin an extensively regulated industry;•increases in non-cash compensation charges primarily related to the vesting of OCGH units issued after our initial public offeringin April 2012; and•a provision for corporate income taxes on the income of two of our Intermediate Holding Companies that are taxed as corporationsfor U.S. federal income tax purposes.Our funds depend on investment cycles, and any change in such cycles could have an adverse effect on our investmentprospects.Cyclicality is important to our business. Weak economic environments have tended to afford us our best investment opportunities andour best relative investment performance. For example, the relative performance of our High Yield Bond strategy has typically been strongestin difficult times when default rates are highest, and our Distressed Debt and Control Investing funds have historically found their bestinvestment opportunities during downturns in the economy when credit is not as readily available. Conversely, we tend to realize value fromour investments in times of economic expansion, when opportunities to sell investments may be greater. Thus, we depend on the cyclicalityof the market in order to sustain our business and generate superior risk-adjusted returns over extended periods. Any prolonged economicexpansion or recession could have an adverse impact on certain of our funds and materially affect our ability to deliver superior investmentreturns or generate incentive or other income.Our failure to deal appropriately with conflicts of interest could damage our reputation and adversely affect our business.As we have expanded the number and scope of our strategies, we increasingly confront potential conflicts of interest that we need tomanage and resolve. These conflicts take many forms. For example, the investment focus26of a number of our funds overlap, meaning that we occasionally confront issues as to how a particular investment opportunity should beallocated. Though we believe we have appropriate means to resolve these conflicts, our judgment on any particular allocation could bechallenged, particularly in instances (as is sometimes the case) where the affected funds have different fee structures or our employees haveinvested more heavily in one fund than another. Additionally, different funds that we manage may invest in different parts of the capitalstructure of the same company, and thus the interests of two or more funds may be adverse to each other when the company experiencesfinancial distress, undergoes a restructuring or files for bankruptcy. While we have developed general guidelines regarding when two or morefunds may invest in different parts of the same company's capital structure and created a process that we employ to handle such conflicts ifthey arise, our judgment to permit the investments to occur in the first instance or our judgment on how to minimize the conflict could bechallenged. Another example involves our receipt of material non-public information regarding a potential investment. Normally, our receiptof such information restricts all of our investment strategies from trading in the securities of the applicable issuers. Occasionally, oneinvestment group will want to obtain such information, but another will want to remain free to trade the securities of that issuer and will notwant to become restricted. In such circumstances, we sometimes have to choose which group's preference will prevail. In these and othercircumstances, we seek to resolve the conflict in good faith and with a view to the best interests of all of our clients, but there can be noassurance that we will make the correct judgment in hindsight or that our judgment will not be questioned or challenged.Our compliance and legal groups seek to monitor and manage our actual and potential conflicts of interest. We maintain internalcontrols and various policies and procedures, including oversight, codes of conduct, compliance systems and communication tools, toidentify, prevent, mitigate or resolve any conflicts of interest that may arise. Our compliance policies and procedures address a variety ofregulatory and compliance risks, such as the handling of material non-public information, personal securities trading and the allocation ofinvestment opportunities and expenses. Our compliance and legal groups also monitor information barriers that we may establish on alimited basis from time to time between our different investment groups. Notwithstanding the foregoing, it is possible that perceived or actualconflicts could give rise to investor dissatisfaction or litigation or regulatory enforcement actions. Appropriately dealing with conflicts of interestis complex and difficult, and any mistake could potentially create liability or damage our reputation. Regulatory scrutiny of, or litigation inconnection with, conflicts of interest could have a material adverse effect on our reputation, which in turn could materially adversely affect ourbusiness in a number of ways, such as causing investors to redeem their capital (to the degree they have that right), making it harder for usto raise new funds and discouraging others from doing business with us.Existing or prospective clients may be unwilling to commit new capital to our funds because we are a public company, whichcould have a material adverse effect on our business and financial condition.Some of our existing or prospective clients may view negatively the fact that we became a public company, including concerns that asa public company we may shift our focus from the interests of our clients to those of our public unitholders. Such clients may believe that, asa public company, we will strive for near-term profit instead of superior risk-adjusted returns for our clients over time or grow our AUM for thepurpose of generating additional management fees without regard to whether we believe there are sufficient investment opportunities toeffectively deploy the additional capital. There can be no assurance that we will be successful in our efforts to address such concerns or toconvince such clients that being a public company does not affect our longstanding priorities or the way we conduct our business. A decisionby a significant number of such clients not to commit additional or new capital to our funds or to cease doing business with us altogether as aresult of our being a public company could inhibit our ability to achieve our investment objectives and may have a material adverse effect onour business and financial condition.The investment management business is intensely competitive.The investment management business is intensely competitive, with competition based on a variety of factors, including investmentperformance, the quality of service provided to clients, brand recognition and business reputation. Our investment management businesscompetes for clients, personnel and investment opportunities with a large number of private equity funds, specialized investment funds,hedge funds, corporate buyers, traditional investment managers, commercial banks, investment banks, other investment managers andother financial institutions. Numerous factors serve to increase our competitive risks:•a number of our competitors have more personnel and greater financial, technical, marketing and other resources than we do;27•many of our competitors have raised, or are expected to raise, significant amounts of capital, and many of them have investmentobjectives similar to ours, which may create additional competition for investment opportunities and reduce the size and duration ofpricing inefficiencies that we seek to exploit;•some of our competitors may have a lower cost of capital and access to funding sources that are not available to us, which maycreate competitive disadvantages for us with respect to our funds, particularly our funds that directly use leverage or rely on debtfinancing of their portfolio companies to generate superior investment returns;•some of our competitors have higher risk tolerances, different risk assessments or lower return thresholds, which could allowthem to consider a wider variety of investments and to bid more aggressively than us for investments;•our competitors may be able to achieve synergistic cost savings in respect of an investment that we cannot, which may providethem with a competitive advantage in bidding for an investment;•there are relatively few barriers to entry impeding new investment funds, and the successful efforts of new entrants into ourvarious lines of business, including major commercial and investment banks and other financial institutions, have resulted inincreased competition;•some investors may prefer to invest with an investment manager whose equity securities are not traded on a national securitiesexchange; and•other industry participants will from time to time seek to recruit our investment professionals and other employees away from us.We may find it harder to raise funds, and we may lose investment opportunities in the future, if we do not match the fees, structuresand terms offered by competitors to their fund clients. Alternatively, we may experience decreased profitability, rates of return and increasedrisk of loss if we match the prices, structures and terms offered by competitors. This competitive pressure could adversely affect our ability tomake successful investments and limit our ability to raise future funds, either of which would adversely impact our business, revenues,results of operations and cash flow.The increasing number of investment managers dedicated to our markets and the increasing amount of capital available tothem have made it more difficult to identify markets in which to invest, and this could lead to a decline in our returns oninvestments.The asset management market has grown at a very rapid pace during the last several years, leading to substantial growth in AUM inour industry. Our success in the past has largely been a result of our ability to identify and exploit non-mainstream markets with the potentialfor attractive returns. Although investment managers worldwide have expanded the range of their investments in terms of transaction sizes,industries and geographical regions, there is a finite number of available investment opportunities at any given time. Particularly in strongeconomic times, the most attractive opportunities generally are pursued by an increasing number of managers with increasing amounts toinvest and, as a result, it is sometimes difficult for us to identify markets that are capable of generating attractive investment returns. If we areunable to identify a sufficient number of attractive investment opportunities in the future, our returns will decline. This development wouldhave an adverse impact on our AUM and on our results of operations.Poor performance of our funds would cause a decline in our revenues, net income and cash flow and could adversely affectour ability to raise capital for future funds.When any of our funds perform poorly, either by incurring losses or underperforming benchmarks or our competitors, our investmentrecord suffers. Poor investment performance by our funds also adversely affects our incentive income and, all else being equal, may lead to adecline in our AUM, resulting in a reduction of our management fees. Moreover, in such circumstances, we may experience losses on ourinvestments of our own capital. If a fund performs poorly, we will receive little or no incentive income with regard to the fund and little incomeor possibly losses from our own principal investment in the fund. Poor performance of our funds could also make it more difficult for us toraise new capital. Investors in our closed-end funds may decline to invest in future closed-end funds we raise, and investors in our open-endand evergreen funds may withdraw their investments in the funds (on specified withdrawal dates) as a result of poor performance. Ourinvestors and potential investors continually assess our funds' performance independently and relative to market benchmarks and ourcompetitors, and our ability to raise capital for existing and future funds and avoid excessive redemption levels depends on our funds'performance.28We may not be able to maintain our current fee structure as a result of industry pressure from clients to reduce fees, whichcould have an adverse effect on our profit margins and results of operations.We may not be able to maintain our current fee structure as a result of industry pressure from clients to reduce fees. Although ourinvestment management fees vary among and within asset classes, historically we have competed primarily on the basis of ourperformance and not on the level of our investment management fees relative to those of our competitors. In recent years, however, therehas been a general trend toward lower fees in the investment management industry. For example, we reduced our maximum annualmanagement fee for Opps VIII from 1.75% to 1.60% and continued to maintain that same fee rate for Opps VIIIb and Oaktree OpportunitiesFund IX, L.P. (“Opps IX”). Additionally, we reserve the right in our sole discretion to afford, and from time to time have afforded, certain clientsmore favorable economic terms, including with respect to management fee rates and carried interest rates, in cases where such clients havecommitted a certain amount of capital to our funds or strategies that in the aggregate exceed certain threshold amounts, if any. For instance,certain clients in our High Yield and Global Principal strategies with assets under management over certain thresholds may receive areduction in the management fees they pay to us. In order to maintain our fee structure in a competitive environment, we must be able tocontinue to provide clients with investment returns and service that incentivize our investors to pay our current fee rates. We cannot assureyou that we will succeed in providing investment returns and service that will allow us to maintain our current fee structure. Fee reductionson existing or future new business could have an adverse effect on our profit margins and results of operations. For more information aboutour fees please see “Management's Discussion and Analysis of Financial Condition and Results of Operations.”We have experienced significant growth in our operations outside the United States, which may place significant demands onour administrative, operational and financial resources.In recent years, the scope and relative share of our non-U.S. operations have grown significantly. We or our fund affiliates now haveoffices in 13 cities outside the United States, housing over one fifth of our personnel. This rapid growth has placed and may continue to placesignificant demands on our business infrastructure. Pursuing investment opportunities outside the United States presents challenges notfaced by U.S. investments, such as different legal and tax regimes and currency fluctuations, which require additional resources to address.In addition, in conducting business in these jurisdictions, we are often faced with the challenge of ensuring that our activities are consistentwith U.S. or other laws with extraterritorial application, such as the USA PATRIOT Act and the U.S. Foreign Corrupt Practices Act (“FCPA”).Moreover, actively pursuing international investment opportunities may require that we increase the size or number of our internationaloffices. Pursuing non-U.S. clients means that we must comply with international laws governing the sale of interests in our funds, differentinvestor reporting and information processes and other requirements. As a result, we are required to continuously develop our systems andinfrastructure in response to the increasing complexity and sophistication of the investment management market and legal, accounting andregulatory situations. Moreover, this growth has required, and will continue to require, us to incur significant additional expenses and tocommit additional senior management and operational resources. There can be no assurance that we will be able to manage our expandinginternational operations effectively or that we will be able to continue to grow this part of our business, and any failure to do so couldadversely affect our ability to generate revenues and control our expenses.We may enter into new lines of business, make strategic investments or acquisitions or enter into joint ventures, each of whichmay result in additional risks and uncertainties for our business.Our operating agreement permits us to enter into new lines of business, make future strategic investments or acquisitions and enterinto joint ventures. As we have in the past, and subject to market conditions, we may grow our business by increasing AUM in existinginvestment strategies, pursue new investment strategies, which may be similar or complementary to our existing strategies or be whollynew initiatives, or enter into strategic relationships, such as our current relationship with DoubleLine, or joint ventures. In addition,opportunities may arise to acquire other alternative or traditional investment managers.To the extent we make strategic investments or acquisitions, enter into strategic relationships or joint ventures or enter into new linesof business, we will face numerous risks and uncertainties, including risks associated with the required investment of capital and otherresources and with combining or integrating operational and management systems and controls and managing potential conflicts. Entry intocertain lines of business may subject us to new laws and regulations with which we are not familiar, or from which we are currently exempt,and may lead to increased litigation and regulatory risk. If a new business generates insufficient revenues, or produces investment losses, orif we are unable to efficiently manage our expanded operations, our results of operations will be adversely affected, and our reputation andbusiness may be harmed. In the case of joint ventures, we are29subject to additional risks and uncertainties in that we may be dependent upon, and subject to liability, losses or reputational damage relatingto, systems, controls and personnel that are not under our control.We may not be successful in expanding into new investment strategies, markets and lines of business.We actively consider the opportunistic expansion of our business, both geographically and into new investment strategies. Forexample, we have focused on expanding into products for real estate, senior loans, listed equities, corporate debt, collateralized loanobligations, power infrastructure and renewable energy credits, emerging market credit and direct lending and broadening our distribution,including strategic partnerships, subadvisory and retail and high net worth offerings. Such expansion would result in adding personnel andgrowing investment teams. We may not be successful in any such attempted expansion. Attempts to expand our business involve a numberof special risks, including some or all of the following:•the diversion of management's attention from our existing business;•the disruption of our existing business;•entry into markets or lines of business in which we may have limited or no experience;•increasing demands on our operational systems;•potential increase in investor concentration; and•increasing the risks associated with conducting operations in foreign jurisdictions.Because we continuously evaluate potential new investment strategies, geographic markets and lines of business, we cannot identifyfor you all the risks we may face and the potential adverse consequences on us and your investment that may result from any attemptedexpansion.We often pursue investment opportunities that involve business, regulatory, legal or other complexities.We often pursue unusually complex investment opportunities involving substantial business, regulatory or legal complexity thatwould deter other investment managers. Our tolerance for complexity presents risks, as such transactions can be more difficult, expensiveand time-consuming to finance and execute; it can be more difficult to manage or realize value from the assets acquired in such transactions;and such transactions sometimes entail a higher level of regulatory scrutiny or a greater risk of contingent liabilities. Any of these risks couldharm the performance of our funds.Extensive regulation in the United States and abroad affects our activities and creates the potential for significant liabilitiesand penalties that could adversely affect our business and results of operations.Potential regulatory action poses a significant risk to our reputation and our business. Our business is subject to extensiveregulation in the United States and in the other countries in which our investment activities occur. The SEC oversees the activities of oursubsidiary Oaktree Capital Management, L.P. as a registered investment adviser under the Advisers Act. Additionally, the CFTC and theNFA oversee the activities of Oaktree Capital Management, L.P. as a registered commodity pool operator (“CPO”) and commodity tradingadviser (“CTA”) under the Commodity Exchange Act. FINRA oversees the activities of our subsidiary OCM Investments, LLC as a registeredbroker-dealer. In addition, we regularly rely on exemptions from various requirements of the Securities Act, the Exchange Act, the InvestmentCompany Act, the Commodity Exchange Act and the U.S. Employee Retirement Income Security Act of 1974 (“ERISA”). These exemptionsare sometimes highly complex and may in certain circumstances depend on compliance by third parties whom we do not control. If for anyreason these exemptions were to be revoked or challenged or otherwise become unavailable to us, we could be subject to regulatory action orthird-party claims, and our business could be materially and adversely affected.Each of the regulatory bodies with jurisdiction over us has regulatory powers dealing with many aspects of financial services,including the authority to grant, and in specific circumstances to cancel, permissions to carry on particular activities. A failure to comply withthe obligations imposed by the Advisers Act, including recordkeeping, advertising and operating requirements, disclosure obligations andprohibitions on fraudulent activities, could result in investigations, sanctions and reputational damage. Similarly, a failure to comply with theobligations imposed by the Commodity Exchange Act, including recordkeeping, reporting requirements, disclosure obligations andprohibitions on fraudulent activities, could also result in investigations, sanctions and reputational damage. We are involved regularly intrading activities that implicate a broad number of U.S. securities law regimes, including laws governing trading on inside information,market manipulation and a broad number of technical trading requirements30that implicate fundamental market regulation policies. Violation of these laws could result in severe restrictions on our activities and damageto our reputation.Our failure to comply with applicable laws or regulations could result in fines, censure, suspensions of personnel or other sanctions,including revocation of the registration of our relevant subsidiary as an investment adviser, commodity pool operator, commodity tradingadviser or registered broker-dealer. The regulations to which our business is subject are designed primarily to protect investors in our fundsand to ensure the integrity of the financial markets. They are not designed to protect our Class A unitholders. Even if a sanction imposedagainst us, one of our subsidiaries or our personnel by a regulator is for a small monetary amount, the adverse publicity related to thesanction could harm our reputation, which in turn could materially adversely affect our business in a number of ways, such as causinginvestors to redeem their capital (to the degree they have that right), making it harder for us to raise new funds and discouraging others fromdoing business with us.Some of our funds invest in businesses that operate in highly regulated industries, including in businesses that are regulated by theU.S. Federal Communications Commission, the U.S. Federal Energy Regulatory Commission, U.S. federal and state banking authoritiesand U.S. state gaming authorities. The regulatory regimes to which such businesses are subject may, among other things, condition ourfunds' ability to invest in those businesses upon the satisfaction of applicable ownership restrictions or qualification requirements or, absentany applicable exemption, require us or our subsidiaries to comply with registration, reporting or other requirements. Moreover, our failure toobtain or maintain any regulatory approvals necessary for our funds to invest in such industries may disqualify our funds from participatingin certain investments or require our funds to divest themselves of certain assets.The recently enacted Iran Threat Reduction and Syrian Human Rights Act of 2012 (“ITRSHRA”) expands the scope of U.S.sanctions against Iran. Notably, ITRSHRA prohibits foreign entities that are majority owned or controlled by U.S. persons from engaging intransactions with Iran that would be contrary to the sanctions regulations if undertaken by a U.S. person. In addition, Section 219 ofITRSHRA amended the Exchange Act to require public reporting companies to disclose in their annual or quarterly reports any dealings ortransactions the company or its affiliates engaged in during the previous reporting period involving Iran or other individuals and entitiestargeted by certain OFAC sanctions. In some cases, ITRSHRA requires companies to disclose these types of transactions even if they werepermissible under U.S. law or were conducted outside of the United States by a foreign affiliate. Disclosure of such activity, even if suchactivity is not subject to sanctions under applicable law, and any sanctions actually imposed on us or our affiliates as a result of theseactivities, could harm our reputation and have a negative impact on our business.Regulatory changes in the United States, regulatory compliance failures and the effects of negative publicity surrounding thefinancial industry in general could adversely affect our reputation, business and operations.As a result of market disruption as well as highly publicized financial scandals in recent years, regulators and investors haveexpressed concerns over the integrity of the U.S. financial markets, and the business in which we operate both in and outside the UnitedStates will be subject to new or additional regulations. We may be adversely affected as a result of new or revised legislation or regulationsimposed by the SEC, the CFTC or other U.S. governmental regulatory authorities or self-regulatory organizations that supervise the financialmarkets. We also may be adversely affected by changes in the interpretation or enforcement of existing laws and rules by thesegovernmental authorities and self-regulatory organizations.On July 21, 2010, President Obama signed into law the Dodd-Frank Act. The Dodd-Frank Act, among other things, imposessignificant new regulations on nearly every aspect of the U.S. financial services industry, including oversight and regulation of systemicmarket risk (including the power to liquidate certain institutions); authorizing the Federal Reserve to regulate nonbank institutions that aredeemed systemically important; generally prohibiting insured depository institutions, insured depository institution holding companies andtheir subsidiaries and affiliates from conducting proprietary trading and investing in or sponsoring private equity funds and hedge funds; andimposing new registration, recordkeeping and reporting requirements on private fund investment advisers. Importantly, while several keyaspects of the Dodd-Frank Act have been defined through final rules, many aspects remain to be implemented by various regulatory bodies.While we already have one subsidiary registered as an investment adviser subject to SEC examinations and as a CPO and CTA subject toCFTC regulation and another subsidiary registered as a broker-dealer subject to FINRA examinations, the imposition of any additional legalor regulatory requirements could make compliance more difficult and expensive, affect the manner in which we conduct our business andadversely affect our profitability.31The Dodd-Frank Act established a ten-member Financial Stability Oversight Council (the “Council”), an interagency body chaired bythe Secretary of the Treasury, to identify and manage systemic risk in the financial system and improve interagency cooperation. Under theDodd-Frank Act, the Council has the authority to review the activities of certain nonbank financial firms engaged in financial activities that aredesignated as “systemically important,” meaning, among other things, that the distress of the financial firm would threaten the stability of theU.S. economy. On July 8, 2013 and September 19, 2013, respectively, the Council made its initial designations of three nonbank financialcompanies for Federal Reserve supervision. As expected, we were not among such designated companies. However, if we were designated,it would result in increased regulation of our business, including higher standards on capital, leverage, liquidity, risk management, creditexposure reporting and concentration limits, restrictions on acquisitions and annual stress tests by the Federal Reserve.On December 10, 2013, the Federal Reserve and other federal regulatory agencies issued final rules implementing a section of theDodd-Frank Act that has become known as the “Volcker Rule.” The Volcker Rule generally prohibits depository institution holding companies(including foreign banks with U.S. branches and insurance companies with U.S. depository institution subsidiaries), insured depositoryinstitutions and subsidiaries and affiliates of such entities from investing in or sponsoring private equity funds or hedge funds. When theVolcker Rule became effective on July 21, 2012, it kicked off a two-year conformance period, which was set to expire on July 21, 2014.However, in conjunction with the release of the final rules on December 10, 2013, the Federal Reserve issued an order granting an industry-wide, one-year extension for all banking entities. As a result, banking entities are required to have wound down, sold, transferred orotherwise conformed their investments and sponsorship activities to the Volcker Rule by July 21, 2015, absent an extension to theconformance period by the Federal Reserve or an exemption for certain “permitted activities.” While we do not currently anticipate that theVolcker Rule will adversely affect our fundraising to any significant extent, to the extent there is uncertainty regarding the interpretation orimplementation of the Volcker Rule and its practical implications, there could be adverse implications on our ability to raise funds from thetypes of entities mentioned above as a result of this prohibition.The SEC has adopted a new rule requiring investment advisers registered or required to register with the SEC under the Advisers Actthat advise one or more private funds and have at least $150 million in private fund AUM to periodically file reports on a new Form PF. Underthe rule, large private fund investment advisers, or advisers with at least $1.5 billion in AUM attributable to hedge funds and advisers with atleast $2.0 billion in AUM attributable to private equity funds, are subject to more detailed and in certain cases more frequent reportingrequirements. As a result of this new rule, we have filed, and will continue to file, quarterly reports on Form PF, which has resulted inincreased administrative costs and requires a significant amount of attention and time to be spent by our personnel.In addition, the CFTC adopted new rules eliminating CFTC Rule 4.13(a)(4), an exemption from registration as a CPO on which wepreviously relied in operating our funds. As a result, one of our subsidiaries, Oaktree Capital Management, L.P., has registered with theCFTC as a CPO and CTA with respect to the management of our funds. In connection with such registrations, we also rely on the CFTCRule 4.7 exemption, which provides a CPO and a CTA relief from a majority of the Commodity Exchange Act's disclosure, reporting andrecordkeeping requirements imposed on CPOs and CTAs. The operators of funds relying upon the exemption provided by CFTC Rule 4.7,unlike a fully-registered CPO, will not be required to file any offering memorandum with the CFTC, and the CFTC will not pass upon themerits of participating in a pool or upon the adequacy of accuracy of an offering memorandum. Nonetheless, CPOs and CTAs that qualify forrelief under Rule 4.7 remain subject to certain disclosure, reporting and recordkeeping requirements that could adversely affect our ability toimplement our investment program, conduct our operations and/or achieve our objectives and subject us to certain additional costs,expenses and administrative burdens.For some of our other funds that trade in commodity interests, we rely on the limited trading exemption provided by CFTC Rule4.13(a)(3). For those funds that rely upon the exemption provided by CFTC Rule 4.13(a)(3), unlike pools operated on a registered basis byCPO, the operators of such pools are not required to provide prospective investors with a CFTC compliant disclosure document, nor are theoperators required to provide participants with periodic account statements or certified annual reports that satisfy the requirements of CFTCrules applicable to registered CPOs.In the event we determine to cease or to limit investing in swaps or other assets rather than subjecting ourselves to all of theregulations of the CFTC, our ability to implement our investment objectives for our funds and to hedge risks associated with our funds'investments and operations may be materially impaired. Furthermore, the CFTC has substantial enforcement power with respect toviolations of the laws over which it has jurisdiction,32including their anti-fraud and anti-manipulation provisions. Among other things, the CFTC may suspend or revoke the registration of aperson who fails to comply, prohibit such a person from trading or doing business with registered entities, impose civil money penalties,require restitution and seek fines or imprisonment for criminal violations. Additionally, a private right of action exists against those whoviolate the laws over which the CFTC has jurisdiction or who willfully aid, abet, counsel, induce or procure a violation of those laws. In theevent our registration with the CFTC as a CPO or CTA is rescinded or restricted and we are unable to rely on an exemption from registrationor we otherwise fail to comply with the regulatory requirements of these rules, we may be unable to use certain types of hedging instrumentsor may be subject to significant fines, penalties and other civil or governmental actions or proceedings, any of which could have a materiallyadverse effect on our business, financial condition and results of operations.It is difficult to determine the full extent of the impact on us of the Dodd-Frank Act or any other new laws, regulations or initiatives thatmay be proposed or whether any of the proposals will become law. Any changes in the regulatory framework applicable to our business,including the changes described above, may impose additional costs on us, require the attention of our senior management or result inlimitations on the manner in which we conduct our business. Moreover, as calls for additional regulation have increased, there may be arelated increase in regulatory investigations of the trading and other investment activities of alternative asset management funds, includingour funds. In addition, we may be adversely affected by changes in the interpretation or enforcement of existing laws and rules by thesegovernmental authorities and self-regulatory organizations. Compliance with any new laws or regulations could make compliance moredifficult and expensive, affect the manner in which we conduct our business and adversely affect our profitability.Regulatory changes in jurisdictions outside the United States could adversely affect our business.Certain of our subsidiaries operate outside the United States. In the United Kingdom, Oaktree Capital Management (UK) LLP issubject to regulation by the Financial Conduct Authority. In Hong Kong, Oaktree Capital (Hong Kong) Limited is subject to regulation by theHong Kong Securities and Futures Commission. In Singapore, Oaktree Capital Management Pte. Ltd. is subject to regulation by theMonetary Authority of Singapore. In Japan, Oaktree Japan, GK is subject to regulation by the Kanto Local Finance Bureau. Our otherEuropean and Asian operations and our investment activities worldwide are subject to a variety of regulatory regimes that vary by country. Inaddition, we regularly rely on exemptions from various requirements of the regulations of certain foreign countries in conducting our assetmanagement activities.Each of the regulatory bodies with jurisdiction over us has regulatory powers dealing with many aspects of financial services,including the authority to grant, and in specific circumstances to cancel, permissions to carry on particular activities. We are involvedregularly in trading activities that implicate a broad number of foreign (as well as U.S.) securities law regimes, including laws governingtrading on inside information and market manipulation and a broad number of technical trading requirements that implicate fundamentalmarket regulation policies. Violation of these laws could result in severe restrictions or prohibitions on our activities and damage to ourreputation, which in turn could materially adversely affect our business in a number of ways, such as causing investors to redeem theircapital (to the degree they have that right), making it harder for us to raise new funds and discouraging others from doing business with us.Alternative Investment Fund Managers DirectiveThe European Union Alternative Investment Fund Managers Directive (the “Directive”) took effect on July 22, 2013. The Directiveapplies to (a) alternative investment fund managers (“AIFM”) established in the European Union (the “EU”) that manage EU or non-EUalternative investment funds (“AIF”), (b) non-EU AIFMs that manage EU AIFs and (c) non-EU AIFMs that market their AIFs to professionalinvestors within the EU. Individual EU member states must now adopt rules and regulations implementing the Directive into domestic law.The Directive imposes new operating requirements on EU AIFMs managing AIFs. Following a one-year transitional period, EUAIFMs must comply with the requirements of the Directive and be appropriately authorized or have submitted an application for authorization.EU AIFMs and non-EU AIFMs seeking to market an AIF within the EU will need to comply with the Directive's disclosure and transparencyrequirements and (in the case of non-EU AIFMs) jurisdiction specific private placement regimes (which have changed as a result of theDirective).The full scope of the Directive may also, from October 2015 at the earliest, be extended to non-EU AIFMs that wish to market an AIFwithin the EU pursuant to a pan-European marketing passport instead of under national private placement regimes.33The operating requirements imposed by the Directive include, among other things, rules relating to the remuneration of certainpersonnel, minimum regulatory capital requirements, restrictions on use of leverage, restrictions on early distributions relating to portfoliocompanies (so-called “asset stripping” rules), disclosure and reporting requirements to both investors and home state regulators, theindependent valuation of an AIF's assets and the appointment of an independent depository to hold assets. As a result, the Directive could inthe future have an adverse effect on our business by, among other things, increasing the regulatory burden and costs of doing business in orrelating to EU member states, imposing extensive disclosure obligations on, and asset stripping rules with respect to, companies, if any, inwhich any of our fund(s) invest that are located in EU member states, significantly restricting marketing activities within the EU, potentiallyrequiring our fund(s) to change their compensation structures for key personnel, thereby affecting our ability to recruit and retain thesepersonnel, and potentially disadvantaging our funds as investors in private companies located in EU member states when compared to non-AIF/AIFM competitors that may not be subject to the requirements of the Directive, thereby potentially restricting our funds' ability to makeinvestments in such companies.The Directive could also limit our operating flexibility and our investment opportunities, as well as expose us and/or our funds toconflicting regulatory requirements in the United States (and elsewhere) and the EU. The final scope and requirements of the Directiveremain uncertain and are subject to change as a result of enactment both of EU secondary legislation and national implementing legislationin EU member states.Solvency IISolvency II is an EU directive that sets out stronger capital adequacy and risk management requirements for European insurers andreinsurers and, in particular, dictates how much capital such firms must hold against their liabilities. Solvency II is currently scheduled to beimplemented into domestic law by EU member states by January 2016. Solvency II will impose, among other things, substantially greaterquantitative and qualitative capital requirements for insurers and reinsurers as well as other supervisory and disclosure requirements. Weare not subject to Solvency II; however, many of our European insurer or reinsurer fund investors will be subject to this directive, as appliedunder applicable domestic law. Solvency II may impact insurers' and reinsurers' investment decisions and their asset allocations. In addition,insurers and reinsurers will be subject to more onerous data collation and reporting requirements. As a result, Solvency II could in the futurehave an adverse indirect effect on our business by, among other things, restricting the ability of European insurers and reinsurers to invest inour funds and imposing on us extensive disclosure and reporting obligations for those insurers and reinsurers that do invest in our funds.Failure to comply with recently adopted SEC rules barring so-called “bad actors” from relying on Rule 506 of Regulation D inprivate placements could materially adversely affect our business, financial condition and results of operations.Effective September 23, 2013, the SEC adopted amendments to Rules 501 and 506 of Regulation D under the Securities Act barringissuers deemed to be “bad actors” from relying on Rule 506 of Regulation D (“Rule 506”) in connection with private placements (the“disqualification rule”). Specifically, an issuer will be precluded from conducting offerings that rely on the exemption from registration underthe Securities Act provided by Rule 506 (“Rule 506 offerings”) if a “covered person” of the issuer has been the subject of a “disqualifyingevent” (each as defined below). “Covered persons” include, among others, the issuer, affiliated issuers, any investment manager or solicitorof the issuer, any director, executive officer or other officer participating in the offering of the issuer, any general partner or managing memberof the foregoing entities, any promoter of the issuer and any beneficial owner of 20% or more of the issuer’s outstanding voting equitysecurities, calculated on the basis of voting power. A “disqualifying event” includes, among other things, certain (1) criminal convictions andcourt injunctions and restraining orders issued in connection with the purchase or sale of a security or false filings with the SEC; (2) finalorders from the CFTC, federal banking agencies and certain other regulators that bar a person from associating with a regulated entity orengaging in the business of securities, insurance or banking or that are based on certain fraudulent conduct; (3) SEC disciplinary ordersrelating to investment advisers, brokers, dealers and their associated persons; (4) SEC cease-and-desist orders relating to violations ofcertain anti-fraud provisions and registration requirements of the federal securities laws; (5) suspensions or expulsions from membership ina self-regulatory organization (“SRO”) or from association with an SRO member; and (6) U.S. Postal Service false representation orders.A disqualification will occur only in the case of a disqualifying event of a covered person that occurs after September 23, 2013,although issuers must disclose to potential investors in a Rule 506 offering disqualifying events of covered persons that occurred beforeSeptember 23, 2013. The rule provides an exception from disqualification if the issuer can show that it did not know and, in the exercise ofreasonable care could not have known, that the issuer or any other covered person had a disqualifying event, although an issuer will not beable to34establish that it has exercised reasonable care unless it has made, in light of the circumstances, factual inquiry into whether anydisqualifications exist.If any of our covered persons is subject to a disqualifying event, one or more of our funds could lose the ability to raise capital in aRule 506 offering for a significant period of time. Most of our funds rely on Rule 506 to raise capital from investors during their fundraisingperiods. If one or more of our funds were to lose the ability to rely on the Rule 506 exemption because an Oaktree covered person has beenthe subject of a disqualifying event, our business, financial condition and results of operations could be materially and adversely affected.Failure to comply with “pay to play” regulations implemented by the SEC and certain states, and changes to the “pay to play”regulatory regimes, could adversely affect our business.In recent years, the SEC and several states have initiated investigations alleging that certain private equity firms and hedge funds oragents acting on their behalf have paid money to current or former government officials or their associates in exchange for improperlysoliciting contracts with state pension funds. The SEC has also initiated a similar investigation into contracts awarded by sovereign wealthfunds. In June 2010, the SEC approved Rule 206(4)-5 under the Advisers Act regarding “pay to play” practices by investment advisersinvolving campaign contributions and other payments to government officials able to exert influence on potential government entity clients.Among other restrictions, the rule prohibits investment advisers from providing advisory services for compensation to a government entityfor two years, subject to very limited exceptions, after the investment adviser, its senior executives or its personnel involved in solicitinginvestments from government entities make contributions to certain candidates and officials in a position to influence the hiring of aninvestment adviser by such government entity. Advisers are required to implement compliance policies designed, among other matters, totrack contributions by certain of the adviser's employees and engagements of third parties that solicit government entities and to keep certainrecords in order to enable the SEC to determine compliance with the rule. Additionally, California enacted legislation in September 2010 thatrequires placement agents (including in certain cases employees of investment managers) who solicit funds from California state retirementsystems, such as the California Public Employees' Retirement System and the California State Teachers' Retirement System, to register aslobbyists, thereby becoming subject to increased reporting requirements and prohibited from receiving contingent compensation for solicitinginvestments from California state retirement systems. There has also been similar rule-making in New York. Such investigations mayrequire the attention of senior management and may result in fines if any of our funds are deemed to have violated any regulations, therebyimposing additional expenses on us. Any failure on our part to comply with these rules could cause us to lose compensation for our advisoryservices or expose us to significant penalties and reputational damage.The derivatives that we or our funds use to hedge against interest rate and foreign currency exposure are volatile and mayadversely affect our results of operations.From time to time, we and our funds enter into various hedging instruments such as swaps, options, forwards and futures as part ofmanaging risks related to interest rates and foreign currency exchange rates. In the future, we and our funds may enter into additionalhedging instruments as part of these or other risk management strategies. Our hedging activity varies in scope based on the level of interestrates, the type of portfolio investments held and other changing market conditions. These hedging instruments may fail to protect us or ourfunds from interest rate or foreign currency volatility or could adversely affect us or our funds because, among other things:•hedging instruments can be expensive, particularly during periods of volatility in interest rates, foreign currency and the prices ofreference instruments;•available hedging instruments may not correspond directly with the risk for which protection is sought;•the duration of the hedge may be significantly different than the duration of the related liability or asset;•derivatives generally involve leverage in the sense that the investment exposure created by the derivatives may be significantlygreater than the initial investments in the derivative;•certain investments may be illiquid, making them unable to be sold at the desired time or price;•the credit quality of the party owing money on the hedge may be downgraded to such an extent that it impairs or makeseconomically unattractive our ability to sell or assign our side of the hedging transaction; and•the party owing money in the hedging transaction may default on its obligation to pay.35The cost of using certain hedging instruments increases as the period covered by the instrument increases and, with respect tointerest rate hedges, during periods of rising and volatile interest rates and, with respect to foreign currency hedges, during periods of volatileforeign currencies. We or our funds may increase hedging activity and thus increase hedging costs during such periods when hedging costshave increased.Any hedging activity we or our funds engage in may adversely affect our results of operations, which could adversely affect our cashavailable for distribution to holders of our units. Therefore, while we or our funds may enter into such transactions to seek to reduce interestrate and foreign currency risks, unanticipated changes in interest rates and foreign currency exchange rates may result in poorer overallinvestment performance than if we had not engaged in any such hedging transactions. In addition, the degree of correlation between pricemovements of the instruments used in a hedging strategy and price movements in the portfolio positions or liabilities being hedged may varymaterially. Moreover, for a variety of reasons, we may not seek to establish a perfect correlation between such hedging instruments and theportfolio holdings or liabilities being hedged. Any such imperfect correlation may expose us or our funds to risk of loss.Hedging instruments often involve counterparty risks and costs.We and our funds will be subject to credit risk with respect to counterparties to derivative contracts (whether a clearing corporation inthe case of exchange-traded instruments or another third party in the case of over-the-counter instruments) and other instruments enteredinto directly by us or our funds or held by special purpose or structured vehicles in which we or our funds may invest from time to time.Counterparty risk is the risk that the other party in a derivative transaction will not fulfill its contractual obligation. Changes in the creditquality of the companies that serve as our or our funds’ counterparties with respect to their derivative transactions will affect the value of thoseinstruments. By entering into derivatives, we or our funds assume the risk that these counterparties could experience financial hardshipsthat could call into question their continued ability to perform their obligations. As a result, concentrations of such derivatives in any onecounterparty would subject us or our funds to an additional degree of risk with respect to defaults by such counterparty.If a counterparty becomes bankrupt or otherwise fails to perform its obligations under a derivative contract due to financial difficulties,we or our funds may experience significant delays in obtaining any recovery under the derivative contract in a dissolution, assignment for thebenefit of creditors, liquidation, winding-up, bankruptcy or other analogous proceeding. In addition, in the event of the insolvency of acounterparty to a derivative transaction, the derivative transaction would typically be terminated at its fair market value. If we or our funds areowed this fair market value in the termination of the derivative transaction and such claims are uncollateralized or otherwise unsecured, weor our funds will be treated as general creditors of such counterparty, and will not have any claim with respect to the underlying security. Weor our funds may obtain only a limited recovery or may obtain no recovery in such circumstances.Some, but not all, derivatives may be cleared, in which case a central clearing counterparty stands between each buyer and seller andeffectively guarantees performance of each derivative contract, to the extent of its available resources for such purpose. As a result, thecounterparty risk is now shifted from bilateral risk between the parties to the individual credit risk of the central clearing counterparty. Even insuch case, there can be no assurance that a clearing house, or its members, will satisfy the clearing house’s obligations to our funds.Uncleared derivatives have no such protection; each party bears the risk that its direct counterparty will default.Regulatory changes could occur and may adversely affect our or our funds' ability to pursue hedging strategies and/orincrease the costs of implementing such strategies.The enforceability of agreements underlying hedging transactions may depend on compliance with applicable statutory and otherregulatory requirements and, depending on the identity of the counterparty, applicable international requirements. New or amendedregulations may be imposed by the CFTC, the SEC, the Federal Reserve or other financial regulators, other governmental regulatoryauthorities or self-regulatory organizations that supervise the financial markets that could adversely affect us and our funds. In particular,these agencies are empowered to promulgate a variety of new rules pursuant to recently enacted financial reform legislation in the UnitedStates. We and our funds also may be adversely affected by changes in the enforcement or interpretation of existing statutes and rules bythese governmental regulatory authorities or self-regulatory organizations.In addition, the securities and futures markets are subject to comprehensive statutes, regulations and margin requirements. Forexample, the Dodd-Frank Act could have an adverse effect on our funds’ ability to use derivative36instruments. The Dodd-Frank Act is designed to impose stringent regulation on the over-the-counter derivatives market in an attempt toincrease transparency and accountability and provides for, among other things, clearing, margin, reporting, recordkeeping and registrationrequirements. Although the CFTC has released final rules relating to clearing, reporting, risk management, compliance, position limit, anti-fraud, consumer protection, portfolio reconciliation, documentation, recordkeeping and registration requirements under the Dodd-Frank Act,many of the provisions are subject to further final rulemaking, and thus the Dodd-Frank Act's ultimate impact remains unclear. Newregulations could, among other things, restrict our funds' ability to engage in derivatives transactions (for example, by making certain typesof derivatives transactions no longer available to our funds), increase the costs of using these instruments (for example, by increasingmargin or capital requirements) and/or make them less effective and, as a result, our funds may be unable to execute their investmentstrategies. Limits or restrictions applicable to the counterparties with which our funds engages in derivative transactions could also preventour funds from using these instruments, affect the pricing or other factors relating to these instruments or may change availability of certaininvestments. It is unclear how the regulatory changes will affect counterparty risk.For entities designated by the CFTC or the SEC as swap dealers, security-based swaps dealers, major swap participants or majorsecurity-based swap participants, the Dodd-Frank Act imposes new regulatory, reporting and compliance requirements. On May 23, 2012, ajoint final rulemaking by the CFTC and the SEC defining these key terms was published in the Federal Register. Based on those definitions,we do not believe that we would be a swap dealer, security-based swap dealer, major swap participant or security-based major swapparticipant at this time. If we are later designated as a swap dealer, security-based swap dealer, major swap participant or major security-based swap participant, our business will be subject to increased regulation, including registration requirements, additional recordkeepingand reporting obligations, external and internal business conduct standards, position limits monitoring and capital and margin thresholds.The requirements of being a public company and sustaining growth may strain our resources.As a public company, we are subject to the reporting requirements of the Exchange Act and requirements of the Sarbanes-Oxley Act of2002 (the “Sarbanes-Oxley Act”). These requirements may strain our systems and resources. The Exchange Act requires that we fileannual, quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires that we maintaineffective disclosure controls and procedures and internal controls over financial reporting, which are discussed below. In order to maintain andimprove the effectiveness of our disclosure controls and procedures, significant resources and management oversight are required. We haveimplemented and continue to implement additional procedures and processes for the purpose of addressing the standards and requirementsapplicable to public companies. In addition, sustaining our growth also requires us to commit additional management, operational andfinancial resources to identify new professionals to join the firm and to maintain appropriate operational and financial systems to adequatelysupport expansion. These activities may divert management's attention from other business concerns, which could have a material adverseeffect on our business, financial condition, results of operations and cash flows. We have incurred and will continue to incur costs that wehad not previously incurred as a private company before our initial public offering in April 2012 as part of our compliance with the Sarbanes-Oxley Act and rules of the SEC and New York Stock Exchange (“NYSE”), including hiring additional accounting, legal and administrativepersonnel and various other costs related to being a public company.We are subject to substantial litigation risks and may face significant liabilities and damage to our professional reputation as aresult.In recent years, the volume of claims and amount of damages claimed in litigation and regulatory proceedings against investmentmanagers have been increasing. We make investment decisions on behalf of our clients that could result in substantial losses. This maysubject us to the risk of legal liabilities or actions alleging negligent misconduct, breach of fiduciary duty or breach of contract. Further, wemay be subject to third-party litigation arising from allegations that we improperly exercised control or influence over portfolio investments. Inaddition, we and our affiliates that are the investment managers and general partners of our funds, our funds themselves and those of ouremployees who are our, our subsidiaries' or the funds' officers and directors are each exposed to the risks of litigation specific to the funds'investment activities and portfolio companies and, in the case where our funds own controlling interests in public companies, to the risk ofshareholder litigation by the public companies' other shareholders. Moreover, we are exposed to risks of litigation or investigation byinvestors or regulators relating to our having engaged, or our funds having engaged, in transactions that presented conflicts of interest thatwere not properly addressed. Substantial legal liability could materially adversely affect our business, financial condition or results ofoperations or cause significant reputational harm to us, which could seriously harm our business. We depend to a large extent on ourbusiness relationships and our reputation for integrity and high-37caliber professional services to attract and retain investors. As a result, allegations of improper conduct by private litigants or regulators,whether the ultimate outcome is favorable or unfavorable to us, as well as negative publicity and press speculation about us, our investmentactivities or the investment industry in general, whether or not valid, may harm our reputation, which may be more damaging to ourbusiness than to other types of businesses.Employee misconduct, which is difficult to detect and deter, could harm us by impairing our ability to attract and retain clientsand subject us to significant legal liability and reputational harm.There have been a number of highly publicized cases involving fraud or other misconduct by employees in the financial servicesindustry, and there is a risk that our employees could engage in misconduct that adversely affects our business. We are subject to a numberof obligations and standards arising from our investment management business and our authority over the assets we manage. The violationof any of these obligations or standards by any of our employees could adversely affect our clients and us. Our business often requires thatwe deal with confidential matters of great significance to companies in which we may invest or to our advisory clients. If our employeesimproperly use or disclose confidential information, we could be subject to regulatory sanctions and suffer serious harm to our reputation,financial position and current and future business relationships. It is not always possible to deter employee misconduct, and the precautionswe take to prevent this activity may not be effective in all cases. If our employees engage in misconduct, or if they are accused of misconduct,our business and our reputation could be adversely affected.In recent years, the U.S. Department of Justice and the SEC have devoted greater resources to enforcement of the FCPA. In addition,the United Kingdom has significantly expanded the reach of its anti-bribery laws. While we have developed and implemented policies andprocedures designed to ensure strict compliance by us and our personnel with the FCPA, such policies and procedures may not be effectivein all instances to prevent violations. Any determination that we have violated the FCPA or other applicable anti-corruption laws could subjectus to, among other things, civil and criminal penalties, material fines, profit disgorgement, injunctions on future conduct, securities litigationand a general loss of investor confidence, any one of which could adversely affect our business, financial condition or results of operations.In addition, we may also be adversely affected if there is misconduct by personnel of portfolio companies in which our funds invest.For example, failures by personnel at our portfolio companies to comply with anti-bribery, trade sanctions or other legal and regulatoryrequirements could adversely affect our business and reputation. Such misconduct might undermine our due diligence efforts with respect tosuch companies and could negatively affect the valuation of a fund’s investments.Operational risks may disrupt our business, result in losses or limit our growth.We rely heavily on our financial, accounting, communications and other data processing systems. Our systems may fail to operateproperly or become disabled as a result of tampering or a breach of our network security systems or otherwise. In addition, our systems fromtime to time may be subject to cyber attacks. Breaches of our network security systems could involve attacks that are intended to obtainunauthorized access to our proprietary information, destroy data or disable, degrade or sabotage our systems, often through the introductionof computer viruses, cyber attacks and other means and could originate from a wide variety of sources, including unknown third partiesoutside the firm. Although we take various measures and have made, and will continue to make, significant investments to ensure theintegrity of our systems and to safeguard against such failures or security breaches, there can be no assurance that these measures andinvestments will provide protection. If our systems are compromised, do not operate properly or are disabled, we could suffer financial loss, adisruption of our business, liability to our funds, regulatory intervention or reputational damage.In addition, we operate in a business that is highly dependent on information systems and technology. Our information systems andtechnology may not continue to be able to accommodate our growth, particularly our growth internationally, and the cost of maintaining thesystems may increase from its current level. Such a failure to accommodate growth, or an increase in costs related to the informationsystems, could have a material adverse effect on our business and results of operations.Furthermore, we depend on our headquarters in Los Angeles, where a substantial portion of our personnel are located, for thecontinued operation of our business. An earthquake or other disaster or a disruption in the infrastructure that supports our business,including a disruption involving electronic communications or other services used by us or third parties with whom we conduct business, ordirectly affecting our headquarters, could have a material adverse impact on our ability to continue to operate our business withoutinterruption. While we have implemented disaster recovery programs to lessen the risk of any material adverse impact, our disaster38recovery programs may not be sufficient to mitigate the harm that may result from such a disaster or disruption. In addition, insurance andother safeguards might only partially reimburse us for our losses, if at all.Finally, we rely on third-party service providers for certain aspects of our business, including software vendors for portfoliomanagement and accounting software, outside financial institutions for back office processing and custody of securities and third-party broker-dealers for the execution of trades. Any interruption or deterioration in the performance of these third parties or failures of their informationsystems and technology could impair the quality of the funds' operations and could impact our reputation and hence adversely affect ourbusiness.We are subject to risks in using prime brokers, custodians, counterparties, administrators and other agents.Many of our funds depend on the services of prime brokers, custodians, counterparties, administrators and other agents to carry outcertain securities and derivatives transactions. The terms of these contracts are often customized and complex, and many of thesearrangements occur in markets or relate to products that are subject to limited or no regulatory oversight. In particular, some of our fundsutilize prime brokerage arrangements with a relatively limited number of counterparties, which has the effect of concentrating the transactionvolume (and related counterparty default risk) of these funds with these counterparties.Our funds are subject to the risk that the counterparty to one or more of these contracts defaults, either voluntarily or involuntarily, onits performance under the contract. Any such default may occur suddenly and without notice to us. Moreover, if a counterparty defaults, wemay be unable to take action to cover our exposure, either because we lack contractual recourse or because market conditions make it difficultto take effective action. This inability could occur in times of market stress, which is when defaults are most likely to occur.In addition, risk-management models that we may employ from time to time may not accurately anticipate the impact of market stressor counterparty financial condition, and as a result, we may not have taken sufficient action to reduce our risks effectively. Default risk mayarise from events or circumstances that are difficult to detect, foresee or evaluate. In addition, concerns about, or a default by, one largeparticipant could lead to significant liquidity problems for other participants, which may in turn expose us to significant losses.In the event of a counterparty default, particularly a default by a major investment bank, one or more of our funds could incur materiallosses, and the resulting market impact of a major counterparty default could harm our business, results of operation and financial condition.In the event of the insolvency of a prime broker, custodian, counterparty or any other party that is holding assets of our funds ascollateral, our funds might not be able to recover equivalent assets in full as they will rank among the prime broker's, custodian's orcounterparty's unsecured creditors in relation to the assets held as collateral. In addition, our funds' cash held with a prime broker, custodianor counterparty generally will not be segregated from the prime broker's, custodian's or counterparty's own cash, and our funds maytherefore rank as unsecured creditors in relation thereto. To the extent that our derivatives transactions are cleared through a derivativesclearing organization, the CFTC has issued final rules regarding the legal segregation of collateral posted by customers of cleared swaps. TheCFTC also issued proposed rules to implement segregation rules for uncleared swaps.The counterparty risks that we face have increased in complexity and magnitude as a result of the disruption in the financial marketsin recent years. For example, the consolidation and elimination of counterparties has increased our concentration of counterparty risk anddecreased the universe of potential counterparties, and our funds are generally not restricted from dealing with any particular counterparty orfrom concentrating any or all of their transactions with one counterparty. In addition, counterparties have generally reacted to recent marketvolatility by tightening their underwriting standards and increasing their margin requirements for all categories of financing, which has theresult of decreasing the overall amount of leverage available and increasing the costs of borrowing.Risks Relating to Our FundsOur results of operations are dependent on the performance of our funds. Poor fund performance will result in reducedrevenues. Poor performance of our funds will also make it difficult for us to retain and attract investors to our funds, to retain andattract qualified professionals and to grow our business. The performance of each fund we manage is subject to some or all of thefollowing risks.39The historical returns attributable to our funds should not be considered indicative of the future results of our funds or of ourfuture results or of any returns expected on an investment in our Class A units.The historical returns attributable to our funds should not be considered indicative of the future results of our funds, nor are theydirectly linked to returns on our Class A units. Therefore, Class A unitholders should not conclude that positive performance of our funds willnecessarily result in positive returns on an investment in our Class A units. However, poor performance of the funds we manage will causea decline in our revenues and would therefore have a negative effect on our operating results and returns on our Class A units.Moreover, with respect to the historical returns of our funds:•the rates of return of our closed-end funds reflect unrealized gains as of the applicable measurement date that may never berealized, which may result in a lower internal rate of return and ultimate return for some closed-end funds from those presented inthis annual report;•our funds' returns have previously benefited from investment opportunities and general market conditions that may not repeatthemselves, and there can be no assurance that our current or future funds will be able to avail themselves of profitable investmentopportunities;•our funds' historical investments were made over a long period of time and over the course of various market and macroeconomiccycles, and the circumstances under which our current or future funds may make future investments may differ significantly fromthose conditions prevailing in the past;•our funds may not be able to successfully identify, make and realize upon any particular investment or generate returns for theirinvestors; and•any material increase in the size of our funds could result in materially different rates of returns.In addition, future returns will be affected by the applicable risks described elsewhere in this annual report.Investors in some of our funds may be unable to fulfill their capital commitment obligations, and such failure could have anadverse effect on the affected funds.Investors in our closed-end funds make capital commitments that we are entitled to call from those investors at any time duringcertain prescribed periods. We depend on investors fulfilling and honoring their commitments when we call capital from them in order for ourclosed-end funds to consummate investments and otherwise pay their obligations when due. Any investor that does not fund a capital call issubject to having a meaningful amount of its existing capital account forfeited in that fund. However, if investors were to fail to honor asignificant amount of capital calls for any particular fund or funds, the affected funds' ability to make new or follow-on investments, and tootherwise satisfy their liabilities when due, could be materially and adversely affected.Certain of our funds invest in relatively high-risk, illiquid, non-publicly traded assets, and we may fail to realize any profits fromthese activities ever or for a considerable period of time.Our closed-end funds often invest in securities that are not publicly traded. In many cases, our funds may be prohibited by contract orby applicable securities laws from selling these securities for a period of time. Our funds generally cannot sell these securities publiclyunless either their sale is registered under applicable securities laws or an exemption from registration is available. The ability of many of ourfunds, particularly our control investing funds, to dispose of investments is heavily dependent on the public equity markets. For example, theability to realize any value from an investment may depend upon the ability to complete an initial public offering of the portfolio company inwhich the investment is held. Even if securities are publicly traded, large holdings of securities often can be sold only over a substantiallength of time, exposing investment returns to risks of downward movement in market prices.We make distressed debt investments that involve significant risks and potential additional liabilities.Our distressed debt funds and certain of our control investing funds invest in obligors and issuers with weak financial conditions, pooroperating results, substantial financing needs, negative net worth or significant competitive issues. These funds also invest in obligors andissuers that are involved in bankruptcy or reorganization proceedings. In these situations, it may be difficult to obtain full information as to theexact financial and operating conditions of these obligors and issuers. Furthermore, some of our funds' distressed debt investments may notbe widely traded or may have no recognized market. Depending on the specific fund's investment profile, a fund's exposure to theinvestments may be substantial in relation to the market for those40investments, and the acquired assets are likely to be illiquid and difficult to transfer. As a result, it may take a number of years for the marketvalue of the investments to ultimately reflect their intrinsic value as we perceive it.A central strategy of our distressed debt funds is to anticipate the occurrence of certain corporate events, such as debt or equityofferings, restructurings, reorganizations, mergers, takeover offers and other transactions. If the relevant corporate event that we anticipate isdelayed, changed or never completed, the market price and value of the applicable fund's investment could decline sharply.In addition, these investments could subject a fund to certain potential additional liabilities that may exceed the value of its originalinvestment. Under certain circumstances, payments or distributions on certain investments may be reclaimed if any such payment ordistribution is later determined to have been a fraudulent conveyance, a preferential payment or similar transaction under applicablebankruptcy and insolvency laws. In addition, under certain circumstances, a lender that has inappropriately exercised control of themanagement and policies of a debtor may have its claims subordinated or disallowed or may be found liable for damages suffered by partiesas a result of such actions. In the case where the investment in securities of troubled companies is made in connection with an attempt toinfluence a restructuring proposal or plan of reorganization in bankruptcy, the fund may become involved in substantial litigation.Certain of our funds are subject to the fiduciary responsibility and prohibited transaction provisions of ERISA and the Code,and our business could be adversely affected if certain of our other funds fail to satisfy an exemption under the “plan assets”regulation under ERISA.Some of our funds are subject to the fiduciary responsibility and prohibited transaction provisions of ERISA and Section 4975 of theU.S. Internal Revenue Code of 1986, as amended (the “Code”). For example, we currently manage some of our funds as “plan assets”under ERISA. With respect to these funds, this results in the application of the fiduciary responsibility standards of ERISA to investmentsmade by such funds, including the requirement of investment prudence and diversification, and the possibility that certain transactions thatwe enter into, or may have entered into, on behalf of these funds, in the ordinary course of business, might constitute or result in non-exempt prohibited transactions under Section 406 of ERISA or Section 4975 of the Code. A non-exempt prohibited transaction, in addition toimposing potential liability upon fiduciaries of an ERISA plan, may also result in the imposition of an excise tax under the Code upon a “partyin interest” (as defined in ERISA) or “disqualified person” (as defined in the Code) with whom we engaged in the transaction. Some of ourother funds currently qualify as venture capital operating companies (“VCOCs”) or rely on other exceptions under ERISA and therefore arenot subject to the fiduciary requirements of ERISA with respect to their assets. However, if these funds fail to satisfy the VCOC requirementsfor any reason, including an amendment of the relevant regulations by the U.S. Department of Labor, or another exception under ERISA,such failure could materially interfere with our activities in relation to these funds or expose us to risks related to our failure to comply withthe requirements.Poor investment performance during periods of adverse market conditions may result in relatively high levels of investorredemptions, which can exacerbate the liquidity pressures on the affected funds, force the sale of assets at distressed pricesor reduce the funds' returns.Poor investment performance during periods of adverse market conditions, together with investors' increased need for liquidity giventhe state of the credit markets, can prompt relatively high levels of investor redemptions at times when many funds may not have sufficientliquidity to satisfy some or all of their investor redemption requests. During times when market conditions are deteriorating, many fundsmay face additional redemption requests and/or compulsory investor withdrawals or redemptions, which will exacerbate the liquiditypressures on the affected funds. If they cannot satisfy their current and future redemption requests, they may be forced to sell assets atdistressed prices or cease operations. Various measures taken by funds to improve their liquidity profiles (such as the implementation of“gates” or the suspension of redemptions) that reduce the amounts that would otherwise be paid out in response to redemption requests mayhave the effect of incentivizing investors to “gross up” or increase the size of the future redemption requests they make, thereby exacerbatingthe cycle of redemptions. The liquidity issues for such funds are often further exacerbated by their fee structures, as a decrease in NAVdecreases their management fees.Certain of our funds have agreements that create debt or debt-like obligations with one or more counterparties. Such agreements inmany instances contain covenants or “triggers” that require the fund to maintain a certain level of NAV over certain testing periods or to postadditional margin on a daily basis when prices of our funds' derivative contracts move against the fund. In addition, there may be guidelinesin total return swap facilities that require reference obligations to be above a certain price level. Decreases in such funds' NAV41(whether due to performance, redemptions or both) that breach such covenants, the failure to make any margin calls or meaningfuldecreases in the price of the underlying reference loan or security may result in defaults under such agreements and such defaults couldpermit the counterparties to take various actions that would be adverse to the funds, including terminating the financing arrangements,increasing the amount of margin or collateral that the funds are required to post (so-called “supercollateralization” requirements) or decreasingthe aggregate amount of leverage that such counterparty is willing to provide to our funds. In particular, many such covenants to which ourfunds are party are designed to protect against sudden and pronounced drops in NAV over specified periods, so if our open-end or evergreenfunds were to receive larger-than-anticipated redemption requests during a period of poor performance, such covenants may be breached.Defaults under any such covenants would likely result in the affected funds being forced to sell financed assets (which sales would likelyoccur in suboptimal or distressed market conditions) or being forced to restructure a swap facility with more onerous terms or otherwise raisecash by reducing other leverage, which would reduce the funds' returns and our opportunities to produce incentive and investment incomefrom the affected funds.Valuation methodologies for certain assets in our funds can be subject to significant subjectivity, and the values of assetsestablished pursuant to the methodologies may never be realized.Our funds make investments for which market quotations are not readily available, and thus the process by which we value suchinvestments involves inherent uncertainties. We are required by GAAP to make good faith determinations as to the fair value of theseinvestments on a quarterly basis in connection with the preparation of our funds' financial statements.There is no single standard for determining fair value in good faith. The types of factors that may be considered when determining thefair value of an investment in a particular company include acquisition price of the investment, discounted cash flow valuations, historicaland projected operational and financial results for the company, the strengths and weaknesses of the company relative to its comparablecompanies, industry trends, general economic and market conditions, information with respect to offers for the investment, the size of theinvestment (and any associated control) and other factors deemed relevant. Fair values may also be assessed based on the enterprise valueof a company established using a market multiple approach that is based on a specific financial measure (such as earnings before interest,taxes, depreciation and amortization (“EBITDA”), adjusted EBITDA, free cash flow, net income, book value or net asset value) or, in somecases, a cost basis or a discounted cash flow or liquidation analysis. Because valuations, and in particular valuations of investments forwhich market quotations are not readily available, are inherently uncertain, may fluctuate over short periods of time and may be based onestimates, determinations of fair value may differ materially from the values that would have resulted if a ready market had existed. Even ifmarket quotations are available for our investments, the quotations may not reflect the value that we would actually be able to realize becauseof various factors, including the possible illiquidity associated with a large ownership position, subsequent illiquidity in the market for acompany's securities, future market price volatility or the potential for a future loss in market value based on poor industry conditions or themarket's view of overall company and management performance.Because there is significant uncertainty in the valuation of, or in the stability of the value of, illiquid investments, the fair values ofsuch investments as reflected in a fund's NAV do not necessarily reflect the prices that would actually be obtained by us on behalf of the fundwhen such investments are sold. Sales at values significantly lower than the values at which investments have previously been reflected ina fund's NAV may result in losses for the applicable fund, a decline in management fees and the loss of incentive income that may havebeen accrued by the applicable fund. Changes in values attributed to investments from quarter to quarter may result in volatility in the NAVand results of operations that we report. Also, a situation where a fund's NAV turns out to be materially different from the NAV previouslyreported for the fund could cause investors to lose confidence in us, which could in turn result in difficulty in raising additional funds orinvestors requesting redemptions from certain of our funds.42We make investments in companies that are based outside the United States, which exposes us to additional risks nottypically associated with investing in companies that are based in the United States.Many of our funds invest a portion of their assets in the equity, debt, loans or other securities of issuers located outside the UnitedStates, while certain of our funds invest substantially all of their assets in these types of securities. Investments in non-U.S. securitiesinvolve certain factors not typically associated with investing in U.S. securities, including risks relating to:•our funds' abilities to exchange local currencies for U.S. dollars and other currency exchange matters, including fluctuations incurrency exchange rates and costs associated with conversion of investment principal and income from one currency into another;•controls on, and changes in controls on, foreign investment and limitations on repatriation of invested capital;•less developed or less efficient financial markets than exist in the United States, which may lead to price volatility and relativeilliquidity;•the absence of uniform accounting, auditing and financial reporting standards, practices and disclosure requirements and lessgovernment supervision and regulation;•differences in legal and regulatory environments, particularly with respect to bankruptcy and reorganization, less developedcorporate laws regarding fiduciary duties and the protection of investors and less reliable judicial systems to enforce contracts andapplicable law;•less publicly available information in respect of companies in non-U.S. markets;•certain economic and political risks, including potential exchange control regulations and restrictions on our non-U.S. investmentsand repatriation of capital, potential political, economic or social instability, the possibility of nationalization or expropriation orconfiscatory taxation and adverse economic and political developments; and•the possible imposition of non-U.S. taxes or withholding on income and gains recognized with respect to the securities.There can be no assurance that adverse developments with respect to these risks will not adversely affect our funds that invest insecurities of non-U.S. issuers.Certain of our funds and most of our separate account agreements contain provisions that allow investors to withdraw theircapital.Most of our separate account agreements generally can be terminated by our separate account clients upon notice of 30 days or less.Similarly, our commingled open-end funds permit the withdrawal of capital by our investors during certain open periods that generally occuron the first business day of each calendar month. Our active evergreen funds have withdrawal rights that, depending on the specific fund,can be exercised in intervals ranging from three months to three years. Any significant number of terminations or withdrawals could have amaterial adverse effect on our business and results of operations.We have made and expect to continue to make significant principal investments in our current and future funds, and we maylose money on some or all of our investments.Since our inception in 1995, we have increased the minimum level of our principal investments in our closed-end and evergreenfunds from 0.2% of the fund's aggregate committed capital to 1.0% starting with funds that held their initial closings in late 1998, to 2.0%starting with funds that held their initial closings in mid-2004. Subsequent to the 2007 Private Offering, we decided to further increase ourprincipal investments in such funds that have initial closings after May 2007 to the greater of 2.5% of the funds' aggregate committed capitalor $20 million. Although we are not limited in the amount we choose to invest, in 2009 we decided that we will generally not invest morethan $100 million in any one fund. We expect to continue to make significant principal investments in our funds and may choose to increasethe percentage amount we invest at any time. Contributing capital to these funds is risky, and we may lose some or all of the principalamount of our investments. Any such loss could have a material adverse impact on our financial condition and results of operations.43Our funds make investments in companies that we do not control.Investments by many of our funds include debt instruments and equity securities of companies that we do not control. Theseinstruments and securities may be acquired by our funds through trading activities or through purchases of securities from the issuer. Inaddition, our control investing funds may acquire minority equity interests and may also dispose of a portion of their majority equityinvestments in portfolio companies over time in a manner that results in the funds retaining a minority investment. Those investments willbe subject to the risk that the company in which the investment is made may make business, financial or management decisions withwhich we do not agree or that the majority stakeholders or the management of the company may take risks or otherwise act in a manner thatdoes not serve our interests. If any of the foregoing were to occur, the values of the investments held by our funds could decrease and ourfinancial condition, results of operations and cash flow could suffer as a result.Investments by our funds will in many cases rank junior to investments made by others.In many cases, the companies in which our funds invest have indebtedness or equity securities, or may be permitted to incurindebtedness or to issue equity securities, that rank senior to our investment. By their terms, these instruments may provide that theirholders are entitled to receive payments of dividends, interest or principal on or before the dates on which payments are to be made in respectof our investment. Also, in the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a company in which we hold aninvestment, holders of securities ranking senior to our investment would typically be entitled to receive payment in full before distributionscould be made in respect of our investment. After repaying senior security holders, the company may not have any remaining assets to usefor repaying amounts owed in respect of our investment. To the extent that any assets remain, holders of claims that rank equally with ourinvestment would be entitled to share on an equal and ratable basis in distributions that are made out of those assets. Also, during periods offinancial distress or following an insolvency, the ability of our funds to influence a company's affairs and to take actions to protect theirinvestment may be substantially less than that of those holding senior interests.The due diligence process that we undertake in connection with investments by some of our funds may not reveal all facts thatmay be relevant in connection with an investment.Before making investments in companies that we expect to control, we undertake a due diligence investigation of the target company.In conducting these investigations, we may be required to evaluate important and complex business, financial, tax, accounting,environmental and legal issues. Outside consultants, legal advisers, accountants and investment banks are often involved in the duediligence process in varying degrees depending on the type of investment. Nevertheless, the due diligence investigation that we carry outwith respect to an investment opportunity may not reveal or highlight all relevant facts that may be necessary or helpful in evaluating theinvestment opportunity. Moreover, such an investigation will not necessarily result in the investment being successful.Market values of publicly traded securities that are held as investments may be volatile.The market prices of publicly traded securities held by some of our funds may be volatile and are likely to fluctuate due to a number offactors beyond our control, including actual or anticipated changes in the profitability of the issuers of such securities, general economic,social or political developments, changes in industry conditions, changes in government regulation, shortfalls in operating results fromlevels forecast by securities analysts, inflation and rapid fluctuations in inflation rates, the general state of the securities markets and othermaterial events, such as significant management changes, financings, refinancings, securities issuances, acquisitions and dispositions.Changes in the values of these investments may adversely affect our investment performance and our results of operations.Volatility in the structured credit, leveraged loan and high yield bond markets may adversely affect our funds' investments.To the extent that companies in which our funds invest participate in the structured credit, leveraged loan and high yield bondmarkets, the results of their operations may suffer if such markets experience dislocations, illiquidity and volatility. In addition, to the extentthat such marketplace events occur, this may have an adverse impact on the availability of credit to businesses generally and could lead to anoverall weakening of the U.S. and global economies. Any economic downturn could adversely affect the financial resources of our funds'investments (in particular those investments that depend on credit from third parties or that otherwise participate in the credit markets) andtheir ability to make principal and interest payments on, or refinance, outstanding debt when due. In44the event of such defaults, our funds could lose both invested capital in, and anticipated profits from, the affected portfolio companies.We enter into a significant number of side letter agreements with limited partners of certain of our funds, and the terms of theseagreements could expose the general partners of the funds to additional risks and liabilities.We regularly enter into side letter agreements with particular limited partners in the course of raising our funds. These side letterstypically afford the affected limited partners assurance with respect to particular aspects of the operation of the fund. Given that theseassurances often elaborate upon the provisions of the relevant fund's partnership agreement, our affiliates could be exposed to additionalrisks, liabilities and obligations not contemplated in our funds' partnership agreements.Our funds may invest in companies that are highly leveraged, a fact that may increase the risk of loss associated with theinvestments.Our funds may invest in companies whose capital structures involve significant leverage. These investments are inherently moresensitive to declines in revenues and to increases in expenses and interest rates. The leveraged capital structure of these companies placessignificant burdens on their cash flows and increases the exposure of our funds to adverse economic factors such as downturns in theeconomy or deterioration in the condition of the portfolio company or its industry. Additionally, the securities acquired by our funds may be themost junior in what could be a complex capital structure and thus subject us to the greatest risk of loss.The use of leverage by our funds could have a material adverse effect on our financial condition, results of operation and cashflow.Some of our funds use leverage (including through swaps and other derivatives) as part of their respective investment programs andmay borrow a substantial amount of capital. The use of leverage poses a significant degree of risk and can enhance the magnitude of asignificant loss in the value of the investment portfolio. To the extent that any fund leverages its capital structure, it is subject to the risksnormally associated with debt financing, including the risk that its cash flows will be insufficient to meet principal and interest payments,which could significantly reduce or even eliminate the value of such fund's investments. In addition, the interest expense and other costsincurred in connection with such leverage may not be recovered by the appreciation in the value of any associated securities or bank debt andwill be lost – and the timing and magnitude of such losses may be accelerated or exacerbated – in the event of a decline in the market valueof such securities or bank debt. In addition, such funds may be subject to margin calls in the event of a decline in the value of the postedcollateral. Any of the foregoing circumstances could have a material adverse effect on our financial condition, results of operations and cashflow.Changes in the debt financing markets may negatively impact the ability of our funds and their portfolio companies to obtainattractive financing for their investments and may increase the cost of such financing if it is obtained, leading to lower-yieldinginvestments and potentially decreasing our incentive income and investment income.The markets for debt financing are subject to retrenchment, resulting in more restrictive covenants or other more onerous terms(including posting additional collateral) in order to provide financing, and in some cases lenders may refuse to provide any financing thatwould have been readily obtained under different credit conditions.If our funds are unable to obtain committed debt financing or can only obtain debt at an increased interest rate or on other lessadvantageous terms, such funds' investment activities may be restricted and their profits may be lower than they would otherwise haveachieved, either of which could lead to a decrease in the incentive and investment income earned by us. Similarly, the portfolio companiesowned by our funds regularly utilize the corporate debt markets to obtain efficient financing for their operations. To the extent that creditmarkets render such financing difficult or more expensive to obtain, the operating performance of those portfolio companies and therefore theinvestment returns on our funds may be negatively impacted. In addition, to the extent that the then-current markets make it difficult orimpossible to refinance debt that is maturing in the near term, the relevant portfolio company may be unable to repay such debt at maturityand may be forced to sell assets, undergo a recapitalization or seek bankruptcy protection. Any of the foregoing circumstances could have amaterial adverse effect on our financial condition, results of operations and cash flow.45Our funds may face risks relating to undiversified investments.We cannot give assurance as to the degree of diversification, if any, that will be achieved in any fund investments. Difficult marketconditions or slowdowns affecting a particular asset class, geographic region or other category of investment could have a significant adverseimpact on a fund if its investments are concentrated in that area, which would result in lower investment returns. This lack of diversificationmay expose a fund to losses disproportionate to market declines in general if there are disproportionately greater adverse price movements inthe particular investments. To the extent a fund holds investments concentrated in a particular issuer, security, asset class or geographicregion, such fund may be more susceptible than a more widely diversified investment partnership to the negative consequences of a singlecorporate, economic, political or regulatory event. Accordingly, a lack of diversification on the part of a fund could adversely affect a fund'sperformance and, as a result, our financial condition and results of operations.Risk management activities may adversely affect the returns on our funds' investments.When managing our exposure to market risks, we may (on our own behalf or on behalf of our funds) from time to time use forwardcontracts, options, swaps, caps, collars and floors or pursue other strategies or use other forms of derivative instruments to limit ourexposure to changes in the relative values of investments that may result from market developments, including changes in prevailinginterest rates, currency exchange rates and commodity prices. The success of any hedging or other derivative transactions generally willdepend on our ability to correctly predict market changes, the degree of correlation between price movements of a derivative instrument andthe position being hedged, the creditworthiness of the counterparty and other factors. As a result, while we may enter into a transaction inorder to reduce our exposure to market risks, the transaction may result in poorer overall investment performance than if it had not beenexecuted. Such transactions may also limit the opportunity for gain if the value of a hedged position increases.The hedging of currency risk exposes our funds to other risks.Although it is impossible to hedge against all currency risk, certain of our funds enter into hedging transactions in order to reduce thesubstantial effects of currency fluctuations on our cash flow and financial condition. These instruments may include foreign currency forwardcontracts, currency swap agreements and currency option contracts. Certain of our funds have entered into, and expect to continue to enterinto, such hedging arrangements. While such hedging arrangements may reduce certain risks, such arrangements themselves may entailcertain other risks. These arrangements may require the posting of cash collateral at a time when a fund has insufficient cash or illiquidassets such that the posting of the cash is either impossible or requires the sale of assets at prices that do not reflect their underlying value.Moreover, these hedging arrangements may generate significant transaction costs that reduce the returns generated by a fund. Thus, whileour funds may benefit from the use of these hedging arrangements, changes in currency exchange rates (particularly unanticipated orsignificant changes) may result in poorer overall performance for those funds that hedge than if they had not entered into such hedgingarrangements. Those funds are also exposed to the risk that their counterparties to hedging contracts will default on their obligations.Risks Relating to Our Class A UnitsThe market price of our Class A units may decline due to the large number of units eligible for future sale and issuablepursuant to our 2011 Equity Incentive Plan.The market price of our Class A units could decline as a result of sales of a large number of our Class A units in the market or theperception that these sales could occur. As of February 25, 2014, there are 38,479,670 Class A units outstanding, which may be resoldimmediately in the public market, unless they are held by our affiliates, as that term is defined in Rule 144 under the Securities Act. Inaddition, our directors and executive officers (which includes our Principals), other employees and certain other investors hold OaktreeOperating Group units through OCGH and, subject to certain restrictions, have the right to exchange their vested OCGH units for, at theoption of our board of directors, newly issued Class A units on a one-for-one basis, an equivalent amount of cash based on then-prevailingmarket prices, other consideration of equal value or any combination of the foregoing in accordance with the terms of the exchangeagreement. Please see “Certain Relationships and Related Transactions, and Director Independence—Exchange Agreement.” The marketprice of our Class A units could decline as a result of an exchange, or the perception that an exchange may occur, of a large number ofOCGH units for our Class A units. As of February 25, 2014, there are 108,930,894 vested OCGH units outstanding. Such sales orexchanges could also cause the price of our Class A units to fall and make it more difficult for our Class A unitholders to sell their units.46We may issue our Class A units from time to time as consideration for future acquisitions and investments. If any such acquisition orinvestment is significant, the number of Class A units that we issue may in turn be significant. We may also grant registration rightscovering Class A units issued in connection with any such acquisitions and investments. In addition, we may issue 17,732,939 Class Aunits or OCGH units from time to time under our 2011 Oaktree Capital Group, LLC Equity Incentive Plan (the “2011 Plan”) as well as ClassA units or OCGH units that become available under our 2011 Plan pursuant to provisions in the 2011 Plan that automatically increase theClass A units or OCGH units available for future issuance. The units granted under the 2011 Plan may be subject to vesting and forfeitureprovisions. Any vesting terms are set by our board of directors or a committee appointed by our board of directors in their respective discretion.Additional issuances of Class A units or OCGH units under the 2011 Plan may dilute the holdings of our existing unitholders, reduce themarket price of our Class A units or both.The market price and trading volume of our Class A units has been and may continue to be volatile, which could result in rapidand substantial losses for our Class A unitholders.The market price of our Class A units may be highly volatile and could be subject to wide fluctuations. In addition, the trading volumein our Class A units may fluctuate and cause significant price variations to occur. If the market price of our Class A units declinessignificantly, you may be unable to sell your Class A units at an attractive price, if at all. The market price of our Class A units may fluctuateor decline significantly in the future. Some of the factors that could negatively affect the price of our Class A units or result in fluctuations inthe price or trading volume of our Class A units include:•variations in our quarterly operating results or distributions, which may be substantial;•our policy of taking a long-term perspective on making investment, operational and strategic decisions, which is expected to resultin significant and unpredictable variations in our quarterly returns;•failure to meet analysts' performance estimates;•publication of research reports about us or the investment management industry or the failure of securities analysts to cover ourClass A units;•additions or departures of key management or investment personnel;•adverse market reaction to any indebtedness we may incur or securities we may issue in the future;•changes in market valuations of similar companies;•speculation in the press or investment community;•changes or proposed changes in laws or regulations or differing interpretations thereof affecting our business or enforcement ofthese laws and regulations or announcements relating to these matters;•a lack of liquidity in the trading of our Class A units;•adverse publicity about the asset management industry generally or individual scandals, specifically; and•general market and economic conditions.If we fail to maintain effective internal controls over our financial reporting in the future, the accuracy and timing of our financialreporting may be adversely affected.The Sarbanes-Oxley Act requires, among other things, that as a public company we maintain effective internal control over financialreporting and disclosure controls and procedures. We are required under Section 404 to provide an annual management assessment of theeffectiveness of our internal controls over financial reporting and to include in our annual reports an opinion from our independent registeredpublic accounting firm addressing such assessment. To maintain and improve the effectiveness of our disclosure controls and procedures,significant resources and management oversight are required. We have implemented and continue to implement additional procedures andprocesses for the purpose of addressing the standards and requirements applicable to public companies.If it is determined that we are not in compliance with Section 404 in the future, we would be required to implement remedialprocedures and re-evaluate our internal control over financial reporting and our operations, financial reporting or financial results could beadversely affected, and we could receive an adverse report on internal controls from our independent registered public accounting firm.Matters impacting our internal controls may cause us to be unable to report our financial information on a timely basis and thereby subject usto adverse47regulatory consequences, including sanctions by the SEC, or violations of applicable stock exchange listing rules. Moreover, if a materialmisstatement occurs in the future, we may need to restate our financial results and there could be a negative reaction in the financialmarkets due to a loss of investor confidence in us and the reliability of our financial statements. Confidence in the reliability of our financialstatements is also likely to suffer if our independent registered public accounting firm reports a material weakness in our internal control overfinancial reporting. This could materially adversely affect us and lead to a decline in the market price of our Class A units.Preparing our consolidated financial statements involves a number of complex manual and automated processes, which aredependent on individual data input or review and require significant management judgment. One or more of these elements may result inerrors that may not be detected and could result in a material misstatement of our consolidated financial statements.The tax attributes of our Class A units may cause mutual funds to limit or reduce their holdings of Class A units.U.S. mutual funds that are treated as regulated investment companies (“RICs”) for U.S. federal income tax purposes are required,among other things, to distribute at least 90% of their taxable income to their shareholders in order to maintain their favorable U.S. incometax status. RICs are required to meet this distribution requirement regardless of whether their investments generate cash distributions equalto their taxable income. Accordingly, these investors have a strong incentive to invest in securities in which the amount of cash generatedapproximates the amount of taxable income recognized. Our Class A unitholders, however, are frequently allocated an amount of taxableincome that exceeds the amount of cash we distribute to them. This may make it difficult for RICs to maintain a meaningful portion of theirportfolio in our Class A units and may force those RICs that do hold our Class A units to sell all or a portion of their holdings. These actionscould increase the supply of, and reduce the demand for, our Class A units, which could cause the price of our Class A units to decline.The market price of our Class A units may decline due to the large number of Class A units eligible for future issuance uponthe exchange of OCGH units.In connection with the consummation of our May 2007 Restructuring, each of our owners prior to the May 2007 Restructuringexchanged his, her or its interests in our business for units in OCGH. Subject to certain restrictions, each holder of units in OCGH has theright to exchange his or her vested units for, at the option of our board of directors, newly issued Class A units on a one-for-one basis, anequivalent amount of cash based on then-prevailing market prices, other consideration of equal value or any combination of the foregoing.The Class A units issued upon such exchanges would be “restricted securities,” as defined in Rule 144 under the Securities Act, unless weregister such issuances. The units in OCGH that our employees received through the May 2007 Restructuring and that are held by certaininstitutional investors that owned interests in OCM before the 2007 Private Offering have fully vested. In addition, the OCGH units that wegrant under the 2011 Plan contain vesting provisions, the length of which has been and will continue to be determined by us at ourdiscretion. OCGH units granted under our 2007 Oaktree Capital Group, LLC Equity Incentive Plan (the “2007 Plan”) in January 2008 andJanuary 2009 are also fully vested. Accordingly, subject to the exchange agreement described under “Certain Relationships and RelatedTransactions, and Director Independence—Exchange Agreement,” a substantial number of additional units are expected to be available to besold in the future by the OCGH unitholders. OCGH has the right to waive any such vesting periods in its discretion at any time.The market price of our Class A units could decline as a result of sales of a large number of Class A units issuable upon exchange ofOCGH units. These sales, or the possibility that these sales may occur, may also make it more difficult for us to sell equity securities in thefuture at a time and at a price that we deem appropriate.Additional issuances of units under our 2011 Plan may dilute the holdings of our existing unitholders, reduce the market price of ourClass A units or both. Additionally, our operating agreement authorizes us to issue an unlimited number of additional units and options,rights, warrants and appreciation rights relating to such units for consideration or for no consideration and on terms and conditionsestablished by our board of directors in its sole discretion without the approval of Class A unitholders. These additional securities may beused for a variety of purposes, including future offerings to raise additional capital, acquisitions and employee benefit plans.We are a “controlled company” within the meaning of the NYSE listing standards and, as a result, qualify for, and rely on,exemptions from certain corporate governance requirements.Because our Principals own units representing more than 50% of our voting power, we are considered a “controlled company” forpurposes of the NYSE listing requirements. As such, we have elected, and intend to48continue to elect, not to comply with certain NYSE corporate governance requirements, which may include one or more of the following: thata majority of our board of directors consist of independent directors, that we have a compensation committee that is composed entirely ofindependent directors with a written charter addressing the committee's purpose and responsibilities and that we have a nominating andcorporate governance committee that is composed entirely of independent directors with a written charter addressing the committee's purposeand responsibilities. In addition, we are not required to hold annual meetings of our unitholders. Accordingly, our Class A unitholders do nothave the same protections afforded to shareholders of companies that are subject to all of the NYSE corporate governance requirements.Please see “Directors, Executive Officers and Corporate Governance—Controlled Company Exemption.”We cannot assure you that our intended quarterly distributions will be paid each quarter or at all.We intend to distribute substantially all of the excess of our share of distributable earnings, net of income taxes, as determined by ourboard of directors after taking into account factors it deems relevant, such as, but not limited to, working capital levels, known or anticipatedcash needs, business and investment opportunities, general economic and business conditions, our obligations under our debt instrumentsor other agreements, our compliance with applicable laws, the level and character of taxable income that flows through to our Class Aunitholders, the availability and terms of outside financing, the possible repurchase of our Class A units in open market transactions, inprivately negotiated transactions or otherwise, providing for future distributions to our Class A unitholders and growing our capital base.We are not currently restricted by any contract from making distributions to our unitholders, although certain of our subsidiaries arebound by credit agreements that contain certain restricted payment or other covenants, which may have the effect of limiting the amount ofdistributions that we receive from our subsidiaries. In addition, we are not permitted to make a distribution under Section 18-607 of theDelaware Limited Liability Company Act (the “Act”) if, after giving effect to the distribution, our liabilities would exceed the fair value of ourassets.Distributions to our Class A unitholders are funded by our share of the Oaktree Operating Group's distributions. To measure ourearnings for purposes of, among other things, assisting in the determination of distributions from the Oaktree Operating Group entities tous, we utilize distributable earnings, a non-GAAP performance measure derived from our segment results, which excludes the effects of theconsolidated funds.The declaration, payment and determination of the amount of our quarterly distribution, if any, is at the sole discretion of our board ofdirectors, which may change our distribution policy at any time. Our operating agreement provides that so long as our Principals, or theirsuccessors or affiliated entities (other than us or our subsidiaries), including OCGH, collectively hold, directly or indirectly, at least 10% of theaggregate outstanding Oaktree Operating Group units (the “Oaktree control condition”), our manager, which is 100% owned by ourPrincipals, is entitled to designate all the members of our board of directors. As a result, Class A unitholders do not have the power to electthe board of directors as long as the Oaktree control condition is satisfied. Moreover, our board of directors may have interests that conflictwith the interests of the Class A unitholders because the persons who control our manager and most of the members of our board ofdirectors hold the vast majority of their economic interests in the Oaktree Operating Group through OCGH rather than through OCG. Wecannot assure you that any distributions, whether quarterly or otherwise, will or can be paid.If we reduce or cease to make distributions on our Class A units, the value of our Class A units may significantly decrease.Risks Relating to Our Organization and StructureIf we or any of our funds were deemed an investment company under the Investment Company Act, applicable restrictionscould make it impractical for us to continue our business or such funds as contemplated and could have a material adverseeffect on our business.A person will generally be deemed to be an “investment company” for purposes of the Investment Company Act if:•it is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting ortrading in securities; or•absent an applicable exemption, it owns or proposes to acquire investment securities having a value exceeding 40% of the value ofits total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis.49We believe that we are engaged primarily in the business of providing asset management services and not primarily in the businessof investing, reinvesting or trading in securities. We also believe that the primary source of income from our business is properlycharacterized as income earned in exchange for the provision of services. We hold ourselves out as an asset management firm and do notpropose to engage primarily in the business of investing, reinvesting or trading in securities. Further, because we believe that the capitalinterests of the general partners of our funds in their respective funds are neither securities nor investment securities for purposes of theInvestment Company Act, we believe that less than 40% of our total assets (exclusive of U.S. government securities and cash items) on anunconsolidated basis are comprised of assets that could be considered investment securities. Accordingly, we do not believe that we are aninvestment company under the Investment Company Act.The Investment Company Act and the rules thereunder contain detailed parameters for the organization and operation of investmentcompanies. Among other things, the Investment Company Act and the rules thereunder limit or prohibit transactions with affiliates, imposelimitations on the issuance of debt and equity securities, generally prohibit the issuance of options and impose certain governancerequirements. We intend to conduct our operations so that we will not be deemed to be an investment company under the InvestmentCompany Act. Furthermore, we operate our funds so that they are not deemed to be investment companies that are required to be registeredunder the Investment Company Act. If anything were to happen that would cause us to be deemed to be an investment company under theInvestment Company Act or that would require us to register our funds under the Investment Company Act, requirements imposed by theInvestment Company Act, including limitations on capital structure, ability to transact business with affiliates and ability to compensatesenior employees, could make it impractical for us to continue our business or the funds as currently conducted, impair the agreements andarrangements between and among OCGH, us, our funds and our senior management, or any combination thereof, and materiallyadversely affect our business, financial condition and results of operations. In addition, we may be required to limit the amount ofinvestments that we make as a principal or otherwise conduct our business in a manner that does not subject us to the registration and otherrequirements of the Investment Company Act.Our Class A unitholders do not elect our manager and have limited ability to influence decisions regarding our business, andour Principals are able to determine the outcome of any matters submitted to a vote of unitholders.Our operations and activities are managed by our board of directors. So long as the Oaktree control condition is satisfied, ourmanager, Oaktree Capital Group Holdings GP, LLC, which is owned by our Principals, is entitled to designate all the members of our boardof directors and to remove or replace any director (or our entire board of directors) at any time. Accordingly, our Principals control ourmanagement and affairs. Our Class A unitholders do not elect our manager.While our Class A units and Class B units generally vote together as a single class on the limited matters submitted to a vote ofunitholders, including certain amendments of our operating agreement, our operating agreement does not obligate us to hold annualmeetings. Accordingly, our Class A unitholders have only limited voting rights on matters affecting our business and therefore limited abilityto influence decisions regarding our business. In addition, through their control of our Class B units held by OCGH, our Principals, with a96.7% voting interest as of February 25, 2014, are able to determine the outcome of any matter that our board of directors does submit to avote.Our Principals' control of our manager and of the combined voting power of our units and certain provisions of our operatingagreement could delay or prevent a change of control.As of February 25, 2014, our Principals control 96.7% of the combined voting power of our units through their control of OCGH. Inaddition, our Principals have the ability to determine the composition of our board of directors through their control of our manager. OurPrincipals are able to appoint and remove our directors and change the size of our board of directors, are able to determine the outcome of allmatters requiring unitholder approval, are able to cause or prevent a change of control of our company and can preclude any unsolicitedacquisition of our company. In addition, provisions in our operating agreement make it more difficult and expensive for a third party to acquirecontrol of us even if a change of control would be beneficial to the interests of our Class A unitholders. For example, our operating agreementprovides that only our board of directors may call meetings and authorizes the issuance of preferred units in us that could be issued by ourboard of directors to thwart a takeover attempt. The control of our manager and voting power by our Principals and these provisions of ouroperating agreement could delay or prevent a change of control and thereby deprive Class A unitholders of an opportunity to receive apremium for their Class A units as part of a sale of our company and might ultimately affect the market price of our Class A units.50Our Principals and executive officers hold only a nominal amount of their economic interest in the Oaktree Operating Groupthrough us, which may give rise to conflicts of interest, and it is difficult for a Class A unitholder to successfully challenge aresolution of a conflict of interest by us.As of February 25, 2014, our Principals are entitled to approximately 42.2% of the economic returns of the Oaktree Operating Group.Because they only hold a nominal amount of this economic interest through us, our Principals may have interests that conflict with those ofthe holders of Class A units. For example, our Principals may have different tax positions from us, which could influence their decisionsregarding whether and when to dispose of assets and whether and when to incur new or refinance existing indebtedness, especially in lightof the existence of the tax receivable agreement. In addition, the structuring of future transactions may take into consideration the Principals'and employees' tax considerations even where no similar benefit would accrue to us and the Class A unitholders.Any resolution or course of action taken by our directors or their affiliates with respect to an existing or potential conflict of interestinvolving OCGH, our directors or their respective affiliates is permitted and deemed approved by the Class A unitholders and does notconstitute a breach of our operating agreement or any duty (including any fiduciary duty) if the course of action is (a) approved by the vote ofunitholders representing a majority of the total votes that may be cast by disinterested parties, (b) on terms no less favorable to us, oursubsidiaries or our unitholders than those generally being provided to or available from unrelated third parties, (c) fair and reasonable to us,taking into account the totality of the relationships among the parties involved, or (d) approved by a majority of our directors who are notemployees of us, our subsidiaries or any of our affiliates controlled by our Principals, who we refer to as our “outside directors.” If our board ofdirectors determines that any resolution or course of action satisfies either (b) or (c) above, then it will be presumed that such determinationwas made in good faith and a Class A unitholder seeking to challenge our directors' determination would bear the burden of overcoming suchpresumption. This is different from the situation with Delaware corporations, where a conflict resolution by an interested party would bepresumed to be unfair and the interested party would have the burden of demonstrating that the resolution was fair.As noted above, if our board of directors obtains the approval of a majority of our outside directors for any given action, the resolutionwill be conclusively deemed not a breach by our board of directors of any duties it may owe to us or our Class A unitholders. This is differentfrom the situation with Delaware corporations, where the approval of outside directors may, in certain circumstances, merely shift the burdenof demonstrating unfairness to the plaintiff. Potential conflicts of interest may be resolved by our outside directors even if they hold interestsin us or our funds or are otherwise affected by the decision or action that they are approving. If an investor chooses to purchase a Class Aunit, the investor is treated as having consented to the provisions set forth in our operating agreement, including provisions regardingconflicts of interest situations that, in the absence of such provisions, might be considered a breach of fiduciary or other duties underapplicable state law. As a result, Class A unitholders, as a practical matter, are not able to successfully challenge an informed decision by ouroutside directors.Our operating agreement contains provisions that substantially limit remedies available to our Class A unitholders for actionsthat might otherwise result in liability for our officers, directors, manager or Class B unitholder.While our operating agreement provides that our officers and directors have fiduciary duties equivalent to those applicable to officersand directors of a Delaware corporation under the Delaware General Corporation Law (“DGCL”), the agreement also provides that ourofficers and directors are liable to us or our unitholders for an act or omission only if such act or omission constitutes a breach of the dutiesowed to us or our unitholders, as applicable, by any such officer or director and such breach is the result of willful malfeasance, grossnegligence, the commission of a felony or a material violation of law, in each case, that has, or could reasonably be expected to have, amaterial adverse effect on us or fraud. Moreover, we have agreed to indemnify each of our directors and officers, to the fullest extent permittedby law, against all expenses and liabilities (including judgments, fines, penalties, interest, amounts paid in settlement with our approval andcounsel fees and disbursements) arising from the performance of any of their obligations or duties in connection with their service to us,including in connection with any civil, criminal, administrative, investigative or other action, suit or proceeding to which any such personmay be made party by reason of being or having been one of our directors or officers, except for any expenses or liabilities that have beenfinally judicially determined to have arisen primarily from acts or omissions that violated the standard set forth in the preceding sentence.Furthermore, our operating agreement provides that OCGH does not have any liability to us or our other unitholders for any act or omissionand is indemnified in connection therewith.51Our manager, whose only role is to appoint members of our board of directors so long as the Oaktree control condition is satisfied,does not owe any duties to us or our Class A unitholders. We have agreed to indemnify our manager in the same manner as our directorsand officers described above.Under our operating agreement, each of our board of directors, our manager and us is entitled to take actions or make decisions in its“sole discretion” or “discretion” or that it deems “necessary or appropriate” or “necessary or advisable.” In those circumstances, each of ourboard of directors, our manager or us is entitled to consider only such interests and factors as it desires, including our own or our directors'interests, and neither it nor our board of directors has any duty or obligation (fiduciary or otherwise) to give any consideration to any interest ofor factors affecting us or any Class A unitholders, and neither we nor our board of directors is subject to any different standards imposed byour operating agreement, the Act or under any other law, rule or regulation or in equity, except that we must act in good faith at all times.These modifications of fiduciary duties are expressly permitted by Delaware law. These modifications are detrimental to the Class Aunitholders because they restrict the remedies available to Class A unitholders for actions that without those limitations might constitutebreaches of duty (including fiduciary duty).The control of our manager may be transferred to a third party without unitholder consent.Our manager may transfer its manager interest to a third party in a merger or consolidation, in a transfer of all or substantially all of itsassets or otherwise without the consent of our unitholders. Furthermore, our Principals may sell or transfer all or part of their interests in ourmanager without the approval of our unitholders. A new manager could have a different investment philosophy or use its control of our boardof directors to make changes to our business that materially affect our funds, our results of operations or our financial condition.Our ability to make distributions to our Class A unitholders may be limited by our holding company structure, applicableprovisions of Delaware law, contractual restrictions and the terms of any senior securities we may issue in the future.We are a limited liability holding company and have no material assets other than the ownership of our interests in the OaktreeOperating Group held through the Intermediate Holding Companies. We have no independent means of generating revenues. Accordingly,to the extent we decide to make distributions to our Class A unitholders, we will cause the Oaktree Operating Group to make distributions toits unitholders, including the Intermediate Holding Companies, to fund any distributions we may declare on the Class A units. When theOaktree Operating Group makes such distributions, all holders of Oaktree Operating Group units are entitled to receive pro rata distributionsbased on their ownership interests in the Oaktree Operating Group.The declaration and payment of any future distributions is at the sole discretion of our board of directors, and we may at any timemodify our approach with respect to the proper metric for determining cash flow available for distribution. Our board of directors will take intoaccount factors it deems relevant, such as, but not limited to, working capital levels, known or anticipated cash needs, business andinvestment opportunities, general economic and business conditions, our obligations under our debt instruments or other agreements, ourcompliance with applicable laws, the level and character of taxable income that flows through to our Class A unitholders, the availability andterms of outside financing, the possible repurchase of our Class A units in open market transactions, in privately negotiated transactions orotherwise, providing for future distributions to our Class A unitholders and growing our capital base. Under the Act, we may not make adistribution to a member if, after the distribution, all our liabilities, other than liabilities to members on account of their limited liabilitycompany interests and liabilities for which the recourse of creditors is limited to specific property of the limited liability company, would exceedthe fair value of our assets. If we were to make such an impermissible distribution, any member who received a distribution and knew at thetime of the distribution that the distribution was in violation of the Act would be liable to us for three years for the amount of the distribution. Inaddition, the Oaktree Operating Group's cash flow may be insufficient to enable it to make required minimum tax distributions to holders ofits units, in which case the Oaktree Operating Group may have to borrow funds or sell assets and thus our liquidity and financial conditioncould be materially adversely affected. Our operating agreement contains provisions authorizing the issuance of preferred units in us by ourboard of directors at any time without unitholder approval.Furthermore, by paying cash distributions rather than investing that cash in our business, we risk slowing the pace of our growth, ornot having a sufficient amount of cash to fund our operations, new investments or unanticipated capital expenditures, should the need arise.52We are required to pay the OCGH unitholders for most of the tax benefits we realize as a result of the tax basis step-up wereceive in connection with the sales by the OCGH unitholders of interests held in OCGH.Subject to certain restrictions, each OCGH unitholder has the right to exchange his or her vested OCGH units for, at the option of ourboard of directors, Class A units, an equivalent amount of cash based on then-prevailing market prices, other consideration of equal value orany combination of the foregoing. In the event of an exchange, our Intermediate Holding Companies will deliver, at the option of our board ofdirectors, our Class A units on a one-for-one basis, an equivalent amount of cash based on then-prevailing market prices, other considerationof equal value or any combination of the foregoing in exchange for the applicable OCGH unitholder's OCGH units pursuant to an exchangeagreement. These exchanges are expected to result in increases in the tax depreciation and amortization deductions, as well as an increasein the tax basis of other assets, of certain of the Oaktree Operating Group entities that otherwise would not have been available. Theseincreases in tax depreciation and amortization deductions, as well as the tax basis of other assets, may reduce the amount of tax that OaktreeHoldings, Inc. and Oaktree AIF Holdings, Inc. would otherwise be required to pay in the future, although the Internal Revenue Service(“IRS”) may challenge all or part of the increased deductions and tax basis increase, and a court could sustain such a challenge.Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc. have entered into a tax receivable agreement with the OCGH unitholders thatprovides for the payment by Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc. to the OCGH unitholders of 85% of the amount of taxsavings, if any, that they actually realize (or are deemed to realize in the case of an early termination payment by Oaktree Holdings, Inc. orOaktree AIF Holdings, Inc. or a change of control, as discussed below) as a result of these increases in tax deductions and tax basis of entitiesowned by Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc. The payments that Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc.may make to the OCGH unitholders could be material in amount.Although we are not aware of any issue that would cause the IRS to challenge a tax basis increase, the OCGH unitholders will notreimburse Oaktree Holdings, Inc. or Oaktree AIF Holdings, Inc. for any payments that have been previously made under the tax receivableagreement. As a result, in certain circumstances, payments could be made to the OCGH unitholders under the tax receivable agreement inexcess of Oaktree Holdings, Inc.'s and Oaktree AIF Holdings, Inc.'s cash tax savings. Their ability to achieve benefits from any tax basisincrease, and the payments to be made under the tax receivable agreement, will depend upon a number of factors, including the timing andamount of our future income.In addition, the tax receivable agreement provides that, upon a merger, asset sale or other form of business combination or certainother changes of control, Oaktree Holdings, Inc.'s and Oaktree AIF Holdings, Inc.'s (or their successors') obligations with respect toexchanged units (whether exchanged before or after the change of control) would be based on certain assumptions, including that they wouldhave sufficient taxable income to fully utilize the deductions arising from the increased tax deductions and tax basis and other benefits relatedto entering into the tax receivable agreement.Risks Relating to United States TaxationOur structure involves complex provisions of U.S. federal income tax law for which no clear precedent or authority may beavailable and is subject to potential legislative, judicial or administrative change and differing interpretations, possibly on aretroactive basis.The U.S. federal income tax treatment of Class A unitholders depends in some instances on determinations of fact and interpretationsof complex provisions of U.S. federal income tax law for which no clear precedent or authority may be available. Our Class A unitholdersshould be aware that the U.S. federal income tax rules are constantly under review by persons involved in the legislative process, the IRSand UST, frequently resulting in revised interpretations of established concepts, statutory changes, revisions to regulations and othermodifications and interpretations. The IRS pays close attention to the proper application of tax laws to partnerships. The present U.S. federalincome tax treatment of an investment in our Class A units may be modified by administrative, legislative or judicial interpretation at anytime, and any such action may affect investments and commitments previously made. Changes to the U.S. federal tax laws andinterpretations thereof could make it more difficult or impossible to meet the qualifying income exception for us to be treated as a partnershipfor U.S. federal income tax purposes that is not taxable as a corporation, cause us to change our investments and commitments, affect thetax considerations of an investment in us and adversely affect an investment in our Class A units. For example, the U.S. Congress hasconsidered various legislative proposals to treat all or part of the capital gain and dividend income that is recognized by an investmentpartnership and allocable to a partner affiliated with the sponsor of the partnership (i.e., a portion of the incentive income) as ordinary incometo such partner for U.S. federal income tax purposes. Please see “—The U.S. Congress has considered legislation that would have taxedcertain income and53gains at increased rates and may have precluded us from qualifying as a partnership for U.S. tax purposes. If any similar legislation were tobe enacted and apply to us, the after-tax income and gain related to our business, as well as the market price of our Class A units, could bereduced.”Our operating agreement permits our board of directors to modify our operating agreement from time to time, without the consent ofour Class A unitholders, to address certain changes in U.S. federal income tax regulations, legislation or interpretation. In somecircumstances, the revisions could have a material adverse impact on some or all Class A unitholders. Moreover, we apply certainassumptions and conventions in an attempt to comply with applicable rules and to report income, gain, deduction, loss and credit to Class Aunitholders in a manner that reflects such Class A unitholders' beneficial ownership of partnership items, taking into account variation inownership interests during each taxable year because of trading activity. However, those assumptions and conventions may not be incompliance with all aspects of applicable tax requirements. It is possible that the IRS will assert successfully that the conventions andassumptions used by us do not satisfy the technical requirements of the Code or UST regulations and could require that items of income,gain, deductions, loss or credit, including interest deductions, be adjusted, reallocated or disallowed in a manner that adversely affectsClass A unitholders.If we were treated as a corporation for U.S. federal income tax or state tax purposes, then our distributions to our Class Aunitholders would be substantially reduced and the value of our Class A units would be adversely affected.The value of our Class A unitholders' investment in us depends to a significant extent on our being treated as a partnership for U.S.federal income tax purposes, which requires that 90% or more of our gross income for every taxable year consist of qualifying income, asdefined in Section 7704 of the Code, and that we not be required to be registered under the Investment Company Act. Qualifying incomegenerally includes dividends, interest, capital gains from the sale or other disposition of stocks and securities and certain other forms ofinvestment income. We may not meet these requirements or current law may change so as to cause us, in either event, to be treated as acorporation for U.S. federal income tax purposes or otherwise subject to U.S. federal income tax. Moreover, the anticipated after-tax benefit ofan investment in our Class A units depends largely on our being treated as a partnership for U.S. federal income tax purposes. We have notrequested, and do not plan to request, a ruling from the IRS on this or any other matter affecting us.If we were treated as a corporation for U.S. federal income tax purposes, we would pay U.S. federal income tax on our taxable incomeat the corporate tax rate. Distributions to Class A unitholders would generally be taxed again as corporate distributions, and no income, gains,losses, deductions or credits would flow through to them. Because a tax would be imposed upon us as a corporation, our distributions toClass A unitholders would be substantially reduced, likely causing a substantial reduction in the value of our Class A units.Current law may change, causing us to be treated as a corporation for U.S. federal or state income tax purposes or otherwisesubjecting us to entity-level taxation. Please see “—The U.S. Congress has considered legislation that would have taxed certain income andgains at increased rates and may have precluded us from qualifying as a partnership for U.S. tax purposes. If any similar legislation were tobe enacted and apply to us, the after-tax income and gain related to our business, as well as the market price of our Class A units, could bereduced.” For example, certain states are evaluating ways to subject partnerships to entity-level taxation through the imposition of stateincome, franchise or other forms of taxation. If any state were to impose a tax upon us as an entity, our distributions to our Class Aunitholders would be reduced.Our Class A unitholders may be subject to U.S. federal income tax on their share of our taxable income, regardless of whetherthey receive any cash distributions from us.As long as 90% of our gross income for each taxable year constitutes qualifying income as defined in Section 7704 of the Code andwe are not required to register as an investment company under the Investment Company Act on a continuing basis, and assuming there isno change in law (please see “—The U.S. Congress has considered legislation that would have taxed certain income and gains at increasedrates and may have precluded us from qualifying as a partnership for U.S. tax purposes. If any similar legislation were to be enacted andapply to us, the after-tax income and gain related to our business, as well as the market price of our Class A units, could be reduced.”), wewill be treated, for U.S. federal income tax purposes, as a partnership and not as an association or a publicly traded partnership taxable as acorporation. As a result, our Class A unitholders may be subject to U.S. federal, state, local and possibly, in some cases, foreign incometaxation on their allocable share of our items of income, gain, loss, deduction and credit (including our allocable share of those items of anyentity in which we invest that is treated as a partnership or is otherwise subject to tax on a flow-through basis) for each of our taxable54years ending with or within their taxable year, regardless of whether or not our Class A unitholders receive cash distributions from us.Our Class A unitholders may not receive cash distributions equal to their allocable share of our net taxable income or even the taxliability that results from that income. In addition, certain of our holdings, including holdings, if any, in a controlled foreign corporation(“CFC”) or a passive foreign investment company (“PFIC”), may produce taxable income prior to the receipt of cash relating to such income,and Class A unitholders may be required to take that income into account in determining their taxable income. In the event of an inadvertenttermination of our partnership status, for which limited relief may be available, each holder of our Class A units may be obligated to makesuch adjustments as the IRS may require to maintain our status as a partnership. These adjustments may require persons holding ourClass A units to recognize additional amounts in income during the years in which they hold such units.A portion of our interest in the Oaktree Operating Group is held through Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc.,which are treated as corporations for U.S. federal income tax purposes and may be liable for significant taxes that couldpotentially adversely affect the value of our Class A units.In light of the publicly traded partnership rules under U.S. federal income tax law and other requirements, we hold a portion of ourinterest in the Oaktree Operating Group through Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc., which are treated as corporations forU.S. federal income tax purposes. Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc. could be liable for significant U.S. federal incometaxes and applicable state, local and other taxes that would not otherwise be incurred, which could adversely affect the value of our Class Aunits. Those additional taxes did not apply to the OCGH unitholders in OCM's organizational structure in effect before the 2007 PrivateOffering and do not apply to the OCGH unitholders following the 2007 Private Offering to the extent they own equity interests in the OaktreeOperating Group entities through OCGH.The U.S. Congress has considered legislation that would have taxed certain income and gains at increased rates and mayhave precluded us from qualifying as a partnership for U.S. tax purposes. If any similar legislation were to be enacted andapply to us, the after-tax income and gain related to our business, as well as the market price of our Class A units, could bereduced.Over the past several years, a number of legislative and administrative proposals have been introduced and, in certain cases, havebeen passed by the U.S. House of Representatives that would have, in general, treated income and gains, including gain on sale,attributable to an investment services partnership interest (“ISPI”) as income subject to a new blended tax rate that is higher than undercurrent law, except to the extent such ISPI would have been considered under the legislation to be a qualified capital interest. Your interest inus, our interest in Oaktree Holdings, LLC and the interests that Oaktree Holdings, LLC holds in entities that are entitled to receive incentiveincome may have been classified as ISPIs for purposes of this legislation. It is unclear when or whether the U.S. Congress will pass suchlegislation or what provisions will be included in any final legislation, if enacted.The most recent legislative proposals provided that, for taxable years beginning ten years after the date of enactment, income derivedwith respect to an ISPI that is not a qualified capital interest and that is subject to the rules discussed above would not meet the qualifyingincome requirements under the publicly traded partnership rules. Therefore, if similar legislation is enacted, following such ten-year period,we would be precluded from qualifying as a partnership for U.S. federal income tax purposes or be required to hold all such ISPIs throughcorporations, possibly U.S. corporations. If we were taxed as a U.S. corporation or required to hold all ISPIs through corporations, our effectiveincome tax rate would increase significantly. The federal statutory rate for corporations is currently 35%. In addition, we could be subject toincreased state and local taxes. Furthermore, you could be subject to tax on our conversion into a corporation or any restructuring required inorder for us to hold our ISPIs through a corporation.On February 26, 2014, Representative Dave Camp, Chairman of the House Ways and Means Committee, released a discussiondraft summarizing proposed legislation that would, among other things, (1) generally treat publicly traded partnerships (other than thosederiving 90 percent of their income from activities relating to mining and natural resources) as taxable corporations for tax years beginningafter 2016 and (2) recharacterize a portion of capital gain from certain partnership interests held in connection with the performance ofservices as ordinary income for tax years beginning after 2014. If the proposal were enacted in its current form, we would be taxed as a U.S.corporation beginning in 2017 and our effective income tax rate would increase significantly. 55The Obama administration submitted legislation to Congress that would tax income and gain, including gain on sale, attributable toan ISPI at ordinary rates, with an exception for certain qualified capital interests. The proposed legislation would also characterize certainincome and gain in respect of ISPIs as non-qualifying income under the publicly traded partnership rules after a ten-year transition periodfrom the effective date, with an exception for certain qualified capital interests. The Obama administration's published revenue proposals for2013 and prior years contained similar proposals.Enactment of legislation that would treat gain from partnership interests held in connection with the performance of investmentmanagement services as taxed at ordinary rates could cause our investment professionals to incur a material increase in their tax liabilitywith respect to their interests in OCGH and carried interest in our investment funds. This might make it more difficult for us to incentivize,attract and retain these professionals.States and other jurisdictions have also considered legislation to increase taxes with respect to incentive income. For example, NewYork considered legislation under which Class A unitholders could be subject to New York state income tax on income in respect of ourClass A units as a result of certain activities of our affiliates in New York. This legislation would have been retroactive to January 1, 2010. It isunclear when or whether similar legislation will be enacted.Additional proposed changes in the U.S. taxation of businesses could adversely affect us.The Obama administration has announced other proposals for potential reform to the U.S. federal income tax rules for businesses,including reducing the deductibility of interest for corporations, reducing the top marginal rate on corporations and subjecting entities currentlytreated as partnerships for tax purposes to an entity-level income tax similar to the corporate income tax. Several proposals for reform ifenacted could adversely affect us. It is unclear what any actual legislation would provide, when it would be proposed or what its prospects forenactment would be.Representative Camp has recently proposed the migration of the United States from a “worldwide” system of taxation, pursuant towhich U.S. corporations are taxed on their worldwide income, to a territorial system where U.S. corporations are taxed only on their U.S.source income (subject to certain exceptions for income derived in low-tax jurisdictions from the exploitation of tangible assets) at a topcorporate tax rate that would be 25%. The territorial tax system proposals envisage a revenue neutral result and consequently includerevenue raisers to offset the reduction in the tax rate and base which may or may not be detrimental to us. Senator Baucus recently proposeda similar territorial U.S. tax system, but with more expansive U.S. taxation of the foreign profits of non-U.S. subsidiaries of U.S. corporations.The Baucus proposal would also eliminate the withholding tax exemption on portfolio interest debt obligations for investors residing in non-treaty jurisdictions. Whether and in what form any such proposals will be enacted by the government is unknown, as are the ultimateconsequences of the proposed legislation.Complying with certain tax-related requirements may cause us to invest through foreign or domestic corporations subject tocorporate income tax or enter into acquisitions, borrowings, financings or arrangements we may not have otherwise enteredinto.In order for us to be treated as a partnership for U.S. federal income tax purposes and not as an association or publicly tradedpartnership taxable as a corporation, we must meet the qualifying income exception discussed above on a continuing basis and we must notbe required to register as an investment company under the Investment Company Act. In order to effect such treatment, we (or oursubsidiaries) may be required to invest through foreign or domestic corporations subject to corporate income tax or enter into acquisitions,borrowings, financings or other transactions we may not have otherwise entered into. This may adversely affect our ability to operate solely tomaximize our cash flow. Changes in U.S. tax law could adversely affect our ability to raise funds from certain foreign investors.Under the U.S. Foreign Account Tax Compliance Act (“FATCA”), a broadly defined class of foreign financial institutions are required tocomply with a complicated and expansive reporting regime following the expiration of an initial phase-in period or be subject to certain U.S.withholding taxes. The reporting obligations imposed under FATCA require these foreign financial institutions to enter into agreements withthe IRS to obtain and disclose information about certain investors to the IRS. Additionally, certain non-U.S. entities that are not foreignfinancial institutions are required to provide certain certifications or other information regarding their U.S. beneficial ownership or be subject tocertain U.S. withholding taxes. In addition, the administrative and economic costs of56compliance with FATCA may discourage some foreign investors from investing in U.S. funds, which could adversely affect our ability to raisefunds from these investors.Taxable gain or loss on disposition of our Class A units could be more or less than expected.If a unitholder sells its Class A units, it will recognize a gain or loss equal to the difference between the amount realized and theadjusted tax basis in those Class A units. Prior distributions to such unitholder in excess of the total net taxable income allocated to it, whichdecreased the tax basis in its Class A units, will in effect become taxable income to such unitholder if the Class A units are sold at a pricegreater than its tax basis in those Class A units, even if the price is less than the original cost. A substantial portion of the amount realized,whether or not representing gain, may be ordinary income to such selling unitholder.We may hold or acquire certain investments through entities classified as a PFIC or CFC for U.S. federal income tax purposes.Certain of our funds' investments may be in foreign corporations or may be acquired through a foreign subsidiary that would beclassified as a corporation for U.S. federal income tax purposes. Such an entity may be a PFIC or a CFC for U.S. federal income taxpurposes. Class A unitholders indirectly owning an interest in a PFIC or a CFC may experience adverse U.S. tax consequences. Forexample, a portion of the amount a unitholder realizes on a sale of their Class A units may be recharacterized as ordinary income. Inaddition, Oaktree Holdings, Ltd. is treated as a CFC for U.S. tax purposes, and, as such, each Class A unitholder that is a U.S. person isrequired to include in income its allocable share of Oaktree Holdings, Ltd.'s “Subpart F” income reported by us.Non-U.S. persons face unique U.S. tax issues from owning Class A units that may result in adverse tax consequences to them.We intend to use reasonable efforts to structure our investments in a manner such that non-U.S. holders do not incur income that iseffectively connected with a U.S. trade or business (“ECI”) with respect to an investment in our Class A units. However, we may invest inflow-through entities that are engaged in a U.S. trade or business and, in such case, we and non-U.S. holders of Class A units would betreated as being engaged in a U.S. trade or business for U.S. federal income tax purposes, even if we do not recognize ECI from suchinvestments. Current UST regulations provide that non-U.S. holders that are deemed to be engaged in a U.S. trade or business are requiredto file a U.S. federal income tax return even if such holders do not recognize any ECI. In addition, although we intend to take the position thatincome allocated to us from our investments is not ECI, if the IRS successfully challenged certain of our methods of allocation of income forU.S. federal income tax purposes, it is possible non-U.S. holders could recognize ECI with respect to their investment in our Class A units.To the extent our income is treated as ECI, non-U.S. holders generally would be subject to withholding tax on their allocable shares ofsuch income, would be required to file U.S. federal income tax returns for such year reporting their allocable shares of income effectivelyconnected with such trade or business and any other income treated as ECI and would be subject to U.S. federal income tax at regular U.S.tax rates on any such income (state and local income taxes and filings may also apply in that event). Non-U.S. holders that are corporationsmay also be subject to a 30% branch profits tax on their allocable share of such income. In addition, certain income from U.S. sources that isnot ECI allocable to non-U.S. holders will be reduced by withholding taxes imposed at the highest effective applicable tax rate. A portion of anygain recognized by a non-U.S. holder on the sale or exchange of Class A units could also be treated as ECI.Tax-exempt entities face unique tax issues from owning Class A units that may result in adverse tax consequences to them.In light of our intended investment activities, we may derive income that constitutes unrelated business taxable income (“UBTI”).Consequently, a holder of Class A units that is a tax-exempt entity (including an individual retirement account or a 401(k) plan participant)may be subject to unrelated business income tax to the extent that its allocable share of our income consists of UBTI. A tax-exempt partner ofa partnership could be treated as earning UBTI if the partnership regularly engages in a trade or business that is unrelated to the exemptfunction of the tax-exempt partner, if the partnership derives income from debt-financed property or if the partnership interest itself is debt-financed.57We will adopt certain income tax accounting positions that may not conform with all aspects of applicable tax requirements.The IRS may challenge this treatment, which could adversely affect the value of our Class A units.We will adopt depreciation, amortization and other tax accounting positions that may not conform with all aspects of existing USTregulations. A successful IRS challenge to those positions could adversely affect the amount of tax benefits available to our Class Aunitholders. It also could affect the timing of these tax benefits or the amount of gain on the sale of Class A units and could have a negativeimpact on the value of our Class A units or result in audits of and adjustments to our Class A unitholders' tax returns.The sale or exchange of 50% or more of our capital and profit interests will result in the termination of our partnership for U.S.federal income tax purposes.We will be considered to have been terminated for U.S. federal income tax purposes if there is a sale or exchange of 50% or more ofthe total interests in our capital and profits within a twelve-month period. Our termination would, among other things, result in the closing ofour taxable year for all Class A unitholders and could result in a deferral of depreciation deductions allowable in computing our taxableincome.Class A unitholders may be subject to foreign, state and local taxes and return filing requirements as a result of investing inour Class A units.In addition to U.S. federal income taxes, our Class A unitholders may be subject to other taxes, including foreign, state and localtaxes, unincorporated business taxes and estate, inheritance or intangible taxes that are imposed by the various jurisdictions in which we dobusiness or own property now or in the future, even if our Class A unitholders do not reside in any of those jurisdictions. Our Class Aunitholders may be required to file foreign, state and local income tax returns and pay foreign, state and local income taxes in some or all ofthese jurisdictions. Furthermore, Class A unitholders may be subject to penalties for failure to comply with those requirements. It is theresponsibility of each Class A unitholder to file all U.S. federal, foreign, state and local tax returns that may be required of such Class Aunitholder.Although we expect to provide estimates by February 28 of each year, we do not expect to be able to furnish definitiveSchedule K-1s to IRS Form 1065 to each unitholder prior to the deadline for filing U.S. income tax returns, which means thatholders of Class A units who are U.S. taxpayers may want to file annually a request for an extension of the due date of theirincome tax returns.It may require a substantial period of time after the end of our fiscal year to obtain the requisite information from all lower-tier entities toenable us to prepare and deliver Schedule K-1s to IRS Form 1065. Notwithstanding the foregoing, we expect to provide estimates of such taxinformation (including a Class A unitholder's allocable share of our income, gain, loss and deduction for our preceding year) by February 28of the year following each year; however, there is no assurance that the Schedule K-1s, which will be provided after the estimates, will be thesame as our estimates. For this reason, holders of Class A units who are U.S. taxpayers may want to file with the IRS (and certain states) arequest for an extension past the due date of their income tax returns.Tax consequences to the OCGH unitholders may give rise to conflicts of interests.As a result of an unrealized built-in gain attributable to the value of our assets held by the Oaktree Operating Group entities at the timeof the 2007 Private Offering and unrealized built-in gain attributable to OCGH at the time of our initial public offering in April 2012, upon thetaxable sale, refinancing or disposition of the assets owned by the Oaktree Operating Group entities, the OCGH unitholders may incurdifferent and significantly greater tax liabilities as a result of the disproportionately greater allocations of items of taxable income and gain tothe OCGH unitholders upon a realization event. As the OCGH unitholders will not receive a corresponding greater distribution of cashproceeds, they may, subject to applicable fiduciary or contractual duties, have different objectives regarding the appropriate pricing, timing andother material terms of any sale, refinancing or disposition, or whether to sell such assets at all. Decisions made with respect to anacceleration or deferral of income or the sale or disposition of assets may also influence the timing and amount of payments that are receivedby an exchanging or selling OCGH unitholder under the tax receivable agreement. Decisions made regarding a change of control also couldhave a material influence on the timing and amount of payments received by the OCGH unitholders pursuant to the tax receivableagreement. Because our Principals hold their economic interest in our business primarily through OCGH and control both us and ourmanager (which is entitled to designate all the members of our board of directors), these differing objectives may give rise to conflicts ofinterest. We will be entitled to resolve these conflicts as described elsewhere in this annual report. Please see “—Risks Relating to OurOrganization and Structure—Our58Principals and executive officers hold only a nominal amount of their economic interest in the Oaktree Operating Group through us, whichmay give rise to conflicts of interest, and it is difficult for a Class A unitholder to successfully challenge a resolution of a conflict of interest byus.”Due to uncertainty in the proper application of applicable law, we may over-withhold or under-withhold on distributions to ClassA unitholders.For each calendar year, we will report to Class A unitholders and the IRS the amount of distributions we made to Class A unitholdersand the amount of U.S. federal income tax (if any) that we withheld on those distributions. The proper application to us of rules forwithholding under Section 1441 of the Code (applicable to certain dividends, interest and similar items) is unclear. Because thedocumentation we receive may not properly reflect the identities of Class A unitholders at any particular time (in light of possible sales ofClass A units), we may over-withhold or under-withhold with respect to a particular holder of Class A units. For example, we may imposewithholding, remit that amount to the IRS and thus reduce the amount of a distribution paid to a non-U.S. Holder. It may turn out, however,that the corresponding amount of our income was not properly allocable to such holder, and the withholding should have been less than theactual withholding. Such holder would be entitled to a credit against the holder's U.S. tax liability for all withholding, including any suchexcess withholding, but if the withholding exceeded the holder's U.S. tax liability, the holder would have to apply for a refund to obtain thebenefit of the excess withholding. Similarly, we may fail to withhold on a distribution, and it may turn out that the corresponding income wasproperly allocable to a non-U.S. Holder and withholding should have been imposed. In that event, we intend to pay the under-withheldamount to the IRS, and we may treat such under-withholding as an expense that will be borne by all holders of Class A units on a pro ratabasis (since we may be unable to allocate any such excess withholding tax cost to the relevant non-U.S. holder).Certain U.S. holders of common units are subject to additional tax on “net investment income.”U.S. holders that are individuals, estates or trusts are subject to a Medicare tax of 3.8% on “net investment income” (or undistributed“net investment income,” in the case of estates and trusts) for each taxable year, with such tax applying to the lesser of such income or theexcess of such person's adjusted gross income (with certain adjustments) over a specified amount. Net investment income includes netincome from interest, dividends, annuities, royalties and rents and net gain attributable to the disposition of investment property. It isanticipated that net income and gain attributable to an investment in our Class A units will be included in a U.S. holder's “net investmentincome” subject to this Medicare tax.Item 1B. Unresolved Staff CommentsNone.Item 2. PropertiesPropertiesOur principal executive offices are located in leased office space at 333 South Grand Avenue, 28th Floor, Los Angeles, California90071. We also lease the space for our offices in New York, Stamford, London, Frankfurt, Paris, Beijing, Hong Kong, Shanghai, Seoul,Singapore, Tokyo and Dubai. Certain affiliates of our managed funds lease office space in Amsterdam, Luxembourg and Dublin. We do notown any material real property. We consider our facilities to be suitable and adequate for the management and operation of our business.Item 3. Legal ProceedingsFor a discussion of legal proceedings, please see the section entitled “Legal actions” in note 12 to our consolidated financialstatements included elsewhere in this annual report, which section is incorporated herein by reference.Item 4. Mine Safety DisclosuresNone.59PART II.Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesMarket InformationOur Class A units are traded on the NYSE under the symbol “OAK” and began trading on the NYSE on April 12, 2012. The followingtable sets forth the high and low intra-day sales prices per unit of our Class A units, for the periods indicated, as reported by the NYSE: Sales Price 2013 2012 High Low High LowFirst Quarter$53.55 $45.17 $ N/A $ N/ASecond Quarter59.50 48.87 42.55 34.00Third Quarter55.91 51.01 41.26 34.98Fourth Quarter59.12 52.17 47.14 39.50The number of holders of record of our Class A units as of February 25, 2014 was 6. This does not include the number of Class Aunitholders that hold units in “street-name” through banks or broker-dealers.Cash Distribution PolicyWe intend to make distributions to our Class A unitholders quarterly, following the respective quarter end. Distributions to our Class Aunitholders are funded by our share of the Oaktree Operating Group’s distributions. We use distributable earnings, a non-GAAPperformance measure derived from our segment results, to measure our earnings at the Oaktree Operating Group level without the effectsof the consolidated funds for purposes of, among other things, assisting in the determination of equity distributions from the OaktreeOperating Group. By excluding the results of our consolidated funds and segment investment income or loss, which are not directlyavailable to fund our operations or make equity distributions, and including the portion of distributions from Oaktree and non-Oaktree fundsand companies to us that is deemed the profit or loss component of the distributions and not a return of our capital contributions, distributableearnings aids us in measuring amounts that are actually available to meet our obligations under the tax receivable agreement and ourliabilities for expenses incurred at OCG and the Intermediate Holding Companies, as well as for distributions to Class A and OCGHunitholders.We intend to distribute substantially all of the excess of our share of distributable earnings, net of income taxes, as determined by ourboard of directors after taking into account factors it deems relevant, such as, but not limited to, working capital levels, known or anticipatedcash needs, business and investment opportunities, general economic and business conditions, our obligations under our debt instrumentsor other agreements, our compliance with applicable laws, the level and character of taxable income that flows through to our Class Aunitholders, the availability and terms of outside financing, the possible repurchase of our Class A units in open market transactions, inprivately negotiated transactions or otherwise, providing for future distributions to our Class A unitholders and growing our capital base. Weare not currently restricted by any contract from making distributions to our unitholders, although certain of our subsidiaries are bound bycredit agreements that contain certain restricted payment and/or other covenants, which may have the effect of limiting the amount ofdistributions that we receive from our subsidiaries. In addition, we are not permitted to make a distribution under Section 18-607 of theDelaware Limited Liability Company Act if, after giving effect to the distribution, our liabilities would exceed the fair value of our assets.The declaration, payment and determination of the amount of equity distributions, if any, is at the sole discretion of our board ofdirectors, which may change our distribution policy at any time. Please see “Risk Factors—Risks Relating to Our Class A Units—We cannotassure you that our intended quarterly distributions will be paid each quarter or at all.”Class A unitholders receive their share of these distributions by the Oaktree Operating Group, net of expenses that we and ourIntermediate Holding Companies bear directly, such as income taxes or payment obligations under the tax receivable agreement. Ourquarterly distributable earnings may be affected by potential seasonal factors that may, in turn, affect the level of the cash distributionsapplicable to a particular quarter. For60example, we generally receive tax-related incentive distributions from certain closed-end funds in the first quarter of the year, which ifreceived generate distributable earnings in that period. The distribution amount for any given period is likely to vary materially due to this andother factors.Any transaction involving the exchange of OCGH units, including our 2007 Private Offering, initial public offering and May 2013follow-on offering, increases the tax basis of the tangible and intangible assets of the Oaktree Operating Group. Assuming no materialchanges in the relevant tax law and that we earn sufficient taxable income to realize the full tax benefit of the increased amortization of ourassets, we expect that reductions in future quarterly distributions to Class A unitholders associated with payments under the tax receivableagreement will aggregate $232.9 million through 2034. As shown in the table below, we estimate that an aggregate $12.9 million of thattotal will reduce fiscal year 2014’s four quarterly distributions to Class A unitholders, which will be funded by adjustments taken in arriving atthe cash distribution payable per Class A unit. Future estimated reductions in quarterly distributions to Class A unitholders associated withpayments under the tax receivable agreement are subject to increase in the event of additional exchanges of OCGH units. These reductionsare in addition to reductions for income taxes and other expenses that Oaktree or its Intermediate Holding Companies bear directly. Future Estimated Reductions AssociatedWith the Tax Receivable Agreement Fiscal Year 2013Reductions (1) Total AggregateReductions Fiscal Year 2014Reductions (1) ReductionsThrough FiscalYear ($ in millions) 2007 Private Offering$3.3 $42.9 $3.5 2029Initial public offering4.1 78.8 4.1 2033May 2013 Offering3.0 111.2 5.3 2034Total$10.4 $232.9 $12.9 (1)Represents reductions in quarterly distributions to Class A unitholders associated with payments under the tax receivableagreement attributable to the applicable fiscal year.Set forth below are the distributions per Class A unit that were paid on the indicated payment dates to the holders of record as of a datethat was two to four business days prior to the payment date.Payment Date Applicable to Quarterly Period Ended Distribution perUnitFebruary 27, 2014 December 31, 2013 $1.00November 15, 2013 September 30, 2013 0.74August 20, 2013 June 30, 2013 1.51May 21, 2013 March 31, 2013 1.41Total fiscal year 2013$4.66 March 1, 2013 December 31, 2012 $1.05November 20, 2012 September 30, 2012 0.55August 21, 2012 June 30, 2012 0.79May 25, 2012 March 31, 2012 0.55Total fiscal year 2012$2.94Unregistered Sales of Equity Securities and Purchases of Equity Securities in the Fourth Quarter of 2013On November 20, 2013, the Company issued an aggregate of 233,065 Class A units to certain directors and employees, includingcertain Principals, in exchange for OCGH units held by them on a one-for-one basis pursuant to the terms of the exchange agreementdescribed under “Certain Relationships and Related Transactions, and Director Independence—Exchange Agreement.” The issuances of theClass A units were exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act, as transactions by anissuer not involving any public offering.61Item 6. Selected Financial DataThe following sets forth selected historical consolidated financial and other data of Oaktree Capital Group, LLC as of and for the yearsended December 31, 2013, 2012, 2011, 2010 and 2009. The following data should be read together with “—Management's Discussion andAnalysis of Financial Condition and Results of Operations” and the historical financial statements and related notes included elsewhere inthis annual report.We derived the selected historical financial data as of and for the years ended December 31, 2013, 2012, 2011, 2010 and 2009 fromour audited consolidated financial statements. The audited consolidated statements of operations for the years ended December 31, 2013,2012 and 2011 and the consolidated statements of financial condition as of December 31, 2013 and 2012 are included elsewhere in thisannual report. The audited consolidated statements of operations and financial condition for all other periods are not included in this annualreport. The selected historical financial data are not necessarily indicative of the expected future operating results of Oaktree. As of or for the Year Ended December 31, 2013 2012 2011 2010 2009 (in thousands, except per unit data or as otherwise indicated)Consolidated Statements of Operations Data: Total revenues$194,922 $144,983 $155,770 $206,181 $153,132Total expenses(1,107,062) (790,603) (1,644,864) (1,580,651) (1,426,318)Total other income7,149,104 7,348,895 1,201,537 6,681,658 13,165,717Income (loss) before income taxes6,236,964 6,703,275 (287,557) 5,307,188 11,892,531Income taxes(26,232) (30,858) (21,088) (26,399) (18,267)Net income (loss)6,210,732 6,672,417 (308,645) 5,280,789 11,874,264Less: Net income attributable to non-controlling redeemable interestsin consolidated funds(5,163,939) (6,016,342) (233,573) (5,493,799) (12,158,635)Net (income) loss attributable to OCGH non-controlling interestin consolidated subsidiaries(824,795) (548,265) 446,246 163,555 227,313Net income (loss) attributable to OCG$221,998 $107,810 $(95,972) $(49,455) $(57,058)Distributions declared per Class A unit $4.71 $2.31 $2.34 $2.17 $0.65Net income (loss) per Class A unit$6.35 $3.83 $(4.23) $(2.18) $(2.50)Weighted average number of Class A units outstanding34,979 28,170 22,677 22,677 22,82162 As of or for the Year Ended December 31, 2013 2012 2011 2010 2009 (in thousands, except as otherwise indicated)Consolidated Statements of Financial Condition Data: Total assets$45,263,254 $43,869,998 $44,294,156 $47,843,660 $43,195,731Debt obligations2,876,645 1,106,804 702,260 494,716 700,342Non-controlling redeemable interests in consolidated funds38,834,831 39,670,831 41,048,607 44,466,116 39,419,906Segment Statements of Operations: (1) Management fees$749,901 $747,440 $724,321 $750,031 $636,260Incentive income1,030,195 461,116 303,963 413,240 175,065Investment income258,654 202,392 23,763 149,449 289,001Total segment revenues2,038,750 1,410,948 1,052,047 1,312,720 1,100,326Compensation and benefits(365,306) (329,741) (308,115) (287,067) (268,241)Equity-based compensation(3,828) (318) — — —Incentive income compensation(436,217) (222,594) (179,234) (159,243) (65,639)General and administrative(117,361) (102,685) (94,655) (81,121) (70,996)Depreciation and amortization(7,119) (7,397) (6,583) (6,481) (6,792)Total expenses(929,831) (662,735) (588,587) (533,912) (411,668)Interest expense, net of interest income (2)(28,621) (31,730) (33,867) (26,173) (13,071)Other income (expense)409 767 (1,209) 11,243 —Adjusted net income$1,080,707 $717,250 $428,384 $763,878 $675,587 Segment Statements of Financial Condition Data: (1) Cash and cash-equivalents$390,721 $458,191 $297,230 $348,502 $433,769U.S. Treasury and government agency securities676,600 370,614 381,697 170,564 74,900Corporate investments1,197,173 1,115,952 1,159,287 1,108,690 909,329Total assets2,817,127 2,359,548 2,083,908 1,944,801 1,702,403Debt obligations579,464 615,179 652,143 403,571 425,000Total liabilities1,126,877 965,655 959,908 708,085 742,570Total unitholders' capital1,690,250 1,393,893 1,124,000 1,236,716 959,833Operating Metrics: Assets under management (in millions): Assets under management$83,605 $77,051 $74,857 $82,672 $73,278Management fee-generating assets under management71,950 66,784 66,964 66,175 62,677Incentive-creating assets under management32,379 33,989 36,155 39,385 33,339Uncalled capital commitments (3)13,169 11,201 11,201 14,270 11,055Accrued incentives (fund level): (4) Incentives created (fund level)1,168,836 911,947 (75,916) 889,721 1,239,314Incentives created (fund level), net of associated incentiveincome compensation expense549,545 493,005 (14,143) 540,701 704,026Accrued incentives (fund level)2,276,439 2,137,798 1,686,967 2,066,846 1,590,365Accrued incentives (fund level), net of associated incentiveincome compensation expense1,235,226 1,282,194 1,027,711 1,166,583 879,879 (1)Our business is comprised of one segment, our investment management segment, which consists of the investment management services that we provideto our clients. The components of revenues and expenses used in determining adjusted net income do not give effect to the consolidation of the funds thatwe manage. In addition, adjusted net income excludes the effect of (a) non-cash equity compensation charges related to unit grants made before our initialpublic offering, (b) income taxes, (c) other income or expenses applicable to OCG or its Intermediate Holding Companies and (d) the adjustment for theOCGH non-controlling interest. Incentive income and incentive income compensation expense are included in adjusted net income when the underlyingfund distributions are known or knowable as of the respective quarter end, which may be later than the time at which the same revenue or expense isincluded in the GAAP-basis statements of operations, for which the revenue standard is fixed or determinable and the expense standard is probable andreasonably estimable. Adjusted net income is calculated at the Operating Group level. For additional information regarding these reconciling adjustments,as well as reconciliations of segment total assets to consolidated total assets, please see the “Segment Reporting” note to our consolidated financial statementsincluded elsewhere in this annual report.63(2)Interest income was $3.2 million, $2.6 million, $2.3 million, $1.9 million and $0.7 million for the years ended December 31, 2013, 2012, 2011, 2010and 2009, respectively.(3)Uncalled capital commitments represent undrawn capital commitments by partners (including Oaktree as general partner) of our closed-end funds in theirinvestment periods and certain evergreen funds. If a fund distributes capital during its investment period, that capital is typically subject to possible recall,in which case it is included in uncalled capital commitments.(4)Our funds record as accrued incentives the incentive income that would be paid to us if the funds were liquidated at their reported values as of the date ofthe financial statements. Incentives created (fund level) refers to the gross amount of potential incentives generated by the funds during the period. Werefer to the amount of incentive income recognized as revenue by us as segment incentive income. Amounts recognized by us as incentive income nolonger are included in accrued incentives (fund level), the term we use for remaining fund-level accruals. Incentives created (fund level), incentiveincome and accrued incentives (fund level) are presented gross, without deduction for direct compensation expense that is owed to our investmentprofessionals associated with the particular fund when we earn the incentive income. We call that charge “incentive income compensation expense.”Incentive income compensation expense varies by the investment strategy and vintage of the particular fund, among other factors.64Item 7. Management's Discussion and Analysis of Financial Condition and Results of OperationsThe following discussion and analysis should be read in conjunction with the consolidated financial statements of OaktreeCapital Group, LLC and the related notes included within this annual report. This discussion contains forward-looking statementsthat are subject to risks and uncertainties and assumptions relating to our operations, financial results, financial condition, businessprospects, growth strategy and liquidity. The factors listed under “Risk Factors” and “Forward-Looking Statements” in this annualreport provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectationsdescribed in any forward-looking statements.Business OverviewOaktree is a leader among global investment managers specializing in alternative investments, with $83.6 billion in AUM as ofDecember 31, 2013. The firm emphasizes an opportunistic, value-oriented and risk-controlled approach to investments in distressed debt,corporate debt (including high yield debt and senior loans), control investing, convertible securities, real estate and listed equities. Over morethan a quarter-century we have developed a large and growing client base through our ability to identify and capitalize on opportunities forattractive investment returns in less efficient markets. Our investment approach, based on the primacy of risk control, and the strong risk-adjusted performance record it has produced appeal to the many investors who seek attractive returns with less-than-commensurate risk.Oaktree's growth and success are byproducts of our proven investment approach and our policy of putting clients' interests first.We manage assets on behalf of many of the most significant institutional investors in the world. Our clientele has more thandoubled over the past decade, to over 2,000, including 75 of the 100 largest U.S. pension plans, 37 states in the United States, approximately425 corporations, over 300 university, charitable and other endowments and foundations, 11 sovereign wealth funds and approximately 300other non-U.S. institutional investors. We serve these clients with over 800 employees, including over 190 employee-owners, with offices in16 cities across 12 countries, of which the largest offices are in Los Angeles (headquarters), London, New York and Hong Kong.Our business is comprised of one segment, our investment management segment, which consists of the investment managementservices that we provide to our clients. Our segment revenue flows from the management fees and incentive income generated by the fundsthat we manage, as well as the investment income from the funds we manage and other funds and companies in which we invest. Themanagement fees that we receive are based on the contractual terms of the relevant fund and are typically calculated as a fixed percentage ofthe capital commitments (as adjusted for distributions during a fund's liquidation period), drawn capital or NAV of the particular fund.Incentive income represents our share (typically 20%) of the investors' profits in most of the closed-end and evergreen funds. Investmentincome refers to the investment return on a mark-to-market basis or our equity participation on the amounts that we invest in Oaktree andthird-party funds, as well as in other companies.Business Environment and DevelopmentsAs a global investment manager, we are affected by myriad factors, including the condition of the economy and financial markets;the relative attractiveness of our investment strategies and investors' demand for them; and regulatory or other governmental policies oractions. The diversified nature of both our array of investment strategies and our revenue mix historically has allowed us to benefit from bothstrong and weak environments. Weak economies and the declining financial markets that typically accompany them tend to dampen ourrevenues from asset-based management fees, investment realizations or price appreciation, but their prospect can result in our raisingrelatively large amounts of capital for certain strategies, especially Distressed Debt. Additionally, during weak financial markets there often isexpanded availability of bargain investments for purchase, and our risk-controlled investment approach generally allows us to takemaximum advantage of them. Conversely, the strong phase of the economic cycle generally increases the value of our investments andtherefore the fees that are based on asset value, and creates favorable exit opportunities (and often incentive income). At the same time,however, this motivates us to be more restrained in sizing funds in distress-oriented strategies.U.S. equity markets made big gains in 2013, on a continuation of both the economic recovery from the global financial crisis and theU.S. Federal Reserve's (the “Fed”) accommodative monetary policy. The economy's positive momentum prompted the Fed to announce inDecember that it would start tapering its asset-purchase stimulus program. The S&P 500 Index delivered a total return of 32.4% for the year,its biggest annual gain since 1997, ending 2013 at an all-time high. Interest rates moved higher on the strengthening economy and theFed’s tapering, with the yield on the 10-year U.S. Treasury note rising from 1.8% at the start of 2013 to 3.0% by year end.65European equity markets gained on the region’s stabilizing economies, with the MSCI Europe Index up 21.7% for the year. Emergingmarket economies continued to lag those of developed markets over concern about the Fed’s tapering and decelerating growth in China andelsewhere.We continued to harvest profitable investments during 2013, resulting in $12.0 billion of distributions by our Distressed Debt andother closed-end funds. Given the overall strength in the financing environment and elevated asset prices, attractive buying opportunitiesremained relatively scarce, particularly for our distress-oriented funds. While such scarcity of investment opportunities is typical for thisstrong phase of the economic cycle, attractive risk-adjusted opportunities exist in pockets of dislocation where traditional lenders have pulledback. These areas include middle-market companies in Europe, certain commercial real estate sectors and the shipping industry. We arecapitalizing on these and other opportunities through our Real Estate, Distressed Debt, Mezzanine Finance and Principal Investing funds, aswell as our newer funds and strategies, such as Strategic Credit, Real Estate Debt, Emerging Market Opportunities and European PrivateDebt.The year's strong financial markets resulted in incentives created by 31 different funds across eight different investment strategies in2013, and accrued incentives (fund level), net of associated incentive income compensation expense, of $1.2 billion as of December 31,2013. However, the prospect of near-term realizations from the year-end 2013 net accrued incentives balance is considerably lower than wasthe case from the year-end 2012 balance entering 2013. Specifically, of the $1.2 billion in net accrued incentives (fund level) as of December31, 2013, $494.0 million represented funds that as of that date were currently paying incentives, with the remainder arising from funds that,as of year-end 2013, had not yet reached the stage of their cash distribution waterfall where we are entitled to receive incentive income, otherthan tax-related incentive distributions. In contrast, as of December 31, 2012, the equivalent portion of net accrued incentives (fund level) thatwas paying incentives was $798.6 million.Opps VIIb represented approximately four-fifths of the $494.0 million in net accrued incentives (fund level) as of December 31, 2013attributable to funds currently paying incentives. Historically, a closed-end fund’s incentive distributions tend to become more sporadic,lumpier and/or smaller in size, and its holdings tend to become more concentrated and less liquid, as it progresses through its liquidationphase, such as is now the case for Opps VIIb, which had an NAV of $3.3 billion as of year-end 2013, down from $5.6 billion as of year-end2012. Between the $304.6 million decline in year-end net accrued incentives (fund level) attributable to funds currently paying incentives, thefact that approximately four-fifths of that smaller balance was represented by a fund whose incentive distributions would normally be expectedto decline in frequency and/or size, and the particularly conducive nature of the financial markets in 2013 for realization activity, in 2014 wewould expect significantly less net incentive income, and thus lower adjusted net income and distributable earnings, to arise from netaccrued incentives (fund level) than was the case in 2013 from the year-end 2012 net accrued incentives (fund level) balance.The year’s macroeconomic and financial market trends affected our open-end fund strategies in a number of ways. Continued lowcorporate default rates and institutional investors’ search for yield compressed yield spreads on high yield bonds versus U.S. Treasurys,boosting both returns and new issuance of high yield bonds. New issuance strengthened in the convertible securities market, spurred byhigher equity prices and low but rising interest rates. We manage our capacity in strategies such as High Yield Bonds and ConvertibleSecurities based on the size of the addressable market; thus, the level of new issuance affects our willingness to accept new client capital.Capacity is not yet an issue in most of our newer strategies, such as Senior Loans, an asset class involving floating-rate debt that benefitedfrom both strong new issuance and interest from investors concerned about the prospect of increases in interest rates.Fundraising activities in 2013 focused on a number of funds and strategies, including Real Estate, Senior Loans, Strategic Credit,European Private Debt, Emerging Markets Equities and Emerging Market Opportunities, as well as ongoing marketing of our open-end andevergreen funds. In 2013, we raised $12.5 billion of gross capital, marking our seventh consecutive year of raising approximately $10 billionor more and the highest ever in a year without a new Distressed Debt closed-end fund. The $12.5 billion of gross capital included capitalcommitments to Oaktree Real Estate Opportunities Fund VI, L.P., which reached $2.7 billion, more than double the capital of its predecessorfund. Strategic Credit, which seeks to achieve an attractive total return on an unleveraged basis by investing in stressed credits, reached $2.0billion in AUM by the end of 2013. Capital commitments to the Emerging Market Opportunities and European Private Debt strategiescollectively reached $1.7 billion by the end of 2013, while AUM in the Emerging Markets Equity strategy reached $1.0 billion. New clientsand new products were key elements in our asset growth during 2013, as approximately 40% of the $12.5 billion of gross capital raised in201366was for strategies and investment products that did not exist three years earlier, and about one-third of the gross capital raised in 2013 wasfrom clients new to Oaktree.The May 2007 Restructuring and The 2007 Private OfferingThe May 2007 RestructuringOur business was previously operated through Oaktree Capital Management, LLC, a California limited liability company, formed inApril 1995, which was owned by our Principals, certain third-party investors and senior employees. Prior to completion of the 2007 PrivateOffering, Oaktree Capital Management, LLC caused all of our business to be contributed to the Oaktree Operating Group.In addition to the contribution and assignment of OCM's business to the Oaktree Operating Group entities, in the May 2007Restructuring the owners who held interests in OCM exchanged those interests for units in OCGH. Each OCGH unit represents a limitedpartnership interest in OCGH. In exchange for the assignment and contribution of OCM's business to the Oaktree Operating Group,OCGH received limited partnership interests in each Oaktree Operating Group entity. We collectively refer to the interests in the OaktreeOperating Group as the “Oaktree Operating Group units.” Each Oaktree Operating Group unit represents one limited partnership interest ineach of the Oaktree Operating Group entities. An Oaktree Operating Group unit is not a separate legal interest.The 2007 Private OfferingOn May 21, 2007, we sold 23,000,000 Class A units to qualified institutional buyers (as defined in the Securities Act) in atransaction exempt from the registration requirements of the Securities Act, and these Class A units began to trade on a private over-the-counter market developed by Goldman, Sachs & Co. for Tradable Unregistered Equity Securities (the “GSTrUE OTC market”).Upon the consummation of the 2007 Private Offering, we contributed the net offering proceeds to the Intermediate HoldingCompanies. The Intermediate Holdings Companies enable us to maintain our partnership status for tax purposes and to meet the qualifyingincome exception.Immediately after the May 2007 Restructuring and other transactions associated with the 2007 Private Offering, we became theowner of, and our Class A unitholders therefore had, a minority indirect economic interest in the Oaktree Operating Group, while OCGHretained a majority direct economic interest in the Oaktree Operating Group.Initial Public OfferingOn April 12, 2012, Oaktree Capital Group, LLC listed its Class A units on the NYSE. In connection with the listing, Oaktree sold7,888,864 Class A units and selling unitholders sold 954,159 Class A units. Upon the completion of the initial public offering, we ownedapproximately 20% of the Oaktree Operating Group, and our Principals controlled 98% of the total combined voting power of our unitsentitled to vote. We did not receive any of the proceeds from the sale of Class A units by the selling unitholders, and we used the offeringproceeds from our issuance to acquire interests in our business from Oaktree's Principals, current and former employees and otherinvestors.Understanding Our Results—Consolidation of Oaktree FundsGAAP requires that we consolidate substantially all of our closed-end, commingled open-end and evergreen funds in our financialstatements, notwithstanding the fact that our equity investments in those funds do not typically exceed 2.5% of any fund’s interests.Consolidated funds consist of those funds in which we hold a general partner interest that gives us substantive control rights over suchfunds. With respect to our consolidated funds, we generally have operational discretion and control over the funds, and investors do not holdany substantive rights that would enable them to impact the funds’ ongoing governance and operating activities. The funds that we managethat were not consolidated, primarily separately managed accounts, represented 35% of our AUM as of December 31, 2013, and 26% and10% of our segment management fees and segment revenues, respectively, for the year ended December 31, 2013.We do not consolidate OCM/GFI Power Opportunities Fund II, L.P. (“Power Fund II”) because we do not control this fund through amajority voting interest or otherwise. Power Fund II has two general partners—one is an entity controlled by Oaktree and the other is anentity controlled by G3W Ventures LLC (formerly, GFI Energy67Ventures LLC), a third-party investment manager. The general partners have equal voting rights, consequently, neither general partner isdeemed to individually control the fund.When a fund is consolidated, we reflect the assets, liabilities, revenues, expenses and cash flows of the fund on a gross basis,subject to eliminations in consolidation. Those eliminations have the effect of reclassifying from consolidated revenues to consolidated non-controlling interests the management fees and other revenues that we earn from consolidated funds, because interests in the consolidatedfunds held by third-party investors are treated as non-controlling interests. Conversely, the presentation of incentive income compensationexpense and other expenses associated with generating such reclassified revenue is not affected by the consolidation process. The assets,liabilities, revenues and expenses attributable to non-controlling interests are presented as non-controlling redeemable interests inconsolidated entities in the consolidated statements of financial condition and as net income attributable to non-controlling redeemableinterests in consolidated entities in the consolidated statements of operations.The elimination of consolidated funds from our consolidated revenues means that going forward consolidated revenues are expectedto be significantly impacted by fund flows and fluctuations in the market-value of our separately managed accounts, as well as the revenuesearned from Power Fund II that we do not consolidate. Note 16 to our consolidated financial statements included elsewhere in this annualreport includes information regarding our segment on a stand-alone basis. For a more detailed discussion of the factors that affect the resultsof operations of our segment, please see “—Segment Analysis” below. RevenuesOur business generates three types of segment revenue: management fees, incentive income and investment income.Management fees are billed monthly or quarterly based on annual rates and are typically earned for each of the funds that we manage. Thecontractual terms of management fees generally vary by fund structure. Management fees also include performance-based revenues earnedfrom certain open-end and evergreen fund accounts. We also have the opportunity to earn incentive income from most of our closed-end andcertain evergreen funds. Our closed-end funds generally provide that we receive incentive income only after our investors receive the returnof all of their contributed capital plus an annual preferred return, typically 8%. Once this occurs, we generally receive as incentive income80% of all distributions otherwise attributable to our investors, and those investors receive the remaining 20% until we have received, asincentive income, 20% of all such distributions in excess of the contributed capital from the inception of the fund. Thereafter, provided thepreferred return continues to be met, all such future distributions attributable to our investors are distributed 80% to those investors and 20%to us as incentive income. Our third segment revenue source, investment income, represents our pro-rata share of income or loss from ourinvestments, generally in our capacity as general partner in our funds and as an investor in third-party managed funds and companies. Ourconsolidated revenues exclude investment income, which is presented within the other income (loss) section of our consolidated statementsof operations. Please see “Business—Structure and Operation of Our Business—Structure of Funds” for a detailed discussion of thestructure of our funds.ExpensesCompensation and BenefitsCompensation and benefits reflects all compensation-related items not directly related to incentive income, investment income or thevesting of OCGH and Class A units, including salaries, bonuses, compensation based on management fees or a definition of profits,employee benefits, and liability-based awards subject to vesting and remeasurement at the end of each reporting period (“phantom equityplan expense”).Equity-based CompensationEquity-based compensation reflects the non-cash charge associated with both the OCGH units held by our Principals andemployees at the time of the 2007 Private Offering and as a result of subsequent grants of Class A and OCGH units. Starting with the yearended December 31, 2007, the non-cash compensation expense for units held at the time of the 2007 Private Offering was charged equallyover the five-year vesting period that ended January 2, 2012, based on the units’ value as of the 2007 Private Offering. The final $5.1 millionof compensation expense relating to the 2007 Private Offering as of December 31, 2011 was recognized in the first quarter of 2012. The non-cash compensation expense for units granted between the 2007 Private Offering and our initial public offering is recognized in theconsolidated financial statements but is not included in adjusted net income (please see “—Segment and Operating Metrics—Adjusted NetIncome” below). As of December 31, 2013, we had $75.0 million of unrecognized compensation expense related to unit grants subsequentto the 2007 Private Offering and68before our initial public offering that we expect to recognize in our consolidated financial statements over their weighted average remainingvesting period of 4.8 years. As of December 31, 2013, there was an additional $25.5 million of unrecognized compensation expense relatedto unit grants subsequent to our initial public offering which, together with an additional $71.8 million of unrecognized compensationexpense stemming from grants of Class A and OCGH units in January 2014, creates an aggregate $97.3 million of unrecognizedcompensation expense that we expect to recognize in both our consolidated financial statements and adjusted net income over these units’weighted average vesting period of approximately 5.4 years, as shown below. These amounts are subject to increase as a result of future unitgrants, and subject to change as a result of possible modifications to award terms or changes in estimated forfeiture rates.Non-cash Charge to ANI from Equity-basedCompensation 2014 2015 2016 2017 2018 Thereafter Total (in millions)Estimated charge from grants throughJanuary 2014 $19.4 $21.4 $21.5 $17.5 $5.8 $11.7 $97.3Incentive Income CompensationIncentive income compensation expense primarily includes compensation directly related to segment incentive income, whichgenerally consists of percentage interests (sometimes referred to as “points”) that we grant to our investment professionals associated withthe particular fund that generated the segment incentive income, and secondarily includes compensation directly related to investmentincome. There is no fixed percentage for this compensation, either by fund or strategy. In general, within a particular strategy more recentfunds have a higher percentage of aggregate incentive income compensation expense than do older funds. The percentage that consolidatedincentive income compensation expense represents of the particular period’s consolidated incentive income is not meaningful because of thefact that most segment incentive income is eliminated in consolidation, whereas no incentive income compensation expense is eliminatedin consolidation. For a meaningful percentage relationship, please see “—Segment Analysis” below. Additionally, note 12 to our consolidatedfinancial statements contains the estimated incentive income compensation expense related to accrued incentives (fund level).General and AdministrativeGeneral and administrative expenses include costs related to occupancy, accountants, tax professionals, legal advisers, consultants,travel, communications and information services, foreign exchange activity and other general operating items. These expenses are not borneby fund investors and are not offset by credits attributable to fund investors’ non-controlling redeemable interests in consolidated funds. UntilApril 2012, we operated as a private company. As we have incurred additional expenses associated with being a public company, general andadministrative expenses have increased as compared with periods before we became a public company. Examples of such expenses includeinsurance for our directors and officers and costs to comply with SEC reporting requirements, stock exchange listing standards, the Dodd-Frank Act and the Sarbanes-Oxley Act.Depreciation and AmortizationDepreciation and amortization expense includes costs associated with the purchase of furniture and equipment, capitalized software,and leasehold improvements. Furniture and equipment and capitalized software costs are depreciated using the straight-line method over theestimated useful life of the asset, which is generally three-to-five years. Leasehold improvements are amortized using the straight-linemethod over the shorter of the respective estimated useful life or the lease term.Consolidated Fund ExpensesConsolidated fund expenses consist primarily of costs incurred by our consolidated funds, including travel expenses, professionalfees, research expenses and other costs associated with administering these funds. Inasmuch as most of these fund expenses are borne bythird-party fund investors, they are offset by credits attributable to the fund investors’ non-controlling redeemable interests in consolidatedfunds.Other Income (Loss)Interest ExpenseInterest expense reflects the interest expense of Oaktree and its operating subsidiaries, as well as interest expense of theconsolidated funds.69Interest and Dividend IncomeInterest and dividend income consists of interest and dividend income earned on the investments held by our consolidated funds,the consolidated funds’ net operating income from real estate-related activities and interest income earned by Oaktree and its operatingsubsidiaries.Net Realized Gain on Consolidated Funds’ InvestmentsNet realized gain on consolidated funds’ investments consists of realized gains and losses arising from dispositions of investmentsheld by our consolidated funds.Net Change in Unrealized Appreciation (Depreciation) on Consolidated Funds’ InvestmentsNet change in unrealized appreciation (depreciation) on consolidated funds’ investments reflects, for our consolidated funds, bothunrealized gains and losses on investments and the reversal upon disposition of investments of unrealized gains and losses previouslyrecognized for those investments.Investment IncomeInvestment income represents our pro-rata share of income or loss from our investments, generally in our capacity as generalpartner in our funds and as an investor in third-party managed funds and companies.Other Income (Expense), NetOther income (expense), net primarily reflects the settlement of an arbitration award we received relating to a former Principal andportfolio manager of our real estate group who left us in 2005. Additionally, the year ended December 31, 2012 included a reduction to the taxreceivable agreement liability as a result of a remeasurement of the deferred tax asset associated with the 2007 Private Offering, the write-offof unamortized debt issuance costs related to the refinancing of our credit facility and the write-off of certain receivables related to a formercorporate investment.Income TaxesOaktree is a publicly traded partnership that meets the qualifying income exception, allowing it to be treated as a partnership for U.S.federal income tax purposes that is not taxable as a corporation. Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc., which are two of ourfive Intermediate Holding Companies and wholly owned subsidiaries, are subject to U.S. federal and state income taxes. The remainder ofOaktree’s income is generally not subject to corporate-level taxation.Oaktree’s effective tax rate is directly impacted by the proportion of Oaktree’s income subject to tax compared to income not subject totax. Oaktree’s non-U.S. income or loss before taxes is generally not significant in relation to total pre-tax income or loss and is generally morepredictable because, unlike U.S. pre-tax income, it is not significantly impacted by unrealized gains or losses. Non-U.S. tax expense typicallycomprises a disproportionately large percentage of total income tax expense because nearly all of our non-U.S. income or loss is subject tocorporate-level income tax, whereas a substantial portion of our U.S. income or loss is not subject to corporate-level taxes. In addition,changes in the proportion of non-U.S. pre-tax income to total pre-tax income impact Oaktree’s effective tax rate to the extent non-U.S. ratesdiffer from the combined U.S. federal and state tax rate.Income taxes are accounted for using the liability method of accounting. Under this method, deferred tax assets and liabilities arerecognized for the expected future tax consequences of differences between the carrying amounts of assets and liabilities and their respectivetax bases using currently enacted tax rates. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income inthe period when the change is enacted. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that someportion or all of the deferred tax assets will not be realized.Net Income (Loss) Attributable to Non-controlling InterestsNet income (loss) attributable to non-controlling interests represents the ownership interests that third parties hold in entities that areconsolidated in our financial statements. These interests fall into two categories:•Net Income Attributable to Non-controlling Redeemable Interests in Consolidated Funds. This represents the non-controlling interests that third-party investors hold in consolidated funds, which interests are primarily driven by the investmentperformance of the consolidated funds. In comparison to net income, this measure excludes segment results, income taxes,expenses that OCG or its70Intermediate Holding Companies bear directly and the impact of equity-based compensation expense; and•Net Income Attributable to OCGH Non-controlling Interest in Consolidated Subsidiaries. This represents the economicinterest in the Oaktree Operating Group owned by OCGH, which interest is determined at the Oaktree Operating Group levelbased on the weighted average proportionate share of Oaktree Operating Group units held by the OCGH unitholders. Inasmuchas the number of outstanding Oaktree Operating Group units corresponds with the total number of outstanding OCGH unitsand Class A units, changes in the economic interest held by the OCGH unitholders are driven by our additional grants ofOCGH units and our issuance, if any, of additional Class A units, as well as repurchases of OCGH units and Class A units.Certain of our expenses, such as income tax and related administrative expenses of Oaktree Capital Group, LLC and itsIntermediate Holding Companies, are solely attributable to the Class A unitholders. Please see note 8 to our consolidatedfinancial statements included elsewhere in this annual report for additional information on the economic interest in the OaktreeOperating Group owned by OCGH.Segment and Operating MetricsOur business is comprised of one segment, our investment management segment, which consists of the investment managementservices that we provide to our clients. Management makes operating decisions and assesses the performance of our business based onfinancial and operating metrics and data that are presented without the consolidation of any funds. For a detailed reconciliation of the segmentresults of operations to our consolidated results of operations, please see “—Segment Analysis” below and the “Segment Reporting” note toour consolidated financial statements included elsewhere in this annual report. The data most important to our chief operating decisionmaker in assessing our performance are adjusted net income, adjusted net income-OCG, distributable earnings, distributable earnings-OCG, fee-related earnings and fee-related earnings-OCG.We monitor certain operating metrics that are either common to the alternative asset management industry or that we believeprovide important data regarding our business. As described below, these operating metrics include assets under management,management fee-generating assets under management, incentive-creating assets under management, incentives created (fund level),accrued incentives (fund level) and uncalled capital commitments.Adjusted Net IncomeOur chief operating decision maker uses adjusted net income (“ANI”) to help evaluate the financial performance of, and makeresource allocations and other operating decisions for, our segment. The components of revenues and expenses used in the determination ofANI do not give effect to the consolidation of the funds that we manage. In addition, ANI excludes the effect of (a) non-cash equity-basedcompensation charges related to unit grants made before our initial public offering, (b) income taxes, (c) other income or expenses applicableto OCG or its Intermediate Holding Companies and (d) the adjustment for the OCGH non-controlling interest. Incentive income andincentive income compensation expense are included in ANI when the underlying fund distributions are known or knowable as of therespective quarter end, which may be later than the time at which the same revenue or expense is included in the GAAP-basis statements ofoperations, for which the revenue standard is fixed or determinable and the expense standard is probable and reasonably estimable. ANI iscalculated at the Operating Group level.Among other factors, our accounting policy for recognizing incentive income and inclusion of non-cash equity-based compensationcharges related to unit grants made after our initial public offering will likely make our calculation of ANI not directly comparable to economicnet income (“ENI”) or other similarly named measures of other asset managers.We calculate adjusted net income-OCG, or adjusted net income per Class A unit, a non-GAAP measure, to provide Class Aunitholders with a measure that shows the portion of ANI attributable to their ownership. Adjusted net income-OCG represents ANI includingthe effect of (a) the OCGH non-controlling interest, (b) other income or expenses, such as income tax expense, applicable to OCG or itsIntermediate Holding Companies and (c) any Oaktree Operating Group income taxes attributable to OCG. Two of our Intermediate HoldingCompanies incur U.S. federal and state income taxes for their share of Operating Group income. Generally, those two corporate entities holdan interest in the Operating Group’s management fee-generating assets and a small portion of its incentive and investment income-generating assets. As a result, historically our fee-related earnings generally have been subject to corporate-level taxation, and most of ourincentive income and investment income generally has not been subject to corporate-level taxation. Thus, the blended effective tax rate hasgenerally tended to be higher to71the extent that fee-related earnings represented a larger proportion of our ANI. Myriad other factors affect income tax expense and the effectivetax rate, and there can be no assurance that this historical relationship will continue going forward.Distributable EarningsDistributable earnings is a non-GAAP performance measure derived from our segment results that we use to measure our earningsat the Operating Group level without the effects of the consolidated funds for the purpose of, among other things, assisting in thedetermination of equity distributions from the Operating Group. However, the declaration, payment and determination of the amount ofequity distributions, if any, is at the sole discretion of our board of directors, which may change our distribution policy at any time.In accordance with GAAP, certain of our funds are consolidated into our consolidated financial statements, notwithstanding the factthat we typically have only a minority economic interest in these funds. Consequently, our consolidated financial statements reflect theresults of our consolidated funds on a gross basis. In addition, our segment results include investment income (loss), which under the equitymethod of accounting represents our pro-rata share of income or loss from our investments, generally in our capacity as general partner inour funds and as an investor in third-party managed funds and companies, and which is largely non-cash in nature. By excluding the resultsof our consolidated funds and segment investment income or loss, which are not directly available to fund our operations or make equitydistributions, and including the portion of distributions from Oaktree and non-Oaktree funds to us that represents the income or losscomponent of the distributions and not a return of our capital contributions, as well as distributions from our investments in companies,distributable earnings aids us in measuring amounts that are actually available to meet our obligations under the tax receivable agreementand our liabilities for expenses incurred at OCG and the Intermediate Holding Companies, as well as for distributions to Class A and OCGHunitholders.Distributable earnings differs from ANI in that it excludes segment investment income or loss and includes the receipt of investmentincome or loss from distributions by our investments in funds and companies. In addition, distributable earnings differs from ANI in that it isnet of Operating Group income taxes and, beginning in 2013, excludes non-cash equity-based compensation charges related to unit grantsmade after our initial public offering. In contrast to the GAAP measure of net income or loss attributable to OCG, distributable earnings alsoexcludes the effect of (a) non-cash equity-based compensation charges related to unit grants made before our initial public offering, (b) incometaxes and expenses that OCG or its Intermediate Holding Companies bear directly and (c) the adjustment for the OCGH non-controllinginterest.Distributable earnings-OCG, or distributable earnings per Class A unit, is a non-GAAP measure calculated to provide Class Aunitholders with a measure that shows the portion of distributable earnings attributable to their ownership. Distributable earnings-OCGrepresents distributable earnings including the effect of (a) OCGH non-controlling interest, (b) expenses, such as current income taxexpense, applicable to OCG or its Intermediate Holding Companies and (c) amounts payable under the tax receivable agreement. Theincome tax expense included in distributable earnings-OCG represents the implied current provision for income taxes calculated using anapproach similar to that which is used in calculating the income tax provision for adjusted net income-OCG.Fee-related EarningsFee-related earnings is a non-GAAP measure that we use to monitor the baseline earnings of our business. Fee-related earnings iscomprised of segment management fees less segment operating expenses other than incentive income compensation expense and,beginning with the fourth quarter of 2013 (with retrospective application), non-cash equity-based compensation charges related to unit grantsmade after our initial public offering. All prior periods have been recast to retroactively reflect this change. Fee-related earnings is consideredbaseline because it applies all cash compensation and benefits other than incentive income compensation expense, as well as all generaland administrative expenses, to management fees, even though a significant portion of those expenses is attributable to incentive andinvestment income. Fee-related earnings is presented before income taxes.Fee-related earnings-OCG, or fee-related earnings per Class A unit, is a non-GAAP measure calculated to provide Class Aunitholders with a measure that shows the portion of fee-related earnings attributable to their ownership. Fee-related earnings-OCGrepresents fee-related earnings including the effect of (a) the OCGH non-controlling interest, (b) other income or expenses, such as incometax expense, applicable to OCG or its Intermediate Holding Companies and (c) any Operating Group income taxes attributable to OCG. Fee-related earnings-OCG income taxes are calculated excluding any segment incentive income or investment income (loss).72Among other factors, the exclusion of non-cash equity-based compensation charges related to unit grants made after our initial publicoffering may make our calculations of fee-related earnings and fee-related earnings-OCG not directly comparable to similarly namedmeasures of other asset managers.Assets Under ManagementAUM generally refers to the assets we manage and equals the NAV of the assets we manage, the fund-level leverage on whichmanagement fees are charged and the undrawn capital that we are entitled to call from investors in our funds pursuant to their capitalcommitments. Our AUM amounts include AUM for which we charge no fees. Our definition of AUM is not based on any definition containedin our operating agreement or the agreements governing the funds that we manage. Our calculation of AUM and the two AUM-relatedmetrics below may not be directly comparable to the AUM metrics of other asset managers.•Management Fee-generating Assets Under Management. Management fee-generating AUM is a forward-looking metricand reflects the AUM on which we will earn management fees in the following quarter. Our closed-end funds typically paymanagement fees based on committed capital or drawn capital during the investment period, without regard to changes in NAV,and during the liquidation period on the lesser of (a) total funded capital and (b) the cost basis of assets remaining in the fund.The annual management fee rate remains unchanged from the investment period through the liquidation period. Our open-endand evergreen funds pay management fees based on their NAV.•Incentive-creating Assets Under Management. Incentive-creating AUM refers to the AUM that may eventually produceincentive income. It represents the NAV of our funds for which we are entitled to receive an incentive allocation, excludinginvestments made by us and our employees and directors (which are not subject to an incentive allocation). All funds for whichwe are entitled to receive an incentive allocation are included in incentive-creating AUM, regardless of whether or not they arecurrently generating incentives. Incentive-creating AUM does not include undrawn capital commitments because they are notpart of the NAV.Accrued Incentives (Fund Level)Our funds record as accrued incentives the incentive income that would be paid to us if the funds were liquidated at their reportedvalues as of the date of the financial statements. Incentives created (fund level) refers to the gross amount of potential incentives generated bythe funds during the period. We refer to the amount of incentive income recognized as revenue by us as segment incentive income. Amountsrecognized by us as incentive income are no longer included in accrued incentives (fund level), the term we use for remaining fund-levelaccruals.The same performance and market risks inherent in incentives created (fund level) affect the ability to ultimately realize accruedincentives (fund level). One consequence of the accounting method we follow for incentives created (fund level) is that accrued incentives(fund level) is an off-balance sheet metric, rather than being an on-balance sheet receivable that could require reduction if fund performancesuffers. We track accrued incentives (fund level) because it provides an indication of potential future value, though the timing and ultimaterealization of that value are uncertain. Incentives Created (Fund Level)Incentives created (fund level), incentive income and accrued incentives (fund level) are presented gross, without deduction for directcompensation expense that is owed to our investment professionals associated with the particular fund when we earn the incentive income.We call that charge “incentive income compensation expense.” Incentive income compensation expense varies by the investment strategyand vintage of the particular fund, among other factors. In addition to incentive income compensation expense, the magnitude of the annualcash bonus pool is indirectly affected by the level of incentive income, net of its associated incentive income compensation expense. The totalcharge related to the annual cash bonus pool, including the portion attributable to our incentive income, is reflected in the financial statementline item “compensation and benefits.”Incentives created (fund level) often reflects investments measured at fair value and therefore is subject to risk of substantialfluctuation by the time the underlying investments are liquidated. We earn the incentive income, if any, that the fund is then obligated to payus with respect to our incentive interest (generally 20%) in the limited partner investors’ profits, subject to an annual preferred return oftypically 8%. Although GAAP allows the equivalent of incentives created (fund level) to be recognized as revenue by us under Method 2, wefollow the Method 1 approach offered by GAAP. Our use of Method 1 reduces by a substantial degree the possibility that73revenue recognized by us would be reversed in a subsequent period. For purposes of adjusted net income and distributable earnings, werecognize incentive income when the underlying fund distributions are known or knowable as of the respective quarter end, as opposed to thefixed or determinable standard of Method 1. We track incentives created (fund level) because it provides an indication of the value for uscurrently being created by our investment activities and facilitates comparability with those companies in our industry that utilize thealternative accrual-based Method 2 for recognizing incentive income in their financial statements.Uncalled Capital CommitmentsUncalled capital commitments represent undrawn capital commitments by partners (including Oaktree as general partner) of ourclosed-end funds in their investment periods and certain evergreen funds. If a closed-end fund distributes capital during its investment period,that capital is typically subject to possible recall, in which case it is included in uncalled capital commitments. Consolidated Results of OperationsThe following table sets forth our audited consolidated results of operations: Year Ended December 31, 2013 2012 2011 (in thousands) Consolidated Statement of Operations: Revenues: Management fees$192,605 $134,568 $140,715 Incentive income2,317 10,415 15,055 Total revenues194,922 144,983 155,770 Expenses: Compensation and benefits(365,696) (330,018) (308,194) Equity-based compensation(28,441) (36,342) (948,746) Incentive income compensation(482,551) (222,594) (179,234) Total compensation and benefits expense(876,688) (588,954) (1,436,174) General and administrative(114,404) (101,417) (97,034) Depreciation and amortization(7,119) (7,397) (6,583) Consolidated fund expenses(108,851) (92,835) (105,073) Total expenses(1,107,062) (790,603) (1,644,864) Other income (loss): Interest expense(61,160) (45,773) (50,943) Interest and dividend income1,806,361 1,966,317 2,565,630 Net realized gain on consolidated funds’ investments3,503,998 4,560,782 1,744,135 Net change in unrealized appreciation (depreciation) on consolidated funds’investments1,843,469 835,160 (3,064,676) Investment income56,027 25,382 8,600 Other income (expense), net409 7,027 (1,209) Total other income7,149,104 7,348,895 1,201,537 Income (loss) before income taxes6,236,964 6,703,275 (287,557) Income taxes(26,232) (30,858) (21,088) Net income (loss)6,210,732 6,672,417 (308,645) Less: Net income attributable to non-controlling redeemable interests in consolidatedfunds(5,163,939) (6,016,342) (233,573) Net (income) loss attributable to OCGH non-controlling interest inconsolidated subsidiaries(824,795) (548,265) 446,246 Net income (loss) attributable to Oaktree Capital Group, LLC$221,998 $107,810 $(95,972)74Year Ended December 31, 2013 Compared to Year Ended December 31, 2012RevenuesManagement FeesManagement fees increased $58.0 million, or 43.1%, to $192.6 million for the year ended December 31, 2013, from $134.6 millionfor the year ended December 31, 2012. The increase reflected $21.0 million in higher fees earned across our High Yield Bond, ConvertibleSecurities, Senior Loan and Strategic Credit strategies, and $37.0 million in greater advisory, director, transaction and certain other ancillaryfees for the benefit of our consolidated funds. We reduce our management fees by the amount of advisory and other ancillary fees so that ourfunds' investors share pro rata in the economic benefit of the ancillary fees. Thus, in our consolidated financial statements, these ancillaryfees are treated as being attributable to non-controlling redeemable interests in consolidated entities and have no impact on the net incomeattributable to OCG.Incentive IncomeIncentive income decreased $8.1 million, or 77.9%, to $2.3 million for the year ended December 31, 2013, from $10.4 million forthe year ended December 31, 2012, primarily reflecting lower incentive income from the unconsolidated Power Fund II and a separatelymanaged account.ExpensesCompensation and BenefitsCompensation and benefits increased $35.7 million, or 10.8%, to $365.7 million for the year ended December 31, 2013, from$330.0 million for the year ended December 31, 2012, primarily reflecting growth in headcount of 11% between December 31, 2012 andDecember 31, 2013. Additionally, 2013 and 2012 included $6.5 million and $2.3 million, respectively, of phantom equity plan expense,stemming from each period's equity distributions and change in the Class A unit trading price.Equity-based CompensationEquity-based compensation expense decreased $7.9 million, or 21.8%, to $28.4 million for the year ended December 31, 2013,from $36.3 million for the year ended December 31, 2012. The decline primarily reflected the final vesting on January 2, 2012 of OCGHunits held by our Principals and employees at the time of the 2007 Private Offering.Incentive Income CompensationIncentive income compensation expense increased $260.0 million, or 116.8%, to $482.6 million for the year ended December 31,2013, from $222.6 million for the year ended December 31, 2012. The percentage increase was smaller than the 123.4% increase insegment incentive income, principally because in 2011 we acquired and expensed a small portion of certain investment professionals' carriedinterest in Opps VIIb. If that transaction had not occurred, total incentive income compensation expense would have been higher by anestimated $50.1 million for 2013 and unchanged for 2012.General and AdministrativeGeneral and administrative expenses increased $13.0 million, or 12.8%, to $114.4 million for the year ended December 31, 2013,from $101.4 million for the year ended December 31, 2012. Excluding the impact of foreign currency-related items, as well as $2.1 million innonrecurring costs associated with our initial public offering that were incurred in 2012, general and administrative expenses increased$21.3 million, or 21.8%, to $119.1 million in 2013 from $97.8 million in 2012. The increase reflected $1.8 million of placement feesincurred in 2013 for Oaktree Real Estate Opportunities Fund VI, L.P. (“ROF VI”), as compared with none in 2012, as well as higherprofessional fees and other costs associated with corporate growth, enhancements to our operational infrastructure and being a publiccompany.Consolidated Fund ExpensesConsolidated fund expenses increased $16.1 million, or 17.3%, to $108.9 million for the year ended December 31, 2013, from$92.8 million for the year ended December 31, 2012. The increase reflected costs incurred in 2013 that were associated with the new OppsIX, and higher professional fees and other costs.75Other Income (Loss)Interest ExpenseInterest expense increased $15.4 million, or 33.6%, to $61.2 million for the year ended December 31, 2013, from $45.8 million forthe year ended December 31, 2012, reflecting a $17.9 million increase in aggregate interest expense from our consolidated funds, partiallyoffset by $2.5 million in lower interest expense related to Oaktree and its operating subsidiaries from less debt and lower borrowing costs onour credit facility.Interest and Dividend IncomeInterest and dividend income decreased $159.9 million, or 8.1%, to $1,806.4 million for the year ended December 31, 2013, from$1,966.3 million for the year ended December 31, 2012, attributable entirely to our consolidated funds. Among the consolidated funds, largeportfolio realizations caused Distressed Debt funds to have an aggregate $379.0 million in lower interest and dividend income, while ControlInvesting funds and the new Oaktree Enhanced Income Fund, L.P. (“EIF”) generated higher interest and dividend income of $144.2 millionand $73.5 million, respectively.Net Realized Gain on Consolidated Funds’ InvestmentsNet realized gain on consolidated funds’ investments decreased $1,056.8 million, or 23.2%, to $3,504.0 million for the year endedDecember 31, 2013, from $4,560.8 million for the year ended December 31, 2012. Of the $3,504.0 million net realized gain in 2013,$2,012.8 million was attributable to Distressed Debt funds, including $859.8 million from Opps VIIb, $1,136.1 million to Control Investingfunds and $205.8 million to Real Estate funds. Of the $4,560.8 million net realized gain in 2012, $3,189.3 million was attributable toDistressed Debt funds, including $1,890.2 million from Opps VIIb, $926.3 million to Control Investing funds and $286.6 million to RealEstate funds. Net Change in Unrealized Appreciation on Consolidated Funds’ InvestmentsThe net change in unrealized appreciation on consolidated funds’ investments increased $1,008.3 million, or 120.7%, to $1,843.5million for the year ended December 31, 2013, from $835.2 million for the year ended December 31, 2012. Excluding the $1,056.8 milliondecrease in net realized gain on consolidated funds’ investments, the net change in unrealized appreciation on consolidated funds’investments decreased $48.5 million, to $5,347.5 million for the year ended December 31, 2013, from $5,396.0 million for the year endedDecember 31, 2012. Of the $5,347.5 million net gain in 2013, $3,186.5 million was attributable to Distressed Debt funds, including$807.0 million from Opps VIIb. Of the remaining $2,161.0 million net gain, $1,522.7 million was attributable to Control Investing funds and$399.1 million to Real Estate funds. Of the $5,396.0 million net gain in 2012, $3,446.5 million was attributable to Distressed Debt funds,including $1,499.5 million from Opps VIIb. Of the remaining $1,949.5 million net gain, $894.3 million was attributable to Control Investingfunds, $557.5 million to Real Estate funds and $285.0 million to the High Yield Bond strategy.Investment IncomeInvestment income increased $30.6 million, or 120.5%, to $56.0 million for the year ended December 31, 2013, from $25.4 millionfor the year ended December 31, 2012, reflecting $17.1 million of market-value gains on our recent minority equity investment in ChinaCinda Asset Management Co., Ltd. (“Cinda”) and $8.5 million of higher income from DoubleLine, which increased to $31.4 million in 2013from $22.9 million in 2012. The remainder was primarily attributable to gains associated with other corporate investment activities. Ourinvestment income from DoubleLine in 2013 and 2012 included $3.4 million and $8.0 million, respectively, for our share of its performancefees.Other Income (Expense), NetOther income (expense), net decreased to income of $0.4 million for the year ended December 31, 2013, from income of $7.0million for the year ended December 31, 2012. The 2013 income of $0.4 million reflected the net results of operating the portfolio ofproperties received as part of an arbitration award in 2010 related to a former Principal and portfolio manager of our real estate group who leftin 2005. The 2012 income of $7.0 million included a $6.3 million reduction to the tax receivable agreement liability as a result of aremeasurement of the deferred tax asset associated with the 2007 Private Offering. The remaining 2012 income of $0.7 million primarilyreflected the net effect of $3.1 million of income attributable to the sale of a real estate property and other proceeds received as part of the 2010arbitration award, a $0.8 million write-off of unamortized debt issuance costs associated with the refinancing of our credit facility and a $1.7million write-off of certain receivables related to a former corporate investment.76Income TaxesIncome taxes decreased $4.7 million, or 15.2%, to $26.2 million for the year ended December 31, 2013, from $30.9 million for theyear ended December 31, 2012. This expense declined, despite an increase in income before income taxes related to Class A unitholders,as a result of a year-over-year decrease in the effective tax rate related to Class A unitholders and the fact that 2012 included a nonrecurringtax expense of $7.1 million stemming from a remeasurement of deferred tax assets. The effective tax rate related to Class A unitholders for2013 was 9%. The effective tax rate related to Class A unitholders for 2012 was 15% without the $7.1 million nonrecurring tax expense and19% with it. The effective tax rate is a function of the mix of income and other factors that often vary significantly within or between years,each of which can have a material impact on the particular year's income tax expense. Please see “—Understanding Our Results—Consolidation of Oaktree Funds.”Net Income Attributable to Oaktree Capital Group, LLCNet income attributable to Oaktree Capital Group, LLC increased $114.2 million, or 105.9%, to $222.0 million for the year endedDecember 31, 2013, from $107.8 million for the year ended December 31, 2012. The increase reflected higher segment revenues, partiallyoffset by higher segment expenses, and a larger allocation of income to OCG as a result of an increase in the average number of Class Aunits outstanding during each period.Net Income Attributable to Non-controlling Redeemable Interests in Consolidated FundsNet income attributable to non-controlling redeemable interests in consolidated funds decreased $852.4 million, to $5,163.9 millionfor the year ended December 31, 2013, from $6,016.3 million for the year ended December 31, 2012, reflecting both lower interest anddividend income and net gains on investments. These effects are described in more detail under “—Other Income (Loss)” above.Year Ended December 31, 2012 Compared to Year Ended December 31, 2011RevenuesManagement FeesManagement fees decreased $6.1 million, or 4.3%, to $134.6 million for the year ended December 31, 2012, from $140.7 millionfor the year ended December 31, 2011. The decrease primarily resulted from $9.4 million in lower advisory, director and certain othertransaction fees for the benefit of our consolidated funds. We reduce our management fees by the amount of such ancillary fees so that ourfunds' investors share pro rata in the economic benefit of the ancillary fees. Thus, in our consolidated financial statements they are treated asbeing attributable to non-controlling redeemable interests in consolidated entities and have no impact on net income (loss) attributable toOCG. Partially offsetting the increase in ancillary fees was a non-recurring charge of $2.1 million related to a change in the management feearrangement for the U.S. Treasury portion of PPIP incurred in 2011.Incentive IncomeIncentive income decreased $4.7 million, or 31.1%, to $10.4 million for the year ended December 31, 2012, from $15.1 million forthe year ended December 31, 2011, reflecting lower incentive income from the unconsolidated Power Fund II, partially offset by higherincentive income from a separately managed account.ExpensesCompensation and BenefitsCompensation and benefits increased $21.8 million, or 7.1%, to $330.0 million for the year ended December 31, 2012, from$308.2 million for the year ended December 31, 2011, primarily reflecting growth in headcount of 11% between December 31, 2011 andDecember 31, 2012. Additionally, 2012 and 2011 included $2.3 million and $7.3 million, respectively, of phantom equity plan expense,stemming from each period's equity distributions and change in the Class A unit trading price.Equity-based CompensationEquity-based compensation expense decreased $912.4 million, or 96.2%, to $36.3 million for the year ended December 31, 2012,from $948.7 million for the year ended December 31, 2011. The decline primarily reflected the final vesting on January 2, 2012 of OCGHunits held by our Principals and employees at the time of the 2007 Private Offering.77Incentive Income CompensationIncentive income compensation expense increased $43.4 million, or 24.2%, to $222.6 million for the year ended December 31,2012, from $179.2 million for the year ended December 31, 2011. Included in 2011’s incentive income compensation expense was a chargeof $55.5 million, reflecting the acquisition of a small portion of certain investment professionals’ carried interest in Opps VIIb. Excluding theimpact of that transaction, incentive income compensation expense increased $98.9 million, or 80.0%, principally as a result of the 51.7%increase in segment incentive income, as well as differences in the compensation percentages among the funds that generated suchsegment incentive income for the two periods.General and AdministrativeGeneral and administrative expenses increased $4.4 million, or 4.5%, to $101.4 million for the year ended December 31, 2012,from $97.0 million for the year ended December 31, 2011. Excluding the impact of foreign currency-related items, as well as $2.1 million and$7.4 million in nonrecurring costs associated with our initial public offering in 2012 and 2011, respectively, general and administrativeexpenses increased $9.7 million, or 11.0%, to $97.8 million from $88.1 million. The increase reflected higher costs associated withcorporate growth, enhancements to our operational infrastructure and being a public company.Consolidated Fund ExpensesConsolidated fund expenses decreased $12.3 million, or 11.7%, to $92.8 million for the year ended December 31, 2012, from$105.1 million for the year ended December 31, 2011. The decrease primarily reflected lower professional fees and administrative costsrelated to managing the funds.Other Income (Loss)Interest ExpenseInterest expense decreased $5.1 million, or 10.0%, to $45.8 million for the year ended December 31, 2012, from $50.9 million forthe year ended December 31, 2011, reflecting a $3.3 million decline in aggregate interest expense from our consolidated funds and a $1.8million decrease related to Oaktree and its operating subsidiaries from less debt.Interest and Dividend IncomeInterest and dividend income decreased $599.3 million, or 23.4%, to $1,966.3 million for the year ended December 31, 2012, from$2,565.6 million for the year ended December 31, 2011. The decrease reflected a $599.6 million decline in interest and dividend incomerelated to the consolidated funds. Included in 2011 was $454.9 million of aggregate income attributable to (a) a restructured evergreen fundand (b) a large dividend that resulted from the recapitalization of a portfolio company. Excluding these 2011 items, interest and dividendincome for the consolidated funds decreased $144.4 million, largely due to lower interest and dividend income from Distressed Debt funds.Net Realized Gain on Consolidated Funds’ InvestmentsNet realized gain on consolidated funds’ investments increased $2,816.7 million, or 161.5%, to $4,560.8 million for the year endedDecember 31, 2012, from $1,744.1 million for the year ended December 31, 2011. Of the $4,560.8 million net realized gain in 2012,$3,189.3 million was attributable to Distressed Debt funds, including $1,890.2 million from Opps VIIb, $926.3 million to Control Investingfunds and $286.6 million to Real Estate funds. Of the $1,744.1 million net realized gain in 2011, $1,536.3 million was attributable toDistressed Debt funds, including $1,162.1 million from Opps VIIb. Net Change in Unrealized Appreciation (Depreciation) on Consolidated Funds’ InvestmentsThe net change in unrealized appreciation (depreciation) on consolidated funds’ investments improved by $3,899.9 million, to a gainof $835.2 million for the year ended December 31, 2012, from a loss of $3,064.7 million for the year ended December 31, 2011. Excludingthe $2,816.7 million increase in net realized gain on consolidated funds’ investments, the net change in unrealized appreciation(depreciation) on consolidated funds’ investments increased $6,716.6 million, to a gain of $5,396.0 million for the year ended December 31,2012, from a loss of $1,320.6 million for the year ended December 31, 2011. Of the $5,396.0 million net gain in 2012, $3,446.5 millionwas attributable to Distressed Debt funds, including $1,499.5 million from Opps VIIb. Of the remaining $1,949.5 million net gain, $894.3million was attributable to Control Investing funds, $557.5 million to Real Estate funds and $285.0 million to the High Yield Bond strategy.Of the $1,320.6 million net loss in 2011, $859.2 million78was attributable to Distressed Debt funds, including $402.7 million from Opps VIIb, and $163.7 million to Control Investing funds.Investment IncomeInvestment income increased $16.8 million, or 195.3%, to $25.4 million for the year ended December 31, 2012, from $8.6 millionfor the year ended December 31, 2011, reflecting $21.1 million of higher income from DoubleLine, which increased to $22.9 million in 2012from $1.8 million in 2011. The increase was partially offset by $3.6 million of larger losses associated with a former corporate investmentand $1.9 million of lower income from unconsolidated Power Fund II. Our investment income from DoubleLine in 2012 and 2011 included$8.0 million and $2.2 million, respectively, for our share of its performance fees.Other Income (Expense), NetOther income (expense), net increased to income of $7.0 million for the year ended December 31, 2012, from expense of $1.2million for the year ended December 31, 2011. The income of $7.0 million in 2012 included a $6.3 million reduction to the tax receivableagreement liability as a result of a remeasurement of the deferred tax asset associated with the 2007 Private Offering. The remainderreflected $3.1 million of income attributable to the sale of a real estate property and other proceeds received as part of an arbitration award in2010 related to a former Principal and portfolio manager of our real estate group who left us in 2005, a $0.8 million write-off of unamortizeddebt issuance costs associated with the refinancing of our credit facility and a $1.7 million write-off of certain receivables related to a formercorporate investment. The expense of $1.2 million in 2011 reflected an adjustment to the carrying value of one of the properties received aspart of the 2010 arbitration award.Income TaxesIncome taxes increased $9.8 million, or 46.4%, to $30.9 million for the year ended December 31, 2012, from $21.1 million for theyear ended December 31, 2011. The increase in taxes was due to an increase in income attributable to Class A unitholders in 2012 ascompared to 2011, as well as a nonrecurring tax expense of $7.1 million in 2012 stemming from a remeasurement of our deferred taxassets. The effective tax rate related to Class A unitholders for 2012 was 15%, without the $7.1 million nonrecurring tax expense, and 19%with it. The effective tax rate related to Class A unitholders for 2011 was 26%. The effective tax rate is a function of the mix of income andother factors that often vary significantly within or between years, each of which can have a material impact on the particular year’s incometax expense. Please see “—Understanding Our Results—Consolidation of Oaktree Funds.”Net Income (Loss) Attributable to Oaktree Capital Group, LLCNet income (loss) attributable to Oaktree Capital Group, LLC increased $203.8 million, to net income of $107.8 million for the yearended December 31, 2012, from a net loss of $96.0 million for the year ended December 31, 2011. The increase resulted primarily fromlower equity-based compensation expense and higher segment revenues, partially offset by higher segment expenses. The decline in equity-based compensation expense primarily reflected the final vesting on January 2, 2012 of OCGH units held by our Principals and employeesat the time of the 2007 Private Offering.Net Income Attributable to Non-Controlling Redeemable Interests in Consolidated FundsNet income attributable to non-controlling redeemable interests in consolidated funds increased $5,782.7 million, to$6,016.3 million for the year ended December 31, 2012, from $233.6 million for the year ended December 31, 2011, as a result of highernet gains on investments, partially offset by a decrease in interest and dividend income in 2012. These effects are described in more detailabove under “—Other Income (Loss).”79Segment Financial DataThe following table presents segment financial data: As of or for the Year Ended December 31,Segment Statements of Operations Data: (1)2013 2012 2011 (in thousands, except per unit data oras otherwise indicated)Revenues: Management fees$749,901 $747,440 $724,321Incentive income1,030,195 461,116 303,963Investment income258,654 202,392 23,763Total revenues2,038,750 1,410,948 1,052,047Expenses: Compensation and benefits(365,306) (329,741) (308,115)Equity-based compensation(3,828) (318) —Incentive income compensation(436,217) (222,594) (179,234)General and administrative(117,361) (102,685) (94,655)Depreciation and amortization(7,119) (7,397) (6,583)Total expenses(929,831) (662,735) (588,587)Adjusted net income before interest and other income (expense)1,108,919 748,213 463,460Interest expense, net of interest income (2) (28,621) (31,730) (33,867)Other income (expense), net409 767 (1,209)Adjusted net income$1,080,707 $717,250 $428,384Adjusted net income-OCG$223,113 $114,395 $48,777Adjusted net income per Class A unit6.38 4.06 2.15Distributable earnings984,266 672,181 488,535Distributable earnings-OCG203,595 107,678 59,446Distributable earnings per Class A unit5.82 3.82 2.62Fee-related earnings (3)260,115 307,617 314,968Fee-related earnings-OCG (3)50,122 45,646 33,397Fee-related earnings per Class A unit1.43 1.62 1.47Weighted average number of Operating Group units outstanding150,971 150,539 148,633Weighted average number of Class A units outstanding34,979 28,170 22,677Operating Metrics: Assets under management (in millions): Assets under management$83,605 $77,051 $74,857Management fee-generating assets under management71,950 66,784 66,964Incentive-creating assets under management 32,379 33,989 36,155Uncalled capital commitments 13,169 11,201 11,201Accrued incentives (fund level): Incentives created (fund level) 1,168,836 911,947 (75,916)Incentives created (fund level), net of associated incentive incomecompensation expense549,545 493,005 (14,143)Accrued incentives (fund level) 2,276,439 2,137,798 1,686,967Accrued incentives (fund level), net of associated incentive incomecompensation expense1,235,226 1,282,194 1,027,71180 (1)Our business is comprised of one segment, our investment management segment, which consists of the investment managementservices that we provide to our clients. The components of revenues and expenses used in determining adjusted net income do notgive effect to the consolidation of the funds that we manage. In addition, adjusted net income excludes the effect of (a) non-cash equity-based compensation charges related to unit grants made before our initial public offering, (b) income taxes, (c) other income orexpenses applicable to OCG or its Intermediate Holding Companies and (d) the adjustment for the OCGH non-controlling interest.Incentive income and incentive income compensation expense are included in adjusted net income when the underlying funddistributions are known or knowable as of the respective quarter end, which may be later than the time at which the same revenue orexpense is included in the GAAP-basis statements of operations, for which the revenue standard is fixed or determinable and theexpense standard is probable and reasonably estimable. Adjusted net income is calculated at the Operating Group level. For a detaileddescription of our segment and operating metrics, please see “—Segment and Operating Metrics” above.(2)Interest income was $3.2 million, $2.6 million and $2.3 million for the years ended December 31, 2013, 2012 and 2011, respectively.(3)Beginning with this reporting period, the definition of fee-related earnings has been modified to exclude non-cash equity-basedcompensation charges related to unit grants made after our initial public offering in April 2012. All prior periods have been recast toreflect this change retroactively. Those non-cash compensation charges amounted to $3.8 million, or $0.03 per Class A unit, for 2013and $0.3 million, or less than $0.01 per Class A unit, for 2012. There was no impact to 2011.81Operating MetricsWe monitor certain operating metrics that are either common to the alternative asset management industry or that we believeprovide important data regarding our business. These operating metrics include assets under management, management fee-generatingassets under management, incentive-creating assets under management, incentives created (fund level), accrued incentives (fund level) anduncalled capital commitments.Assets Under ManagementAUM is set forth below: As of December 31, 2013 2012 2011 (in millions)Assets Under Management: Closed-end funds$46,685 $45,700 $47,425Open-end funds32,868 29,092 25,042Evergreen funds4,052 2,259 2,390Total$83,605 $77,051 $74,857The change in AUM is set forth below: Year Ended December 31, 2013 2012 2011 (in millions)Change in Assets Under Management: Beginning balance$77,051 $74,857 $82,672Closed-end funds: New capital commitments5,496 6,456 5,734Distributions for a realization event/other(12,029) (12,663) (10,547)Uncalled capital commitments at end of investment period— (1,634) (1,227)Foreign currency translation269 99 (260)Change in market value (1)5,837 5,810 394Change in applicable leverage1,412 207 (50)Open-end funds: Contributions5,276 4,394 3,702Redemptions(4,292) (3,869) (5,039)Foreign currency translation108 65 (93)Change in market value (1)2,684 3,460 350Evergreen funds: Contributions or new capital commitments1,739 140 345Redemptions(272) (548) (531)Distributions from restructured funds(49) (57) (537)Foreign currency translation4 1 20Change in market value (1)371 333 (76)Ending balance$83,605 $77,051 $74,857 (1)Change in market value represents the change in NAV of our funds resulting from current income and realized and unrealizedgains/losses on investments, less management fees and other fund expenses.82Management Fee-generating Assets Under ManagementManagement fee-generating AUM is set forth below: As of December 31, 2013 2012 2011 (in millions)Management Fee-generating Assets Under Management: Closed-end funds$36,422 $35,750 $39,867Open-end funds32,830 29,056 25,025Evergreen funds2,698 1,978 2,072Total$71,950 $66,784 $66,964The change in management fee-generating AUM is set forth below: Year Ended December 31, 2013 2012 2011 (in millions)Change in Management Fee-generating Assets Under Management: Beginning balance$66,784 $66,964 $66,175Closed-end funds: New capital commitments to funds that pay fees based on committed capital6,597 486 7,997Capital drawn by funds that pay fees based on drawn capital or NAV1,835 968 1,034Change for funds that pay fees based on the lesser of funded capital or cost basis duringliquidation (1)(8,222) (5,457) (4,285)Change in fee basis from committed capital to drawn capital— — (978)Uncalled capital commitments at end of investment period for funds that pay fees basedon committed capital(664) (57) (1,066)Distributions by funds that pay fees based on NAV(325) (512) (460)Foreign currency translation196 148 (23)Change in market value (2) (1) 125 (12)Change in applicable leverage1,256 182 (50)Open-end funds: Contributions5,276 4,380 3,701Redemptions(4,292) (3,869) (5,039)Foreign currency translation108 65 (93)Change in market value2,682 3,455 351Evergreen funds: Contributions or capital drawn by funds that pay fees based on drawn capital or NAV660 140 345Redemptions(272) (548) (527)Change in market value332 314 (106)Ending balance$71,950 $66,784 $66,964 (1)For most closed-end funds, management fees are charged during the liquidation period on the lesser of (a) total funded capital and(b) the cost basis of assets remaining in the fund, with the cost basis of assets generally calculated by excluding cash balances. Thus,changes in fee basis during the liquidation period are not dependent on distributions made from the fund; rather, they are tied to thecost basis of the fund’s investments, which generally declines as the fund sells assets. (2)The change in market value reflects certain funds that pay management fees based on NAV and leverage, as applicable.83As compared with AUM, management fee-generating AUM generally excludes the following:•Differences between AUM and either committed capital or cost basis for most closed-end funds, other than for closed-end fundsthat pay management fees based on NAV and leverage, as applicable;•Undrawn capital commitments to closed-end funds that have not yet commenced their investment periods;•Undrawn capital commitments to funds for which management fees are based on drawn capital or NAV;•The investments we make in our funds as general partner;•Closed-end funds that are beyond the term during which they pay management fees; and•AUM in restructured and liquidating evergreen funds for which management fees were waived.A reconciliation of AUM to management fee-generating AUM is set forth below: As of December 31, 2013 2012 2011 (in millions)Reconciliation of Assets Under Management to Management Fee-generating AssetsUnder Management: Assets under management$83,605 $77,051 $74,857Difference between assets under management and committed capital or cost basis for mostclosed-end funds (1)(6,311) (3,164) (4,031)Undrawn capital commitments to funds that have not yet commenced their investmentperiods(693) (5,016) (85)Undrawn capital commitments to funds for which management fees are based on drawncapital or NAV(2,625) (584) (1,981)Oaktree’s general partner investments in management fee-generating funds(1,371) (1,041) (1,052)Closed-end funds that are no longer paying management fees(461) (231) (472)Funds for which management fees were permanently waived(194) (231) (272)Management fee-generating assets under management$71,950 $66,784 $66,964 (1)Not applicable to closed-end funds that pay management fees based on NAV or leverage, as applicable.The period-end weighted average annual management fee rates applicable to the respective management fee-generating AUMbalances above are set forth below, and reflect the applicable contractual fee rates, exclusive of the impact of special items such as retroactivemanagement fees and the collection of deferred contingent management fees. As of December 31, 2013 2012 2011Weighted Average Annual Management Fee Rates: Closed-end funds1.48% 1.51% 1.48%Open-end funds0.47 0.49 0.47Evergreen funds1.63 1.82 1.79Overall1.02 1.07 1.1184Incentive-creating Assets Under ManagementIncentive-creating AUM is set forth below: As of December 31, 2013 2012 2011 (in millions)Incentive-creating Assets Under Management: Closed-end funds$30,362 $32,058 $34,062Evergreen funds2,017 1,931 2,093Total$32,379 $33,989 $36,155As of December 31, 2013, 2012 and 2011, the portion of incentive-creating AUM generating incentives at the fund level was $29.6billion, $25.6 billion and $17.7 billion, respectively. Incentive-creating AUM does not include undrawn capital commitments.Year Ended December 31, 2013AUM increased $6.5 billion, or 8.4%, from $77.1 billion as of December 31, 2012, to $83.6 billion as of December 31, 2013. Theincrease reflected $8.9 billion of market-value gains, $8.5 billion of new capital commitments and fee-generating leverage, and $1.0 billion ofnet inflows to open-end funds, partially offset by $12.0 billion of distributions to closed-end fund investors. The $8.5 billion of new capitalcommitments and fee-generating leverage included $2.4 billion to ROF VI, $1.7 billion to EIF, $1.4 billion to the Strategic Credit strategy,$0.9 billion to the European Private Debt strategy and $0.8 billion to the Emerging Market Opportunities strategy. Of the $12.0 billion ofdistributions to closed-end fund investors, $3.2 billion was attributable to Opps VIIb, $3.8 billion to other Distressed Debt funds, $3.4 billionto Principal Investing funds and $1.2 billion to Real Estate funds.Management fee-generating AUM increased $5.2 billion, or 7.8%, from $66.8 billion as of December 31, 2012, to $72.0 billion as ofDecember 31, 2013, reflecting $6.6 billion from the start of Opps IX's investment period on January 1, 2014 and new capital commitmentsto ROF VI, $3.1 billion from fee-generating leverage and drawdowns by closed-end funds on which management fees are based on drawncapital or NAV, $3.0 billion from market-value gains in funds for which management fees are based on NAV, and $1.0 billion from netinflows to open-end funds. Partially offsetting those increases was an $8.2 billion decline from asset sales by closed-end funds in liquidation,of which Opps VIIb accounted for $2.8 billion.Incentive-creating AUM decreased $1.6 billion, or 4.7%, from $34.0 billion as of December 31, 2012, to $32.4 billion as ofDecember 31, 2013. The decrease resulted from the net effect of $12.1 billion in distributions by closed-end funds, $5.9 billion in market-value gains in closed-end and evergreen funds, and $4.7 billion in drawdowns by closed-end funds.Year Ended December 31, 2012AUM increased $2.2 billion, or 2.9%, from $74.9 billion as of December 31, 2011, to $77.1 billion as of December 31, 2012. Theincrease was primarily attributable to $9.6 billion in market-value gains and $6.5 billion in new capital commitments, including $5.0 billionfor Opps IX. These increases were partially offset by $12.7 billion in distributions by closed-end funds and $1.6 billion in aggregate uncalledcapital commitments across closed-end funds reaching the end of their investment periods. Opps VIIb accounted for $5.7 billion of the $12.7billion in aggregate distributions. Of the $1.6 billion in uncalled capital commitments, $1.2 billion was attributable to PPIP. Net inflows acrossopen-end funds contributed $0.5 billion to the overall increase, driven by $1.0 billion in net inflows to U.S. High Yield Bonds.Management fee-generating AUM decreased $0.2 billion, or 0.3%, from $67.0 billion as of December 31, 2011, to $66.8 billion as ofDecember 31, 2012. The decrease reflected a $5.5 billion decline attributable to asset sales by closed-end funds in liquidation, largely offsetby $3.9 billion in market-value gains in funds for which management fees are based on NAV and $1.0 billion from closings for Oaktree RealEstate Opportunities Fund V, L.P. (“ROF V”) and ROF VI and drawdowns by PPIP and EIF, including leverage. Opps VIIb accounted for $2.6billion of the $5.5 billion decline from asset sales by closed-end funds in liquidation.Incentive-creating AUM decreased $2.2 billion, or 6.1%, from $36.2 billion as of December 31, 2011, to $34.0 billion as ofDecember 31, 2012. The decrease reflected $12.1 billion in distributions by closed-end funds,85partially offset by $5.4 billion in market-value gains and $4.5 billion in drawn capital. Opps VIIb represented $5.5 billion of the $12.1 billion indistributions.Year Ended December 31, 2011AUM decreased $7.8 billion, or 9.4%, from $82.7 billion as of December 31, 2010, to $74.9 billion as of December 31, 2011. Thedecrease was primarily attributable to $6.0 billion in net outflows by closed-end funds, reflecting $10.5 billion of distributions and $1.2 billionof uncalled capital commitments at the end of the respective funds’ investment periods, partially offset by $5.7 billion in new capitalcommitments. Opps VIIb, which commenced its liquidation period in May 2011, accounted for $8.0 billion of the $11.7 billion in aggregatedistributions and uncalled capital commitments. Of the $5.7 billion in new capital commitments, $3.9 billion was attributable to OaktreeEuropean Principal Fund III, L.P. (“EPF III”) and $1.0 billion to ROF V. In a year of generally negative performance by most major financialmarkets, aggregate market-value gains contributed $668 million. For open-end funds, AUM decreased by $1.1 billion, reflecting net outflowsof $1.3 billion, principally in our Corporate Debt and Convertible Securities asset classes. For evergreen funds, AUM decreased by $0.8billion, reflecting $0.5 billion of distributions from certain restructured evergreen funds and net outflows of $0.2 billion from the two activeevergreen funds.Management fee-generating AUM increased $0.8 billion, or 1.2%, from $66.2 billion as of December 31, 2010, to $67.0 billion as ofDecember 31, 2011. The increase reflected the net effect of $8.0 billion in new capital commitments, $1.0 billion in drawdowns for closed-endfunds on which management fees are based on drawn capital or NAV, $5.8 billion of declines from asset sales by closed-end funds inliquidation and $1.5 billion in net outflows across open-end and evergreen funds. Of the $8.0 billion in new capital commitments, EPF III,Opps VIIIb and ROF V accounted for $4.0 billion, $2.6 billion and $1.0 billion, respectively. Of the $5.8 billion of declines from asset sales byclosed-end funds in liquidation, Opps VIIb accounted for $3.1 billion. Management fee-generating AUM for open-end funds fell $1.1 billion,reflecting $1.3 billion of net outflows, partially offset by $0.4 billion of market-value gains. For evergreen funds, management fee-generatingAUM fell $0.3 billion, reflecting $0.1 billion of net market depreciation and $0.2 billion of net outflows from the two active evergreen funds.Incentive-creating AUM decreased $3.2 billion, or 8.1%, from $39.4 billion as of December 31, 2010, to $36.2 billion as of December31, 2011. Closed-end funds accounted for $2.5 billion of the $3.2 billion decrease, as $9.9 billion in distributions outpaced $6.9 billion indrawn capital and $0.5 billion in market-value gains. Opps VIlb accounted for $6.7 billion of the $9.9 billion in distributions, while Opps VIIIrepresented the largest single source of drawn capital, with $2.2 billion. Evergreen funds accounted for $0.7 billion of the overall decline,reflecting the activity described above in the discussion of AUM.Accrued Incentives (Fund Level) and Incentives Created (Fund Level)Accrued incentives (fund level), gross and net of incentive income compensation expense, as well as changes in accrued incentives(fund level) for the periods presented are set forth below. As of or for the Year Ended December 31, 2013 2012 2011 (in thousands)Accrued Incentives (Fund Level): Beginning balance$2,137,798 $1,686,967 $2,066,846Incentives created (fund level): Closed-end funds1,114,088 869,557 (81,216)Evergreen funds54,748 42,390 5,300Total incentives created (fund level)1,168,836 911,947 (75,916)Less: segment incentive income recognized by us(1,030,195) (461,116) (303,963)Ending balance$2,276,439 $2,137,798 $1,686,967Accrued incentives (fund level), net of associated incentive income compensationexpense$1,235,226 $1,282,194 $1,027,71186Of the accrued incentives (fund level), net of associated incentive income compensation expense, as of December 31, 2013, 2012and 2011, the portion represented by funds that were currently paying incentives as of the respective year end amounted to $494.0 million,$798.6 million and $102.9 million, respectively, with the remainder arising from funds that as of that date had not yet reached the stage oftheir cash distribution waterfall where Oaktree was entitled to receive incentives, other than tax-related distributions.As of December 31, 2013, 83% of the net accrued incentives (fund level) were in funds in their liquidation period, and 53% of theassets underlying total net accrued incentives (fund level) were Level I or Level II securities. Please see “—Critical Accounting Policies—Investments, at Fair Value—Non-publicly Traded Equity and Real Estate Investments” for a discussion of the fair value hierarchy levelestablished by GAAP.Year Ended December 31, 2013Incentives created (fund level) amounted to $1.2 billion for the year ended December 31, 2013, reflecting the 91.3% share of our year-end incentive-creating AUM that was creating incentives as of December 31, 2013 and the period's investment returns. The $1.2 billion ofincentives created (fund level) included $733.0 million from Distressed Debt funds, of which the largest was Opps VIII at $196.5 million, and$318.6 million from Control Investing funds.Year Ended December 31, 2012Incentives created (fund level) amounted to $911.9 million for the year ended December 31, 2012, reflecting the period's investmentreturns amid rising financial markets and the 75.3% share of our year-end incentive-creating AUM that was creating incentives. Of the$911.9 million, $351.1 million was attributable to Opps VIIb, $374.6 million to other closed-end Distressed Debt funds and $117.8 million toReal Estate funds.Year Ended December 31, 2011Incentives created (fund level) amounted to negative $75.9 million for the year ended December 31, 2011, reflecting the sharp declinein financial markets in the third quarter of 2011, and the 48.9% share of our year-end incentive-creating AUM that was creating incentives.The largest negative contributors were OCM European Principal Opportunities Fund II, L.P. at negative $71.4 million and Opps VIII atnegative $50.3 million. The largest single positive contributor was Opps VIIb, at $39.1 million.Uncalled Capital CommitmentsAs of December 31, 2013, 2012 and 2011, uncalled capital commitments were $13.2 billion, $11.2 billion and $11.2 billion,respectively.87Segment AnalysisOur business is comprised of one segment, our investment management segment, which consists of the investment managementservices that we provide to our clients. Management makes operating decisions and assesses the performance of our business based onfinancial and operating metrics and data that are presented without the consolidation of any funds. For a detailed reconciliation of the segmentresults of operations to our consolidated results of operations, please see “—Distributable Earnings” and “—Fee-related Earnings” below andthe “Segment Reporting” note to our consolidated financial statements included elsewhere in this annual report. The data most important toour chief operating decision maker in assessing our performance are adjusted net income, adjusted net income-OCG, distributableearnings, distributable earnings-OCG, fee-related earnings and fee-related earnings-OCG. Adjusted Net IncomeANI and adjusted net income-OCG, as well as per unit data, are set forth below: Year Ended December 31, 2013 2012 2011 (in thousands, except per unit data)Revenues: Management fees$749,901 $747,440 $724,321Incentive income1,030,195 461,116 303,963Investment income258,654 202,392 23,763Total revenues2,038,750 1,410,948 1,052,047Expenses: Compensation and benefits(365,306) (329,741) (308,115)Equity-based compensation(3,828) (318) —Incentive income compensation(436,217) (222,594) (179,234)General and administrative(117,361) (102,685) (94,655)Depreciation and amortization(7,119) (7,397) (6,583)Total expenses(929,831) (662,735) (588,587)Adjusted net income before interest and other income (expense)1,108,919 748,213 463,460Interest expense, net of interest income(28,621) (31,730) (33,867)Other income (expense), net409 767 (1,209)Adjusted net income1,080,707 717,250 428,384Adjusted net income attributable to OCGH non-controlling interest(834,966) (582,746) (363,068)Non-Operating Group other income— 6,260(1) —Non-Operating Group expenses(1,195) (553) (768)Adjusted net income-OCG before income taxes244,546 140,211 64,548Income taxes-OCG(21,433) (25,816)(1) (15,771)Adjusted net income-OCG$223,113 $114,395 $48,777Adjusted net income per Class A unit$6.38 $4.06 $2.15Weighted average number of Class A units outstanding34,979 28,170 22,677 (1)A nonrecurring adjustment in 2012 had the effect of increasing income taxes-OCG by $(7,134) and increasing non-Operating Groupother income by $6,260, for a net effect of additional after-tax OCG expense of $(874). This adjustment stemmed from reductions indeferred tax assets and the liability for amounts due to affiliates. The effective tax rate applicable to adjusted net income-OCG beforeincome taxes for the year ended December 31, 2012 was 14% without the $(7,134) nonrecurring expense and 18% with it. 88Distributable Earnings (1) Distributable earnings and distributable earnings-OCG, as well as per unit data, are set forth below: Year Ended December 31, 2013 2012 2011 (in thousands, except per unit data)Revenues: Management fees$749,901 $747,440 $724,321Incentive income1,030,195 461,116 303,963Receipts of investment income from funds (2)128,896 129,621 88,693Receipts of investment income from companies35,664 33,838 1,496Total distributable earnings revenues1,944,656 1,372,015 1,118,473Expenses: Compensation and benefits(365,306) (330,059) (308,115)Incentive income compensation(436,217) (222,594) (179,234)General and administrative(117,361) (102,685) (94,655)Depreciation and amortization(7,119) (7,397) (6,583)Total expenses(926,003) (662,735) (588,587)Other income (expense): Interest expense, net of interest income(28,621) (31,730) (33,867)Operating Group income taxes(6,175) (6,136) (6,275)Other income (expense), net409 767 (1,209)Distributable earnings984,266 672,181 488,535Distributable earnings attributable to OCGH non-controlling interest(761,370) (544,957) (414,013)Non-Operating Group expenses(1,195) (553) (768)Distributable earnings-OCG income taxes(7,684) (12,185) (10,969)Tax receivable agreement(10,422) (6,808) (3,339)Distributable earnings-OCG$203,595 $107,678 $59,446Distributable earnings per Class A unit$5.82 $3.82 $2.62Weighted average number of Class A units outstanding34,979 28,170 22,677 (1)Beginning in 2013, distributable earnings excludes non-cash equity-based compensation charges related to unit grants made after ourinitial public offering in April 2012. Those non-cash compensation charges amounted to $0.3 million for the year ended December 31,2012, and thus were considered immaterial for purposes of recasting 2012's results.(2)This adjustment characterizes a portion of the distributions received from funds as receipts of investment income or loss. In general, theincome or loss component of a fund distribution is calculated by multiplying the amount of the distribution by the ratio of ourinvestment’s undistributed income or loss to our remaining investment balance. In addition, if the distribution is made during theinvestment period, it is generally not reflected in distributable earnings until after the investment period ends.Year Ended December 31, 2013 Compared to Year Ended December 31, 2012Distributable earnings increased $312.1 million, or 46.4%, to $984.3 million for the year ended December 31, 2013, from $672.2million for the year ended December 31, 2012, on $355.5 million of higher net incentive income, partially offset by a $47.5 million decline infee-related earnings. For 2013, receipts of investment income totaled $164.6 million, including $128.9 million from fund distributions and$35.7 million from DoubleLine, as compared with total receipts in 2012 of $163.5 million, of which $129.6 million and $33.8 million wasattributable to fund distributions and DoubleLine, respectively.89Year Ended December 31, 2012 Compared to Year Ended December 31, 2011Distributable earnings increased $183.7 million, or 37.6%, to $672.2 million for the year ended December 31, 2012, from $488.5million for the year ended December 31, 2011. The increase was the net result of $113.7 million in higher net incentive income, $73.3million in higher receipts of investment income and a $7.4 million decline in fee-related earnings. For 2012, receipts of investment incometotaled $163.5 million, as compared to $90.2 million in 2011.The following table reconciles distributable earnings and ANI to net income attributable to Oaktree Capital Group, LLC: Year Ended December 31, 2013 2012 2011 (in thousands)Distributable earnings$984,266 $672,181 $488,535Investment income (1)258,654 202,392 23,763Receipts of investment income from funds (2) (128,896) (129,621) (88,693)Receipts of investment income from companies(35,664) (33,838) (1,496)Equity-based compensation (3) (3,828) — —Operating Group income taxes6,175 6,136 6,275Adjusted net income1,080,707 717,250 428,384Incentive income (4)64,460 — —Incentive income compensation (4)(46,334) — —Equity-based compensation (5)(24,613) (36,024) (948,746)Income taxes (6)(26,232) (30,858) (21,088)Non-Operating Group other income (7)— 6,260 —Non-Operating Group expenses (7)(1,195) (553) (768)OCGH non-controlling interest (7)(824,795) (548,265) 446,246Net income attributable to Oaktree Capital Group, LLC$221,998 $107,810 $(95,972) (1)This adjustment eliminates our segment investment income, which with respect to investment in funds is initially largely non-cash innature and is thus not available to fund our operations or make equity distributions.(2)This adjustment characterizes a portion of the distributions received from funds as receipts of investment income or loss. In general, theincome or loss component of a distribution from a fund is calculated by multiplying the amount of the distribution by the ratio of ourinvestment’s undistributed income or loss to our remaining investment balance. In addition, if the distribution is made during theinvestment period, it is generally not reflected in distributable earnings until after the investment period ends.(3)This adjustment adds back the effect of equity-based compensation charges related to unit grants made after our initial public offering,which is excluded from distributable earnings because it is non-cash in nature and does not impact our ability to fund our operations ormake equity distributions.(4)This adjustment adds back the effect of timing differences associated with the recognition of incentive income and incentive incomecompensation expense between adjusted net income and net income attributable to OCG. There were no adjustments attributable totiming differences for 2012 and 2011.(5)This adjustment adds back the effect of equity-based compensation charges related to unit grants made before our initial public offering,which is excluded from adjusted net income because it does not affect our financial position and from distributable earnings because it isnon-cash in nature and does not impact our ability to fund operations or make equity distributions.(6)Because adjusted net income and distributable earnings are pre-tax measures, this adjustment adds back the effect of income taxexpense.(7)Because adjusted net income and distributable earnings are calculated at the Operating Group level, this adjustment adds back the effectof items applicable to OCG, its Intermediate Holding Companies or the OCGH non-controlling interest.90The following table reconciles distributable earnings-OCG and adjusted net income-OCG to net income attributable to OaktreeCapital Group, LLC: Year Ended December 31, 2013 2012 2011 (in thousands)Distributable earnings-OCG (1)$203,595 $107,678 $59,446Investment income attributable to OCG60,000 37,293 3,607Receipts of investment income from funds attributable to OCG(29,141) (25,215) (13,542)Receipts of investment income from companies attributable to OCG(8,486) (5,891) (228)Equity-based compensation attributable to OCG (2) (904) — —Distributable earnings-OCG income taxes7,684 12,185 10,969Tax receivable agreement10,422 6,808 3,339Non-Operating Group other income— 6,260 —Income taxes of Intermediate Holding Companies(20,057) (24,723) (14,814)Adjusted net income-OCG (1)223,113 114,395 48,777Incentive income attributable to OCG (3)16,361 — —Incentive income compensation attributable to OCG (3)(11,761) — —Equity-based compensation attributable to OCG (4) (5,715) (6,585) (144,749)Net income attributable to Oaktree Capital Group, LLC$221,998 $107,810 $(95,972) (1)Distributable earnings-OCG and adjusted net income-OCG are calculated to evaluate the portion of adjusted net income anddistributable earnings attributable to Class A unitholders. These measures are net of income taxes and expenses applicable to OCG orits Intermediate Holding Companies.(2)This adjustment adds back the effect of equity-based compensation charges attributable to OCG related to unit grants made after ourinitial public offering, which is excluded from distributable earnings because it is non-cash in nature and does not impact our ability tofund our operations or make equity distributions.(3)This adjustment adds back the effect of timing differences associated with the recognition of incentive income and incentive incomecompensation expense attributable to OCG between adjusted net income-OCG and net income attributable to OCG. There were noadjustments attributable to timing differences for 2012 and 2011.(4)This adjustment adds back the effect of equity-based compensation charges attributable to OCG related to unit grants made before ourinitial public offering, which is excluded from adjusted net income because it does not affect our financial position and from distributableearnings because it is non-cash in nature and does not impact our ability to fund our operations or make equity distributions.91Fee-related Earnings (1) Fee-related earnings and fee-related earnings-OCG, as well as per unit data, are set forth below: Year Ended December 31, 2013 2012 2011 (in thousands, except per unit data)Management fees: Closed-end funds$559,426 $580,636 $555,014Open-end funds146,557 128,821 126,014Evergreen funds43,918 37,983 43,293Total management fees749,901 747,440 724,321Expenses: Compensation and benefits(365,306) (329,741) (308,115)General and administrative(117,361) (102,685) (94,655)Depreciation and amortization(7,119) (7,397) (6,583)Total expenses(489,786) (439,823) (409,353)Fee-related earnings260,115 307,617 314,968Fee-related earnings attributable to OCGH non-controlling interest(199,758) (250,273) (266,917)Non-Operating Group other income— 6,260(2) —Non-Operating Group expenses(1,196) (551) (770)Fee-related earnings-OCG before income taxes59,161 63,053 47,281Fee-related earnings-OCG income taxes(9,039) (17,407)(2) (13,884)Fee-related earnings-OCG$50,122 $45,646 $33,397Fee-related earnings per Class A unit$1.43 $1.62 $1.47Weighted average number of Class A units outstanding34,979 28,170 22,677 (1)Beginning with this reporting period, the definition of fee-related earnings has been modified to exclude non-cash equity-basedcompensation charges related to unit grants made after our initial public offering in April 2012. All prior periods have been recast toreflect this change retroactively. Those non-cash compensation charges amounted to $3.8 million, or $0.03 per Class A unit, for 2013and $0.3 million, or less than $0.01 per Class A unit, for 2012. There was no impact to 2011.(2)A nonrecurring adjustment in 2012 had the effect of increasing income taxes-OCG by $(7,134) and increasing non-Operating Groupother income by $6,260, for a net effect of additional after-tax OCG expense of $(874). This adjustment stemmed from reductions indeferred tax assets and the liability for amounts due to affiliates. The effective tax rate applicable to fee-related earnings-OCG beforeincome taxes for the year ended December 31, 2012 was 18% without the $(7,134) nonrecurring expense and 28% with it.92The following table reconciles fee-related earnings and ANI to net income (loss) attributable to Oaktree Capital Group, LLC: Year Ended December 31, 2013 2012 2011 (in thousands)Fee-related earnings (1)$260,115 $307,617 $314,968Incentive income1,030,195 461,116 303,963Incentive income compensation(436,217) (222,594) (179,234)Investment income258,654 202,392 23,763Equity-based compensation (2) (3,828) (318) —Interest expense, net of interest income(28,621) (31,730) (33,867)Other income (expense), net409 767 (1,209)Adjusted net income1,080,707 717,250 428,384Incentive income (3)64,460 — —Incentive income compensation (3)(46,334) — —Equity-based compensation (4) (24,613) (36,024) (948,746)Income taxes (5) (26,232) (30,858) (21,088)Non-Operating Group other income (6) — 6,260 —Non-Operating Group expenses (6) (1,195) (553) (768)OCGH non-controlling interest (6) (824,795) (548,265) 446,246Net income (loss) attributable to Oaktree Capital Group, LLC$221,998 $107,810 $(95,972) (1)Fee-related earnings is a component of adjusted net income and is comprised of segment management fees less segment operatingexpenses other than incentive income compensation expense.(2)This adjustment adds back the effect of equity-based compensation charges related to unit grants made after our initial public offering,which is excluded from fee-related earnings because it is non-cash in nature and does not impact our ability to fund our operations ormake equity distributions.(3)This adjustment adds back the effect of timing differences associated with the recognition of incentive income and incentive incomecompensation expense between adjusted net income and net income attributable to OCG. There were no adjustments attributable totiming differences for 2012 and 2011.(4)This adjustment adds back the effect of equity-based compensation charges related to unit grants made before our initial public offering,which is excluded from adjusted net income and fee-related earnings because it is a non-cash charge that does not affect our financialposition.(5)Because adjusted net income and fee-related earnings are pre-tax measures, this adjustment adds back the effect of income taxexpense.(6)Because adjusted net income and fee-related earnings are calculated at the Operating Group level, this adjustment adds back the effectof items applicable to OCG, its Intermediate Holding Companies or the OCGH non-controlling interest.93The following table reconciles fee-related earnings-OCG and adjusted net income-OCG to net income (loss) attributable to OaktreeCapital Group, LLC: Year Ended December 31, 2013 2012 2011 (in thousands)Fee-related earnings-OCG (1)$50,122 $45,646 $33,397Incentive income attributable to OCG231,971 88,809 46,353Incentive income compensation attributable to OCG(99,168) (43,001) (27,342)Investment income attributable to OCG60,000 37,293 3,607Equity-based compensation attributable to OCG (2) (904) (59) —Interest expense, net of interest income attributable to OCG(6,610) (5,924) (5,166)Other income (expense) attributable to OCG96 40 (186)Non-fee-related earnings income taxes attributable to OCG (3)(12,394) (8,409) (1,886)Adjusted net income-OCG (1) 223,113 114,395 48,777Incentive income attributable to OCG (4)16,361 — —Incentive income compensation attributable to OCG (4)(11,761) — —Equity-based compensation attributable to OCG (5) (5,715) (6,585) (144,749)Net income (loss) attributable to Oaktree Capital Group, LLC$221,998 $107,810 $(95,972) (1)Fee-related earnings-OCG and adjusted net income-OCG are calculated to evaluate the portion of adjusted net income and fee-relatedearnings attributable to Class A unitholders. These measures are net of income taxes and other income or expenses applicable to OCGor its Intermediate Holding Companies.(2)This adjustment adds back the effect of equity-based compensation charges attributable to OCG related to unit grants made after ourinitial public offering, which is excluded from fee-related earnings-OCG because it is non-cash in nature and does not impact our abilityto fund our operations or make equity distributions.(3)This adjustment adds back income taxes associated with segment incentive income, incentive income compensation or investmentincome (loss), which are not included in the calculation of fee-related earnings-OCG.(4)This adjustment adds back the effect of timing differences associated with the recognition of incentive income and incentive incomecompensation expense attributable to OCG between adjusted net income-OCG and net income attributable to OCG. There were noadjustments attributable to timing differences for 2012 and 2011.(5)This adjustment adds back the effect of equity-based compensation charges attributable to OCG related to unit grants made before ourinitial public offering, which is excluded from adjusted net income-OCG and fee-related earnings-OCG because it is a non-cash chargethat does not affect our financial position.94Year Ended December 31, 2013 Compared to Year Ended December 31, 2012Segment RevenuesManagement FeesA summary of management fees is set forth below: Year Ended December 31, 2013 2012 (in thousands)Management Fees: Closed-end funds$559,426 $580,636Open-end funds146,557 128,821Evergreen funds43,918 37,983Total$749,901 $747,440Management fees increased $2.5 million, or 0.3%, to $749.9 million for the year ended December 31, 2013, from $747.4 millionfor the year ended December 31, 2012, for the reasons described below.•Closed-end funds. Management fees attributable to closed-end funds decreased $21.2 million, or 3.7%, to $559.4 million forthe year ended December 31, 2013, from $580.6 million for the year ended December 31, 2012. The decrease reflected adecline of $107.2 million in lower fees from closed-end funds in liquidation, partially offset by increases of $45.9 million inmanagement fees from new capital commitments to ROF VI, $18.4 million in fees from closed-end funds for whichmanagement fees are based on drawn capital or NAV, and $23.4 million, to $38.9 million in 2013 from $15.5 million in 2012,in fees from Oaktree Mezzanine Fund III, L.P. (“Mezz III”). Of the $107.2 million decline in management fees from closed-endfunds in liquidation, Opps VIIb accounted for $49.3 million, declining from $101.9 million in 2012 to $52.6 million in 2013. The$45.9 million increase in management fees from new capital commitments to ROF VI included $9.5 million of additionalmanagement fees that were earned retroactive to the start of the fund's investment period in August 2012 (“retroactivemanagement fees”), as compared to $3.2 million of retroactive management fees from ROF V in 2012. The $18.4 million infees from closed-end funds for which management fees are based on drawn capital or NAV included $9.0 million from Opps IX,whose management fees in 2013 were assessed only on its drawn capital, which for 2013 averaged 11% of its ultimate fullmanagement fee-generating AUM. Opps IX’s investment period commenced effective January 1, 2014, at which point itsmanagement fees will be based on its full management fee-generating AUM, without any additional retroactive managementfees. The increase in fees from Mezz III resulted from the fact that a portion of its management fees is contingent on the fundachieving certain cash-flow levels. In 2013, we recognized $38.9 million in total management fees from Mezz III, including$15.6 million in contingent fees that had been deferred prior to 2013, and all of the $23.3 million contingent fees currently due. In 2012, we recognized total management fees from Mezz III of $15.5 million, which included contingent fees currently due andnone of the contingent fees deferred prior to 2012.•Open-end funds. Management fees attributable to open-end funds increased $17.8 million, or 13.8%, to $146.6 million forthe year ended December 31, 2013, from $128.8 million for the year ended December 31, 2012, reflecting higher managementfees across most of our open-end strategies as a result of market-value appreciation and net inflows and, in the case ofConvertible Securities, $2.1 million in higher performance-based fees.•Evergreen funds. Management fees attributable to evergreen funds increased $5.9 million, or 15.5%, to $43.9 million for theyear ended December 31, 2013, from $38.0 million for the year ended December 31, 2012, principally reflecting drawdownsand $3.8 million in performance-based fees from the Strategic Credit strategy. The period-end weighted average annualmanagement fee rate for evergreen funds decreased to 1.63% as of December 31, 2013, from 1.82% as of December 31, 2012,largely as a result of the Strategic Credit strategy, for which the non-performance-based management fee rate is lower than theblended rate for other evergreen funds.95Incentive IncomeA summary of incentive income is set forth below: Year Ended December 31, 2013 2012 (in thousands)Incentive Income: Closed-end funds$972,199 $419,530Evergreen funds57,996 41,586Total$1,030,195 $461,116Incentive income increased $569.1 million, or 123.4%, to $1.0 billion for the year ended December 31, 2013, from $461.1 millionfor the year ended December 31, 2012. The current year included incentive distributions of $662.3 million from Opps VIIb, $141.9 millionfrom Principal Investing and Real Estate funds, $52.8 million from VOF, and $44.1 million from other Distressed Debt funds, as well as$122.7 million of tax-related incentive distributions. The prior year included $200.7 million of tax-related incentive distributions, mostlyattributable to Opps VIIb, and incentive distributions of $198.5 million from Principal Investing and Real Estate funds, and $40.5 millionfrom VOF.Investment IncomeA summary of investment income is set forth below: Year Ended December 31, 2013 2012 (in thousands)Income (loss) from investments in funds: Oaktree funds: Distressed Debt$91,793 $106,810Control Investing48,003 28,322Real Estate14,199 19,927Corporate Debt19,928 14,670Listed Equities36,615 8,307Convertible Securities163 141Non-Oaktree funds(369) 1,526Income from investments in companies48,322 22,689Total investment income$258,654 $202,392Investment income increased $56.3 million, or 27.8%, to $258.7 million for the year ended December 31, 2013, from $202.4million for the year ended December 31, 2012. Higher average returns across our Oaktree fund investments accounted for $32.5 million ofthe increase, with the remaining $23.8 million reflecting $17.1 million of market-value gains on our fourth-quarter 2013 minority equityinvestment in Cinda and $8.5 million of higher income from DoubleLine, which increased to $31.4 million in 2013 from $22.9 million in2012. Our investment income from DoubleLine in 2013 and 2012 included $3.4 million and $8.0 million, respectively, for our share of itsperformance fees.Segment ExpensesCompensation and BenefitsCompensation and benefits increased $35.6 million, or 10.8%, to $365.3 million for the year ended December 31, 2013, from$329.7 million for the year ended December 31, 2012, primarily reflecting growth in headcount of 11% between December 31, 2012 andDecember 31, 2013. Additionally, 2013 and 2012 included $6.5 million and $2.3 million, respectively, of phantom equity plan expense,stemming from each period's equity distributions and change in the Class A unit trading price.96Equity-based CompensationEquity-based compensation increased to $3.8 million for the year ended December 31, 2013, from $0.3 million for the year endedDecember 31, 2012. The increase reflected non-cash amortization expense associated with the first full-year's vesting of restricted unit grantsmade to employees and directors subsequent to our initial public offering in April 2012.Incentive Income CompensationIncentive income compensation expense increased $213.6 million, or 96.0%, to $436.2 million for the year ended December 31,2013, from $222.6 million for the year ended December 31, 2012. The percentage increase was smaller than the 123.4% increase inincentive income, principally because in 2011 we acquired and expensed a small portion of certain investment professionals' carried interestin Opps VIIb. If that transaction had not occurred, total incentive income compensation expense would have been higher by an estimated$50.1 million for 2013 and unchanged for 2012.General and AdministrativeGeneral and administrative expenses increased $14.7 million, or 14.3%, to $117.4 million for the year ended December 31, 2013,from $102.7 million for the year ended December 31, 2012. Excluding the impact of foreign currency-related items, as well as $2.1 million innonrecurring costs associated with our initial public offering that were incurred in 2012, general and administrative expenses increased$20.8 million, or 21.3%, to $118.3 million in 2013 from $97.5 million in 2012. The increase reflected $1.8 million of placement feesincurred in 2013 for ROF VI, as compared with none in 2012, as well as higher professional fees and other costs associated with corporategrowth, enhancements to our operational infrastructure and being a public company.Interest Expense, NetInterest expense, net, decreased $3.1 million, or 9.8%, to $28.6 million for the year ended December 31, 2013, from $31.7 millionfor the year ended December 31, 2012, reflecting scheduled repayments of certain long-term debt and a lower weighted-average interest rateon outstanding borrowings resulting from both Oaktree's improved credit rating and refinancing our credit facility in the fourth quarter of 2012.Other Income (Expense), NetOther income (expense), net decreased to income of $0.4 million for the year ended December 31, 2013, from income of $0.8million for the year ended December 31, 2012. The 2013 income reflected the net results of operating the portfolio of properties received aspart of an arbitration award in 2010 related to a former principal and portfolio manager of our real estate group who left in 2005. The 2012income primarily reflected the net effect of $3.1 million of income attributable to the sale of a real estate property and other proceeds receivedas part of the 2010 arbitration award, a $0.8 million write-off of unamortized debt issuance costs associated with the refinancing of our creditfacility and a $1.7 million write-off of certain receivables related to a former corporate investment.Adjusted Net IncomeAdjusted net income increased $363.4 million, or 50.7%, to $1.1 billion for the year ended December 31, 2013, from $717.3 millionfor the year ended December 31, 2012, as a result of increases of $355.5 million in incentive income, net of incentive income compensationexpense and $56.3 million in investment income, partially offset by a $47.5 million decline in fee-related earnings.Income Taxes-OCGIncome taxes decreased $4.4 million, or 17.1%, to $21.4 million for the year ended December 31, 2013, from $25.8 million for theyear ended December 31, 2012. This expense declined, despite an increase in adjusted net income-OCG before income taxes, as a result ofa year-over-year decrease in the effective tax rate and the fact that 2012 included a nonrecurring tax expense of $7.1 million stemming from aremeasurement of deferred tax assets. The effective tax rate applied against adjusted net income-OCG before income taxes for 2013 was9%. The effective tax rate applied against adjusted net income-OCG before income taxes for 2012 was 14%, without the $7.1 millionnonrecurring tax expense, and 18% with it.97Year Ended December 31, 2012 Compared to Year Ended December 31, 2011Segment RevenuesManagement FeesA summary of management fees is set forth below: Year Ended December 31, 2012 2011 (in thousands)Management Fees: Closed-end funds$580,636 $555,014Open-end funds128,821 126,014Evergreen funds37,983 43,293Total$747,440 $724,321Management fees increased $23.1 million, or 3.2%, to $747.4 million for the year ended December 31, 2012, from $724.3 millionfor the year ended December 31, 2011, for the reasons described below.•Closed-end funds. Management fees attributable to closed-end funds increased $25.6 million, or 4.6%, to $580.6 million forthe year ended December 31, 2012, from $555.0 million for the year ended December 31, 2011. The increase reflected$94.6 million of new capital commitments to closed-end funds in their investment periods, partially offset by a decline of $67.8million attributable to closed-end funds in their liquidation periods. Investment-period funds included EPF III, Opps VIIIb andROF V, each of which commenced in 2011, and ROF VI, which started in August 2012. Of the $67.8 million decline inmanagement fees arising from asset sales by funds in liquidation, Opps VIIb accounted for $40.7 million, declining from$142.6 million in 2011 to $101.9 million in 2012.•Open-end funds. Management fees attributable to open-end funds increased $2.8 million, or 2.2%, to $128.8 million for theyear ended December 31, 2012, from $126.0 million for the year ended December 31, 2011. The increase was primarilyattributable to $10.0 million in higher management fees from the U.S. High Yield Bond and U.S. Senior Loan strategies,reflecting market-value appreciation and net inflows. Partially offsetting these increases were $7.3 million of lower managementfees from the Convertible Securities and European High Yield Bond strategies, reflecting net outflows and, in the case ofConvertible Securities, lower performance-based fees.•Evergreen funds. Management fees attributable to evergreen funds decreased $5.3 million, or 12.2%, to $38.0 million for theyear ended December 31, 2012, from $43.3 million for the year ended December 31, 2011. The decrease reflected net outflowsfrom EMAR and lower weighted average management fee rates for VOF due to the creation of a separate class of interests in thefourth quarter of 2011 that provided a reduction from 2.00% to 1.50% in the annual management fee rate for capitalcommitments of three years. The period-end weighted average annual management fee rate for evergreen funds increased to1.82% as of December 31, 2012, from 1.79% as of December 31, 2011, reflecting the decline in AUM for EMAR, whosemanagement fee rate is lower than VOF’s blended rate.Incentive IncomeA summary of incentive income is set forth below: Year Ended December 31, 2012 2011 (in thousands)Incentive Income: Closed-end funds$419,530 $295,505Evergreen funds41,586 8,458Total$461,116 $303,963Incentive income increased $157.1 million, or 51.7%, to $461.1 million for the year ended December 31, 2012, from $304.0 millionfor the year ended December 31, 2011. Tax-related incentive distributions accounted for98$200.7 million and $202.2 million of total incentive income in 2012 and 2011, respectively, of which $193.6 million and $127.6 million,respectively, was attributable to Opps VIIb. Non-tax-related incentive distributions grew from $101.8 million in 2011 to $260.4 million in2012, principally reflecting realizations and related distributions in five different Real Estate and Control Investing funds. Annual incentivefees from evergreen funds in 2012 included $40.5 million from VOF, up from $2.3 million in 2011, primarily as a result of improvedperformance, and $1.1 million from EMAR, which had ended 2011 below its high-water mark. In 2011, there was $6.1 million of incentivefees from restructured funds, compared to none in 2012.Investment IncomeA summary of investment income is set forth below: Year Ended December 31, 2012 2011 (in thousands)Income (loss) from investments in funds: Oaktree funds: Distressed Debt$106,810 $11,857Control Investing28,322 2,226Real Estate19,927 3,417Corporate Debt14,670 2,507Listed Equities8,307 (2,962)Convertible Securities141 (78)Non-Oaktree funds1,526 5,006Income from investments in companies22,689 1,790Total investment income$202,392 $23,763Investment income increased $178.6 million, or 750.4%, to $202.4 million for the year ended December 31, 2012, from $23.8million for the year ended December 31, 2011. The increase was attributable to $157.7 million in higher income from our fund investments,with the remaining $20.9 million primarily reflecting higher income from DoubleLine, which increased to $22.9 million in 2012 from $1.8million in 2011. Our investment income from DoubleLine in 2012 and 2011 included $8.0 million and $2.2 million, respectively, for ourshare of its performance fees.Segment ExpensesCompensation and BenefitsCompensation and benefits increased $21.6 million, or 7.0%, to $329.7 million for the year ended December 31, 2012, from$308.1 million for the year ended December 31, 2011, primarily reflecting growth in headcount of 11% between December 31, 2011 andDecember 31, 2012. Additionally, 2012 and 2011 included $2.3 million and $7.3 million, respectively, of phantom equity plan expense,stemming from each period's equity distributions and change in the Class A unit trading price.Equity-based CompensationEquity-based compensation was $0.3 million for the year ended December 31, 2012, as compared to zero for the year endedDecember 31, 2011, reflecting non-cash amortization expense associated with the initial partial-year vesting of restricted unit grants made toemployees and directors subsequent to our initial public offering in April 2012.Incentive Income CompensationIncentive income compensation expense increased $43.4 million, or 24.2%, to $222.6 million for the year ended December 31,2012, from $179.2 million for the year ended December 31, 2011. Included in 2011’s incentive income compensation expense was a chargeof $55.5 million, reflecting the acquisition of a small portion of certain investment professionals’ carried interest in Opps VIIb. Excluding theimpact of that transaction, incentive income compensation expense increased $98.9 million, or 80.0%, principally as a result of the 51.7%increase in incentive income, as well as differences in the compensation percentages among the funds that generated such segmentincentive income for the two periods.99General and AdministrativeGeneral and administrative expenses increased $8.0 million, or 8.4%, to $102.7 million for the year ended December 31, 2012,from $94.7 million for the year ended December 31, 2011. Excluding the impact of foreign currency-related items, as well as $2.1 millionand $7.4 million in nonrecurring costs associated with our initial public offering in 2012 and 2011, respectively, general and administrativeexpenses increased $10.1 million, or 11.6%, to $97.5 million from $87.4 million. The increase reflected higher costs associated withcorporate growth, enhancements to our operational infrastructure and being a public company.Interest Expense, NetInterest expense, net, decreased $2.2 million, or 6.5%, to $31.7 million for the year ended December 31, 2012, from $33.9 millionfor the year ended December 31, 2011, reflecting scheduled repayments of certain long-term debt.Other Income (Expense), NetOther income (expense), net increased to income of $0.8 million for the year ended December 31, 2012, from an expense of $1.2million for the year ended December 31, 2011. The income of $0.8 million in 2012 reflected the net effect of $3.1 million of incomeattributable to the sale of a real estate property and other proceeds received as part of the 2010 arbitration award, a $0.8 million write-off ofunamortized debt issuance costs associated with the refinancing of our credit facility and a $1.7 million write-off of certain receivables relatedto a former corporate investment. The expense of $1.2 million in 2011 reflected an adjustment to the carrying value of one of the propertiesreceived as part of the 2010 arbitration award.Adjusted Net IncomeAdjusted net income increased $288.9 million, or 67.4%, to $717.3 million for the year ended December 31, 2012, from $428.4million for the year ended December 31, 2011, reflecting increases of $178.6 million in investment income and $113.7 million in netincentive income, partially offset by a $7.4 million decline in fee-related earnings.Income Taxes-OCGIncome taxes increased $10.0 million, or 63.3%, to $25.8 million for the year ended December 31, 2012, from $15.8 million for theyear ended December 31, 2011. The increase in taxes was due to an increase in adjusted net income-OCG before income taxes in 2012compared to 2011, as well as a nonrecurring tax expense of $7.1 million in 2012 stemming from a remeasurement of our deferred taxassets. The effective tax rate applied against adjusted net income-OCG before income taxes was 14% for 2012, without the $7.1 millionnonrecurring tax expense, and 18% with it. The effective tax rate applied against adjusted net income-OCG before income taxes was 24% for2011.100Segment Statement of Financial ConditionSince our founding, we have managed our financial condition in a way that builds our capital base and maintains sufficient liquidityfor known and anticipated uses of cash. We have issued debt largely to help fund our corporate investments in funds and companies. Webelieve that debt maturities should generally match the anticipated sources of repayments. Because the largest share of our corporateinvestments in funds has been in closed-end funds with 10- to 11-year terms, we have often issued debt with 10-year terms, as augmentedby bank term loans with shorter multi-year terms to capitalize on historically low interest rates. Our segment assets do not include accruedincentives (fund level), an off-balance sheet metric, nor do they reflect the fair-market value of our 20% interest in DoubleLine, which iscarried at cost, as adjusted under the equity method of accounting. For a reconciliation of segment total assets to our consolidated total assets,please see the “Segment Reporting” note to our consolidated financial statements included elsewhere in this annual report. The following table presents our segment statement of financial condition: As of December 31, 2013 2012 (in thousands)Assets: Cash and cash-equivalents$390,721 $458,191U.S. Treasury and government-agency securities676,600 370,614Management fees receivable38,940 27,351Incentive income receivable19,623 82,182Corporate investments1,197,173 1,115,952Deferred tax assets278,885 159,171Other assets215,185 146,087Total assets$2,817,127 $2,359,548Liabilities and Capital: Liabilities: Accounts payable and accrued expenses$304,427 $214,311Due to affiliates242,986 136,165Debt obligations579,464 615,179Total liabilities1,126,877 965,655Capital: OCGH non-controlling interest in consolidated subsidiaries1,220,647 1,087,491Unitholders’ capital attributable to Oaktree Capital Group, LLC469,603 306,402Total capital1,690,250 1,393,893Total liabilities and capital$2,817,127 $2,359,548101Corporate InvestmentsA summary of corporate investments is set forth below: As of December 31, 2013 2012 (in thousands)Investments in funds: Oaktree funds: Distressed Debt$438,144 $475,476Control Investing246,058 264,186Real Estate112,981 107,408Corporate Debt125,560 115,250Listed Equities129,697 69,222Convertible Securities1,554 1,392Non-Oaktree funds51,580 53,591Investments in companies91,599 29,427Total corporate investments$1,197,173 $1,115,952Liquidity and Capital ResourcesWe have managed our historical liquidity and capital requirements by focusing on our cash flows before the consolidation of ourfunds and the effect of normal changes in short-term assets and liabilities. Our primary cash flow activities on an unconsolidated basisinvolve (a) generating cash flow from operations, (b) generating income from investment activities, including strategic investments in certainthird parties, (c) funding capital commitments that we have made to our funds, (d) funding our growth initiatives, (e) distributing cash flow toour owners and (f) borrowings, interest payments and repayments under credit agreements, our senior notes and other borrowingarrangements. As of December 31, 2013, we had $1.1 billion of cash and investments in U.S. Treasury and government-agency securitiesand $579.5 million in outstanding debt. Additionally, we have a $500 million revolving credit facility available to us, which was undrawn as ofDecember 31, 2013. Oaktree’s investments in funds and companies had a carrying value of $1.2 billion as of December 31, 2013.Ongoing sources of cash, or distributable earnings, include (a) management fees, which are collected monthly or quarterly, (b)incentive income, which is volatile and largely unpredictable as to amount and timing, and (c) distributions related to our corporateinvestments in funds and companies. As of December 31, 2013, corporate investments of $1.2 billion included unrealized investmentincome of $398.1 million. We primarily use cash flow from operations and distributions from our corporate investments to pay compensationand related expenses, general and administrative expenses, income taxes, debt service, capital expenditures and distributions. This samecash flow, together with proceeds from equity and debt issuances, is also used to fund corporate investments, fixed assets and other capitalitems. If cash flow from operations were insufficient to fund distributions, we expect that we would suspend paying such distributions.We use distributable earnings, which is derived from our segment results, to assess performance and assist in the determination ofequity distributions from the Operating Group. Our quarterly distributable earnings may be affected by potential seasonal factors that may, inturn, affect the level of the cash distributions applicable to a particular quarter. For example, we generally receive tax-related incentivedistributions from certain closed-end funds in the first quarter of the year, which if received generate distributable earnings in that period. Thedistribution amount for any given period is likely to vary materially due to this and other factors.Tax distributions are not required in respect of the Class A units and are only required from the Oaktree Operating Group entities ifand to the extent that there is sufficient cash available for distribution. Accordingly, if there were insufficient cash flow from operations to fundquarterly or tax distributions by the Oaktree Operating Group entities, we expect that these distributions would not be made. We believe thatwe have sufficient access to cash from existing balances, our operations and the revolving credit facility described below to fund ouroperations and commitments.102Consolidated Cash FlowsThe accompanying consolidated statements of cash flows include our consolidated funds, despite the fact that we have only aminority economic interest in those funds. The assets of consolidated funds, on a gross basis, are substantially larger than the assets of ourbusiness and, accordingly, have a substantial effect on the cash flows reflected in our consolidated statements of cash flows. The primarycash flow activities of our consolidated funds involve:•raising capital from third-party investors;•using the capital provided by us and third-party investors to fund investments and operating expenses;•financing certain investments with indebtedness;•generating cash flows through the realization of investments, as well as the collection of interest and dividend income; and•distributing net cash flows to fund investors and to us.Because our consolidated funds are treated as investment companies for accounting purposes, their investing cash flow amountsare included in our cash flows from operations. We believe that each of the consolidated funds and Oaktree has sufficient access to cash tofund their respective operations in the near term.Significant amounts from our consolidated statements of cash flows for the years ended December 31, 2013, 2012 and 2011 arediscussed below.Operating ActivitiesNet cash provided by operating activities was $5.4 billion, $7.0 billion and $1.1 billion for 2013, 2012 and 2011, respectively. Theseamounts included (a) net proceeds from maturities and sales of investments by the consolidated funds of $4.1 billion and $5.8 billion in 2013and 2012, respectively, and net purchases of investments by the consolidated funds of $0.7 billion in 2011; (b) net realized gains onconsolidated funds' investments of $3.5 billion, $4.6 billion and $1.7 billion in 2013, 2012 and 2011, respectively; and (c) changes inunrealized appreciation on consolidated funds' investments of $1.8 billion and $0.8 billion in 2013 and 2012, respectively, and unrealizedlosses of $3.1 billion in 2011.Investing ActivitiesInvesting activities used net cash of $417.6 million in 2013, provided $55.0 million in 2012 and used $262.5 million in 2011.Investing activities were primarily driven by net U.S. Treasury and other U.S. government-agency investment activities and net corporateinvestments in non-consolidated funds and companies. Net U.S. Treasury and government-agency investment activities resulted in netpurchases of $306.0 million in 2013, net proceeds of $11.1 million in 2012 and net purchases of $211.1 million in 2011. Corporateinvestments in funds and companies of $59.7 million, $16.6 million and $53.5 million in 2013, 2012 and 2011, respectively, consisted ofthe following: Year Ended December 31, 2013 2012 2011 (in millions)Investments in funds $170.4 $187.2 $311.6Investments in consolidated funds eliminated in consolidation (162.3) (173.9) (260.7)Investments in unconsolidated companies 51.6 3.3 2.6Corporate investments in funds and companies $59.7 $16.6 $53.5103Distributions from corporate investments in funds and companies of $2.6 million, $63.7 million and $12.5 million in 2013, 2012 and 2011,respectively, consisted of the following: Year Ended December 31, 2013 2012 2011 (in millions)Cash distributions received from investments in funds $357.4 $418.1 $285.9Cash distributions received from consolidated funds eliminated inconsolidation (354.8) (371.4) (274.9)Cash distributions received from unconsolidated companies — 17.0 1.5Distributions from corporate investments in funds and companies $2.6 $63.7 $12.5Purchases of fixed assets were $4.6 million, $5.2 million and $10.4 million in 2013, 2012 and 2011, respectively. Additionally, 2013included a $50.0 million deposit related to the TRS agreement. For additional information regarding the TRS agreement, please see note 5 toour consolidated financial statements included elsewhere in this annual report.Financing ActivitiesNet cash used in financing activities was $5.3 billion, $7.6 billion and $3.7 billion for 2013, 2012 and 2011, respectively. Financingactivities included (a) net distributions from consolidated funds to non-controlling interests of $6.3 billion, $7.6 billion and $3.4 billion in2013, 2012 and 2011, respectively; (b) net borrowings on revolving credit facilities of the consolidated funds of $1.8 billion and $438.2 millionin 2013 and 2012, respectively, and net repayments of $41.1 million in 2011; (c) distributions to unitholders of $781.9 million, $424.1million and $469.7 million in 2013, 2012 and 2011, respectively; (d) repayment of debt obligations of $35.7 million, $287.0 million and$51.4 million in 2013, 2012 and 2011, respectively; and (e) purchases of Oaktree Operating Group units, net of issuance of Class A units, of$0.8 million, $0.7 million and $39.6 million in 2013, 2012 and 2011, respectively. In 2012, there was $250.0 million in proceeds from theissuance of debt, $2.4 million for the payment of debt issuance costs and $14.1 million used to repurchase our Class A units. In 2011, therewas $300.0 million in proceeds from the issuance of debt and $2.6 million for the payment of debt issuance costs.Future Sources and Uses of LiquidityWe expect to continue to make distributions to our Class A unitholders pursuant to our distribution policy. In the future, we may alsoissue additional units or debt and other equity securities with the objective of increasing our available capital. In addition, we may, from timeto time, repurchase our Class A units in open market or privately negotiated purchases or otherwise or redeem our Class A units pursuant tothe terms of our operating agreement.In addition to our ongoing sources of cash that include management fees, incentive income and fund distributions related to ourcorporate investments in funds and companies, we also have access to liquidity through our debt financings and credit agreements. Webelieve that the sources of liquidity described below will be sufficient to fund our working capital requirements for at least the next twelvemonths.In December 2012, our subsidiaries Oaktree Capital Management, L.P., Oaktree Capital II, L.P., Oaktree AIF Investments, L.P. andOaktree Capital I, L.P. entered into a credit agreement with a bank syndicate for senior unsecured credit facilities (the “Credit Facility”),consisting of a $250 million fully-funded term loan (the “Term Loan”) and a $500 million revolving credit facility (the “Revolver”), each with a5-year term. The Credit Facility replaced the amortizing term loan, which had a principal balance of $247.5 million, and the undrawn revolverunder the Company's prior credit facility. The Term Loan amortizes quarterly in an amount equal to 2.5% of the original principal amount of$250 million, with principal payments due in March, June, September and December of each year, and the remaining principal payableupon maturity in December 2017. Borrowings under the Credit Facility generally bear interest at a spread to either LIBOR or an alternativebase rate. Based on the current credit ratings of Oaktree Capital Management, L.P., the interest rate on borrowings is LIBOR plus 1.00% perannum and the commitment fee on the unused portions of the Revolver is 0.125% per annum. Utilizing interest-rate swaps, the bulk of thefirst four years of the Term Loan’s annual interest rate is fixed at 2.60%, based on our current credit ratings. The Credit Facility containscustomary financial covenants and restrictions, including ones regarding a maximum leverage ratio of 3.0-to-1.0, minimum fixed chargecoverage ratio of 2.5-to-1.0 and minimum required levels of assets under management and net worth (as defined in the credit agreement) of$50 billion and $600104million, respectively. As of December 31, 2013, we were in compliance with each of these covenants and were able to draw the full amountavailable under the Revolver without violating any financial covenants.In January 2011, our subsidiaries Oaktree Capital Management, L.P., Oaktree Capital II, L.P., Oaktree AIF Investments, L.P. andOaktree Capital I, L.P. entered into a credit facility with a bank syndicate, consisting of a $300 million fully-funded five-year term loan and a$250 million three-year revolving credit facility. We were required to make quarterly principal payments of $7.5 million in respect of the termloan in March, June, September and December, with a final payment of $150 million, constituting the remainder of the term loan, due onJanuary 7, 2016. This credit facility was terminated and replaced by the Credit Facility in December 2012, with proceeds from the Term Loanused to pay off the $247.5 million outstanding balance under this credit facility.In November 2009, our subsidiary Oaktree Capital Management, L.P. issued $250 million in aggregate principal amount of seniornotes due December 2, 2019 (the “2019 Notes”). The indenture governing the 2019 Notes contains customary financial covenants andrestrictions that, among other things, limit Oaktree Capital Management, L.P. and the guarantors' ability, subject to certain exceptions, toincur indebtedness secured by liens on voting stock or profit-participating equity interests of their subsidiaries or merge, consolidate or sell,transfer or lease assets. The 2019 Notes do not contain financial maintenance covenants.In addition to the 2019 Notes, as of December 31, 2013, we had three other series of senior notes outstanding, with an aggregateremaining principal balance of $110.7 million. These notes have aggregate principal repayments due of $10.7 million in June 2014 and $100million in 2016. Note purchase agreements underlying these senior notes contain customary financial covenants and restrictions that,among other things, restrict our subsidiaries from incurring additional indebtedness and our subsidiaries and us from merging,consolidating, transferring, leasing or selling assets, incurring certain liens and making restricted payments, subject to certain exceptions. Inaddition, the agreements contain the following financial covenants: (a) a maximum consolidated leverage ratio covenant that requires us andour subsidiaries to maintain a ratio, calculated by dividing consolidated total debt (for us and our subsidiaries) by Consolidated EBITDA (asdefined in each agreement) for the last four fiscal quarters, below 3.0-to-1.0, (b) a maximum interest coverage ratio covenant that requires usand our subsidiaries to maintain a ratio, calculated by dividing Consolidated EBITDA for the last four fiscal quarters by consolidated interestexpense (for us and our subsidiaries), below 4.0-to-1.0, and (c) an assets under management covenant that requires us to maintain assetsunder management above $20 billion ($15 billion under one agreement). As of December 31, 2013, we were in compliance with each ofthese covenants.We are required to maintain minimum net capital balances for regulatory purposes in the U.S. and certain non-U.S. jurisdictions inwhich we do business, which are met in part by retaining cash and cash-equivalents in those jurisdictions. As a result, we may be restrictedin our ability to transfer cash between different jurisdictions. As of December 31, 2013, we were required to maintain approximately $16.0million in net capital at these subsidiaries and were in compliance with all regulatory minimum net capital requirements as of such date.Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc. have entered into a tax receivable agreement with OCGH unitholders that, asamended, provides for the payment to an exchanging or selling OCGH unitholder of 85% of the amount of cash savings, if any, in U.S.federal, state, local and foreign income taxes that they actually realize (or are deemed to realize in the case of an early termination paymentby Oaktree Holdings, Inc. or Oaktree AIF Holdings, Inc., or a change of control) as a result of an increase in the tax basis of the assets ownedby the Oaktree Operating Group. These payments are expected to occur over the period ending in approximately 2029 with respect to the2007 Private Offering and in 2034 with respect to the our initial public offering.On May 29, 2013, we issued and sold 8,050,000 Class A units in a public offering at a price to the public of $53.50 per Class A unit(the “May 2013 Offering”), resulting in $419.9 million in net proceeds to us, after deducting underwriting discounts and commissions. Wedid not retain any proceeds from the sale of Class A units in the May 2013 Offering, and we used the net proceeds from the May 2013Offering to acquire interests in our business from certain Oaktree directors, employees and other investors, including certain Principals andother members of our senior management.The exchange of OCGH units in connection with the May 2013 Offering resulted in increases in the tax basis of the tangible andintangible assets of the Oaktree Operating Group. As a result, we recorded a deferred tax asset of $134.4 million and an associated liability of$114.2 million for payments to OCGH unitholders under the tax receivable agreement, which together increased capital by $20.2 million.These payments are expected to occur over the period ending approximately in 2035.105For the years ended December 31, 2013, 2012 and 2011, $6.3 million, $3.3 million and $3.1 million were paid under the taxreceivable agreement.Contractual Obligations, Commitments and ContingenciesIn the ordinary course of business, we and our consolidated funds enter into contractual arrangements that may require future cashpayments. The following table sets forth information relating to anticipated future cash payments as of December 31, 2013: 2014 2015-2016 2017-2018 Thereafter Total (in thousands)Oaktree and Operating Subsidiaries: Operating lease obligations (1)$15,591 $22,708 $9,362 $8,545 $56,206Debt obligations payable35,714 150,000 143,750 250,000 579,464Interest obligations on debt (2)26,214 54,466 39,130 16,875 136,685Tax receivable agreement10,423 26,389 28,442 175,657 240,911Commitments to Oaktree and third-partyfunds (3)327,254 — — — 327,254Sub-total415,196 253,563 220,684 451,077 1,340,520Consolidated funds: Debt obligations payable2,297,181 — — — 2,297,181Interest obligations on debt11,486 — — — 11,486Commitments to fund investments (4)1,307,880 — — — 1,307,880Total$4,031,743 $253,563 $220,684 $451,077 $4,957,067 (1)We lease our office space under agreements that expire periodically through 2022. The table includes only guaranteed minimum leasepayments for these leases and does not project other lease-related payments. These leases are classified as operating leases forfinancial statement purposes and as such are not recorded as liabilities in our consolidated financial statements.(2)Interest obligations include accrued interest on outstanding indebtedness. Where applicable, current interest rates are applied toestimate future interest obligations on variable-rate debt.(3)These obligations represent commitments by us to provide general partner capital funding to our funds and limited partner capitalfunding to funds managed by unaffiliated third parties. These amounts are generally due on demand and are therefore presented in the2014 column. Capital commitments are expected to be called over the next five years.(4)These obligations represent commitments by our funds to make investments or fund uncalled contingent commitments. Theseamounts are generally due either on demand or by various contractual dates that vary by investment and are therefore presented in the2014 column. Capital commitments are expected to be called over a period of several years.In some of our service contracts or management agreements, we have agreed to indemnify third-party service providers or separateaccount clients under certain circumstances. The terms of the indemnities vary from contract to contract and the amount of indemnificationliability, if any, cannot be determined and has neither been included in the above table nor recorded in our consolidated financial statementsas of December 31, 2013.As of December 31, 2013, none of the incentive income we had recognized was subject to clawback by the funds. 106General Partner and Other Capital CommitmentsAs of December 31, 2013, our capital commitments to our funds (as general partner or otherwise) and certain non-Oaktreeinvestment vehicles for which a portion of the commitment remained undrawn were as follows: CapitalCommitments UndrawnCommitments asofDecember 31, 2013 (in millions) Distressed Debt: Oaktree Opportunities Fund VIIIb, L.P. $67 $3 Oaktree Opportunities Fund IX, L.P. 100 65 Emerging Market Opportunities 25 23 Control Investments: Oaktree Principal Fund V, L.P. 71 17 Oaktree Principal Fund VI, L.P. 20 20 Oaktree European Principal Fund III, L.P. 100 65 Oaktree Power Opportunities Fund III, L.P. 27 16 Special account 5 2 Real Estate: Oaktree Real Estate Opportunities Fund V, L.P. 32 3 Oaktree Real Estate Opportunities Fund VI, L.P. 67 40 Real Estate Debt 20 16 Corporate Debt: Oaktree Mezzanine Fund III, L.P. 40 7 Strategic Credit 8 2 European Private Debt 16 15 South Grand MM CLO I, LLC 19 19 Special account 1 1 Non-Oaktree 42 13 Total $660 $327 Off-Balance Sheet ArrangementsWe lease a corporate airplane for business purposes. We are responsible for any unreimbursed costs and expenses incurred inconnection with the operation, crew, registration, maintenance, service and repair of the airplane. An unaffiliated third party manages theairplane and coordinates its use. The lease contains a buyout provision that would allow us to purchase the plane at the lease’s terminationin February 2015. If we do not exercise that option, we would be responsible for any shortfall, up to $10.0 million, in sale proceeds the lessormight incur below an expected sale value of $12.3 million.Critical Accounting PoliciesWe prepare our consolidated financial statements in accordance with GAAP. In applying many of these accounting principles, weneed to make assumptions, estimates or judgments that affect the reported amounts of assets, liabilities, revenues and expenses in ourconsolidated financial statements. We base our estimates and judgments on historical experience and other assumptions that we believe arereasonable under the circumstances. These assumptions, estimates or judgments, however, are both subjective and subject to change, andactual results may differ from our assumptions and estimates. If actual amounts are ultimately different from our estimates, the revisions areincluded in our results of operations for the period in which the actual amounts become known. We believe the following critical accountingpolicies could potentially produce materially different results if we were to change underlying assumptions, estimates or judgments. Pleasesee the notes to our consolidated financial statements for a summary of our significant accounting policies.107Principles of ConsolidationWe consolidate all entities that we control through a majority voting interest or otherwise, including our funds in which we, as thegeneral partner, are presumed to have control. Although we have a small single-digit equity percentage in the funds, the third-party limitedpartners do not have the right to dissolve the partnerships or substantive kick-out rights or participating rights that would overcome thepresumption of control by the general partner. Accordingly, we consolidate the limited partnerships and record non-controlling interests toreflect the economic interests of the unaffiliated limited partners. Because limited partners in consolidated funds have been grantedredemption rights exercisable in certain circumstances, amounts relating to third-party interests in consolidated funds are presented as non-controlling redeemable interests in consolidated funds within the consolidated statements of financial condition, outside of the permanentcapital section. All intercompany transactions and balances have been eliminated in consolidation.Our consolidated financial statements reflect the assets, liabilities, investment income, expenses and cash flows of the consolidatedfunds on a gross basis, and the majority of the economic interests in those funds, which are held by third-party investors, are attributed tonon-controlling redeemable interests in consolidated entities. Substantially all of the management fees and incentive income earned by usfrom those funds are eliminated in consolidation. However, because the eliminated amounts are earned from, and funded by, non-controllinginterests, our attributable share of the net income from those funds is increased by the amounts eliminated. Accordingly, the elimination inconsolidation of such amounts has no effect on net income (loss) attributable to us.Corporate investments consist of investments in funds and companies that we do not control. Investments where we are deemed toexert significant influence are accounted for using the equity method of accounting and reflect our ownership interest in each such fund orcompany. For investments where we are not deemed to exert significant influence or control, the fair value option of accounting has beenelected. Investment income represents our pro-rata share of income or loss from these funds or companies or the change in fair value of theinvestment, as applicable. Our general partnership interests are substantially illiquid. While investments in funds reflect the fund’s holdingsat fair value, our investment in DoubleLine is not adjusted to reflect the fair value of the underlying company. The fair value of the underlyinginvestments in funds is based on our assessment, which takes into account expected cash flows, earnings multiples and/or comparisons tosimilar market transactions, among other factors. Valuation adjustments reflecting consideration of credit quality, concentration risk, salesrestrictions and other liquidity factors are integral to valuing these instruments.Revenue RecognitionManagement FeesWe recognize management fees over the period in which the investment advisory services are performed. The contractual terms ofmanagement fees generally vary by fund structure. Management fees for closed-end funds are paid quarterly and typically calculated as afixed percentage, in the range of 1.25% to 1.75% per year, of total committed capital or drawn capital during the investment period of the fund(up through the final close, these fees are generally earned on a retroactive basis to the fund’s first closing date). During the liquidationperiod, the management fee remains the same fixed percentage, applied against the lesser of the total funded capital and the cost basis ofassets remaining in the fund. Our right to receive management fees typically ends after 10 or 11 years from the initial closing date or the startof the investment period even if certain assets remain to be liquidated. For open-end and evergreen funds, the management fee is generallybased on the NAV of the fund. Our open-end funds pay management fees of approximately 0.50% of NAV per year, paid monthly or quarterly.Our evergreen funds pay a management fee quarterly, ranging from 1.0% to 2.0% per year, based on a fixed percentage of the NAV of therelevant fund. In the case of certain open-end and evergreen fund accounts, in lieu of charging the regular management fee applicable to therelevant strategy, we have the potential to earn performance-based fees, typically in reference to a relevant benchmark index or hurdle rate.Fee calculations that consider committed capital, drawn capital or cost basis are each objective in nature and therefore do not requirethe use of significant estimates or assumptions. Management fees related to our open-end and evergreen funds, by contrast, are typicallybased on NAV as defined in the respective partnership or investment management agreement. NAV is typically based on the current fairvalue of the underlying investments within a fund. Estimates and assumptions are made when determining the fair value of the underlyinginvestments within a fund and could vary depending on the valuation methodology used. Please see “—Investments, at Fair Value” belowfor further discussion related to significant estimates and assumptions used in determining the fair value of the underlying investments inour funds.108We do not recognize incremental income for transaction, advisory, director and other ancillary fees received in connection withproviding services to portfolio companies or potential investees of the funds; rather, any such fees are offset against management fees earnedfrom the applicable fund. These fees are typically recognized as revenue in the period in which they are offset against the quarterlymanagement fee that would otherwise be paid by the applicable fund, which is generally the quarter following the period in which the fees arereceived. Inasmuch as these fees are not paid directly by the consolidated funds, such fees do not eliminate in consolidation; accordingly,there is no impact to our net income (loss) as the amounts are included in income attributable to OCG.Incentive IncomeIn calculating incentive income, we have elected to adopt Method 1 from GAAP guidance applicable to accounting for revenues basedon a formula. Under this method, we recognize incentive income when amounts are fixed or determinable, all related contingencies havebeen removed and collection is reasonably assured, which generally occurs in the quarter of, or the quarter immediately prior to, thedistribution of the income by the fund to us. For purposes of adjusted net income, incentive income is recognized when the underlying funddistributions are known or knowable as of the respective quarter end, which may be later than the time at which the same incentive incomeis recognized under Method 1.Other Income (Loss)Other income (loss) consists primarily of the unrealized and realized gains (losses) on consolidated funds’ investments (includingthe impact of foreign currency on non-dollar denominated investments), dividend and interest income received from investments, andinterest expense incurred in connection with investment activities. Unrealized gains or losses result from changes in the fair value of ourfunds’ investments during a period as well as the reversal of unrealized gains or losses in connection with realization events. Upondisposition of an investment, previously recognized unrealized gains or losses are reversed and a corresponding realized gain or loss isrecognized in the current period. While this reversal generally does not significantly impact the net amounts of gains and losses that werecognize from investment activities, it affects the manner in which we classify our gains and losses for reporting purposes.Investments, at Fair ValueGAAP establishes a hierarchal disclosure framework that prioritizes the inputs used in measuring financial instruments at fair valueinto three levels based on their market observability. Market price observability is affected by a number of factors, such as the type ofinstrument and the characteristics specific to the instrument. Financial instruments with readily available quoted prices from an active marketor for which fair value can be measured based on actively quoted prices generally will have a higher degree of market price observability anda lesser degree of judgment inherent in measuring fair value.Non-publicly traded debt and equity securities and other securities or instruments for which reliable market quotations are notavailable are valued by management using valuation methodologies applied on a consistent basis. These securities may initially be valued atthe acquisition price as the best indicator of fair value. We review the significant unobservable inputs, valuations of comparable investmentsand other similar transactions for investments valued at acquisition price to determine whether another valuation methodology should beutilized. Subsequent valuations will depend on facts and circumstances known as of the valuation date and the application of valuationmethodologies further described below under “—Non-publicly Traded Equity and Real Estate Investments.” The fair value may also be basedon a pending transaction expected to close after the valuation date.Exchange-traded InvestmentsSecurities listed on one or more national securities exchanges are valued at their last reported sales price on the date of valuation. Ifno sale occurred on the valuation date, the security is valued at the mean of the last “bid” and “ask” prices on the valuation date. Securitiesthat are not readily marketable due to legal restrictions that may limit or restrict transferability are generally valued at a discount from quotedmarket prices. The discount would reflect the amount market participants would require due to the risk relating to the inability to access apublic market for the security for the specified period and would vary depending on the nature and duration of the restriction and the perceivedrisk and volatility of the underlying securities. Securities with longer duration restrictions or higher volatility are generally valued at a higherdiscount. Such discounts are generally estimated based on put option models or analysis of market studies. Instances where we haveapplied discounts to quoted prices of restricted listed securities have been infrequent. The impact of such discounts is not material to ourconsolidated statements of financial condition and results of operations for all periods presented.109Credit-oriented Investments (including Real Estate Loan Portfolios)Investments in corporate and government debt which are not listed or admitted to trading on any securities exchange are valued atthe mean of the last bid and ask prices on the valuation date based on quotations supplied by recognized quotation services or by reputablebroker-dealers.The market-yield approach is considered in the valuation of non-publicly traded debt securities, utilizing expected future cash flowsand discounted using estimated current market rates. Discounted cash flow calculations may be adjusted to reflect current market conditionsand/or the perceived credit risk of the borrower. Consideration is also given to a borrower’s ability to meet principal and interest obligations;this may include an evaluation of collateral and/or the underlying value of the borrower utilizing techniques described below under “—Non-publicly Traded Equity and Real Estate Investments.”Non-publicly Traded Equity and Real Estate InvestmentsThe fair values of equity and real estate investments are determined using a cost, market or income approach. The cost approach isbased on the current cost of reproducing a real estate investment less deterioration and functional and economic obsolescence. The marketapproach utilizes valuations of comparable public companies and transactions, and generally seeks to establish the enterprise value of theportfolio company or investment property using a market-multiple methodology. This approach takes into account the financial measure(such as EBITDA, adjusted EBITDA, free cash flow, net operating income, net income, book value or net asset value) believed to be mostrelevant for the given company or investment property. Consideration may also be given to factors such as acquisition price of the security orinvestment property, historical and projected operational and financial results for the portfolio company, the strengths and weaknesses of theportfolio company or investment property relative to its comparable companies or properties, industry trends, general economic and marketconditions, and others deemed relevant. The income approach is typically a discounted cash-flow method that incorporates expected timingand level of cash flows. It incorporates assumptions in determining growth rates, income and expense projections, discount and capitalizationrates, capital structure, terminal values, and other factors. The applicability and weight assigned to market and income approaches aredetermined based on the availability of reliable projections and comparable companies and transactions.The valuation of securities may be impacted by expectations of investors’ receptiveness to a public offering of the securities, the sizeof the holding of the securities and any associated control, information with respect to transactions or offers for the securities (including thetransaction pursuant to which the investment was made and the period of time elapsed from the date of the investment to the valuation date)and applicable restrictions on the transferability of the securities. These valuation methodologies involve a significant degree of management judgment. Accordingly, valuations by us do notnecessarily represent the amounts that may eventually be realized from sales or other dispositions of investments. Fair values may differfrom the values that would have been used had a ready market for the investment existed, and the differences could be material to thefinancial statements.Financial assets and liabilities measured and reported at fair value are classified as follows:•Level I – Quoted unadjusted prices for identical instruments in active markets to which we have access at the date ofmeasurement. The types of investments in Level I include exchange-traded equities, debt and derivatives with quoted prices.•Level II – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in marketsthat are not active; and model-derived valuations in which all significant inputs are directly or indirectly observable. Level IIinputs include interest rates, yield curves, volatilities, prepayment risks, loss severities, credit risks and default rates. Thetypes of investments in Level II generally include corporate bonds and loans, government and agency securities, less liquidand restricted equity investments, over-the-counter traded derivatives, and other investments where the fair value is based onobservable inputs.•Level III – Valuations for which one or more significant inputs are unobservable. These inputs reflect our assessment of theassumptions that market participants use to value the investment based on the best available information. Level III inputsinclude prices of quoted securities in markets for which there are few transactions, less public information exists or prices varyamong brokered market makers. The types of investments in Level III include non-publicly traded equity, debt, real estate andderivatives.110In some instances, an instrument may fall into multiple levels of the fair-value hierarchy. In such instances, the instrument's levelwithin the fair-value hierarchy is based on the lowest of the three levels (with Level III being the lowest) that is significant to the valuemeasurement. Our assessment of the significance of an input requires judgment and considers factors specific to the instrument. Weaccount for the transfer of assets into or out of each fair-value hierarchy level as of the beginning of the reporting period.In the absence of observable market prices, we value Level III investments using valuation methodologies applied on a consistentbasis. The quarterly valuation process for Level III investments begins with each portfolio company, property or security being valued by theinvestment or valuation teams. The valuations are then reviewed and approved by the valuation team and the valuation committee of eachinvestment strategy, which consists of senior members of the investment team. All Level III investment values are ultimately approved bythe valuation committees and designated investment professionals, as well as the valuation officer, who is independent of the investmentteams and reports directly to our Managing Principal. For certain investments, the valuation process also includes a review by independentvaluation parties, at least annually, to determine whether the fair values determined by management are reasonable. Results of thevaluation process are evaluated each quarter, including an assessment of whether the underlying calculations should be adjusted orrecalibrated. In connection with this process, we evaluate changes in fair-value measurements from period to period for reasonableness,considering items such as industry trends, general economic and market conditions, and factors specific to the investment.Certain Level III assets are valued using prices obtained from brokers or pricing vendors. We obtain an average of one to two brokerquotes. We seek to obtain at least one quote directly from a broker making a market for the asset and one price from a pricing vendor for thesubject or similar securities. These investments are classified as Level III because the quoted prices may be indicative in nature for securitiesthat are in an inactive market, may be for similar securities, or may require adjustment for investment-specific factors or restrictions.Generally, we do not adjust any of the prices received from these sources, and all prices are reviewed by us. We evaluate the prices obtainedfrom brokers or pricing vendors based on available market information, including trading activity of the subject or similar securities, or byperforming a comparable security analysis to ensure that fair values are reasonably estimated. We also perform back-testing of valuationinformation obtained from brokers and pricing vendors against actual prices received in transactions. In addition to on-going monitoring andback-testing, we perform due diligence procedures over pricing vendors to understand their methodology and controls to support their use inthe valuation process.The table below summarizes the valuation of investments and other financial instruments, by fund type and fair-value hierarchylevels, for each period presented in our consolidated statements of financial condition (in thousands): As of December 31, 2013Level I Level II Level III TotalClosed-end funds$3,780,782 $7,489,381 $20,746,453 $32,016,616Open-end funds166,664 4,914,628 3,647 5,084,939Evergreen funds718,997 1,180,397 715,745 2,615,139Total$4,666,443 $13,584,406 $21,465,845 $39,716,694As of December 31, 2012 Closed-end funds$2,710,883 $9,371,995 $19,509,888 $31,592,766Open-end funds32,714 4,773,838 19,002 4,825,554Evergreen funds497,158 902,531 379,000 1,778,689Total$3,240,755 $15,048,364 $19,907,890 $38,197,009111Hedging and Other DerivativesWe enter into derivative instruments as part of our overall risk management strategy or to facilitate our investment managementactivities. Risks associated with fluctuations in interest rates and foreign currency exchange rates in the normal course of business areaddressed as part of our overall risk management strategy that may result in the use of derivative instruments to economically hedge orreduce these exposures. To mitigate the risk associated with fluctuations in interest rates, we may enter into interest-rate swaps to manageall or a portion of the interest-rate risk associated with our variable-rate borrowings. Our corporate investments in funds include investmentsdenominated in currencies other than the U.S. dollar, which is Oaktree's functional currency and, consequently, are subject to fluctuations inforeign currency exchange rates. We also receive management fees from certain funds and pay expenses in currencies other than the U.S.dollar. To manage the risks associated with foreign currency exchange gains and losses generated by the remeasurement of our corporateinvestments, management fees, and expenses denominated in non-functional currencies, we may enter into currency option and forwardcontracts. As a result of the use of these or other derivative contracts, we are exposed to the risk that counterparties will fail to fulfill theircontractual obligations. We attempt to mitigate this counterparty risk by entering into derivative contracts only with major financial institutionsthat have investment-grade ratings. Counterparty credit risk is evaluated in determining the fair value of derivative instruments.We recognize all derivatives as assets or liabilities in our consolidated statements of financial condition at fair value. In connectionwith our derivative activities, we generally enter into agreements subject to enforceable master netting arrangements that allow us to offsetderivative assets and liabilities in the same currency by specific derivative type or, in the event of default by the counterparty, to offsetderivative assets and liabilities with the same counterparty. While these derivative instruments are eligible to be offset in accordance withapplicable accounting guidance, we have elected to present derivative assets and liabilities based on gross fair value in our consolidatedstatements of financial condition.When we enter into a derivative contract, we may elect to designate the derivative as a hedging instrument and apply hedgeaccounting as part of our overall risk management strategy. In other situations, when a derivative does not qualify for hedge accounting orwhen the derivative and the hedged item are both recorded in current-period earnings and thus deemed to be economic hedges, hedgeaccounting is not applied.Derivatives that are designated as hedging instruments are classified as either a hedge of (a) a recognized asset or liability (“fair-value hedge”), (b) a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability(“cash-flow hedge”), or (c) a net investment in a foreign operation. For a fair-value hedge, we record changes in the fair value of the derivativeand, to the extent that it is highly effective, changes in the fair value of the hedged asset or liability attributable to the hedged risk in current-period earnings in the same caption in the consolidated statements of operations as the hedged item. Changes in the fair value of a derivativethat is highly effective and is designated and qualifies as a cash-flow hedge, to the extent that the hedge is effective, are recorded in othercomprehensive income (loss) until earnings are affected by the variability of cash flows of the hedged transaction. Any hedge ineffectivenessis recorded in current-period earnings. Changes in the fair value of derivatives designated as hedging instruments caused by factors otherthan changes in the risk being hedged are recognized in current-period earnings. For a derivative that is not designated as a hedginginstrument (“freestanding derivative”), the Company records changes in fair value in current-period earnings.We formally document at inception the hedge relationship, including identification of the hedging instrument and the hedged item,as well as the risk management objectives, the strategy for undertaking the hedge transaction, and the evaluation of effectiveness of thehedged transaction. On a quarterly basis, we formally assess whether the derivative designated in each hedging relationship has been and isexpected to remain highly effective in offsetting changes in the estimated fair value or cash flow of the hedged item. If it is determined that aderivative is not highly effective at hedging the designated exposure, hedge accounting is discontinued and the balance remaining in othercomprehensive income is released to earnings.Equity-based CompensationEquity-based compensation is calculated based on the fair value of a unit at the time of grant, adjusted annually or more frequently,as necessary, for actual forfeitures to reflect expense only for those units that ultimately vest. We utilize a contemporaneous valuation reportwhich incorporates both market comparables for restricted stock liquidity discounts and multi-period put-based quantitative methods indetermining the fair value of OCGH units. Before our initial public offering, fair value was typically determined using the latest availableclosing price of our Class A units on the GSTrUE OTC market, discounted for a lack of marketability. Subsequent to our initial publicoffering, fair value is determined using the closing price of our Class A units on the NYSE, discounted for a112lack of marketability where applicable. Equity-based awards that do not require future service (i.e., awards vested at grant) are expensedimmediately. Equity-based awards that require future service are recognized on a straight-line basis over the requisite service period.Incentive Income CompensationIncentive income compensation expense primarily includes compensation directly related to segment incentive income, whichgenerally consists of percentage interests (sometimes referred to as “points”) that we grant to our investment professionals associated withthe particular fund that generated the segment incentive income, and secondarily includes compensation directly related to investmentincome. We have an obligation to pay a fixed percentage of the incentive income earned from a particular fund, including income fromconsolidated funds that is eliminated in consolidation, to specified investment professionals responsible for the management of the fund.Amounts payable pursuant to these arrangements are recorded as compensation expense when they have become probable and reasonablyestimable. Our determination of the point at which it becomes probable and reasonably estimable that incentive income compensationexpense should be recorded is based on our assessment of numerous factors, particularly those related to the profitability, realizations,distribution status, investment profile and commitments or contingencies of the individual funds that may give rise to incentive income.Incentive income compensation is expensed no later than the period in which the underlying income is recognized. Payment of incentiveincome compensation generally occurs in the same period the related income is received or in the next period. Participation in incentiveincome generated by our funds is subject to forfeiture upon departure and to vesting provisions (generally over a period of five years), in eachcase, under certain circumstances set forth in the applicable governing documents. These provisions are generally only applicable toincentive income compensation that has not yet been recognized as an expense by us or paid to the participant.Recent Accounting DevelopmentsPlease see note 2 to our consolidated financial statements included elsewhere in this annual report for information regarding recentaccounting developments.Item 7A. Quantitative and Qualitative Disclosures About Market RiskIn the normal course of business, we are exposed to a broad range of risks inherent in the financial markets in which we participate,including price risk, interest-rate risk, access to and cost of financing risk, liquidity risk, counterparty risk and foreign exchange-rate risk.Potentially negative effects of these risks may be mitigated to a certain extent by those aspects of our investment approach, investmentstrategies, fundraising practices or other business activities that are designed to benefit, either in relative or absolute terms, from periods ofeconomic weakness, tighter credit or financial market dislocations.Our predominant exposure to market risk is related to our role as general partner or investment adviser to our funds and thesensitivities to movements in the fair value of their investments on management fees, incentive income and investment income. The fairvalue of the financial assets and liabilities of our funds may fluctuate in response to changes in, among many factors, the value of securities,foreign exchange, commodities and interest rates.Price RiskImpact on Net Change in Unrealized Appreciation on Consolidated Funds’ InvestmentsAs of December 31, 2013, we had investments at fair value of $39.9 billion related to our consolidated funds. We estimate that a10% decline in market values would result in a decrease in unrealized appreciation on the consolidated funds’ investments of $4.0 billion.Inasmuch as this effect would be attributable to non-controlling interests, net income attributable to Oaktree Capital Group, LLC would beunaffected.Impact on Segment Management FeesManagement fees are generally assessed in the case of (a) our open-end funds and evergreen funds, based on NAV; and (b) ourclosed-end funds, based on committed capital or drawn capital during the investment period and, during the liquidation period, based on thelesser of (i) the total funded committed capital and (ii) the cost basis of assets remaining in the fund. Management fees are affected by short-term changes in market values to the extent they are based on NAV, in which case the effect is prospective. We estimate that for the yearended December 31, 2013, an incremental 10% decline in market values of the investments held in our funds would have caused anapproximate $25.1 million decrease in management fees. These estimated effects are without regard to a number of factors that would beexpected to increase or decrease the magnitude of the change to degrees that are not readily quantifiable, such as the use of leverage facilitiesin certain of our funds or the timing of fund flows.113Impact on Segment Incentive IncomeIncentive income is recognized only when it is known or knowable, which in the case of (a) our closed-end funds generally occursonly after all contributed capital and an annual preferred return on that capital (typically 8%) have been distributed to the fund’s investors and(b) our active evergreen funds occurs generally as of December 31, based on the increase in the fund’s NAV during the year, subject to anyhigh-water marks. In the case of closed-end funds, the link between short-term fluctuations in market values and a particular period’sincentive income is indirect at best and, in certain cases, non-existent. Thus, the effect on incentive income of an incremental 10% decline inmarket values for the year ended December 31, 2013 is not readily quantifiable. Over a number of years, a decline in market values wouldbe expected to cause a decline in incentive income. In the case of evergreen funds, we estimate the incentive income of $58.0 millionrecognized during the year ended December 31, 2013 would have been reduced by $31.4 million had fair values declined by an incremental10% during the year.Impact on Segment Investment IncomeInvestment income or loss arises from our pro rata share of income or loss from our investments, generally in our capacity asgeneral partner in our funds and third-party managed funds or companies. This income is directly affected by changes in market risk factors.We estimate that for the year ended December 31, 2013, an incremental 10% decline in fair values of the investments held in our funds andother holdings would have reduced our investment income by $142.4 million. These estimated effects are without regard to a number offactors that would be expected to increase or decrease the magnitude of the change to degrees that are not readily quantifiable, such as theuse of leverage facilities in certain of our funds, the timing of fund flows or the timing of new investments or realizations.Exchange-rate RiskOur business is affected by movements in the rate of exchange between the U.S. dollar and non-U.S. dollar currencies in the case of(a) management fees that vary based on the NAV of our funds that hold investments denominated in non-U.S. dollar currencies,(b) management fees received in non-U.S. dollar currencies, (c) operating expenses for our foreign offices that are denominated in non-U.S.dollar currencies and (d) cash balances we hold in non-U.S. dollar currencies. We manage our exposure to exchange-rate risks through ourregular operating activities and, when appropriate, through the use of derivative financial instruments.We estimate that for the year ended December 31, 2013, a 10% decline in the average rate of exchange of the U.S. dollar would havehad the following approximate effects on our segment results:•our management fees (relating to (a) and (b) above) would have increased by $10.6 million;•our operating expenses would have increased by $14.8 million;•OCGH interest in net income of consolidated subsidiaries would have decreased by $3.4 million; and•our income tax expense would have decreased by $0.3 million.These movements would have decreased our net income attributable to OCG by $0.5 million.At any point in time, some investments held in the closed-end and evergreen funds are carried in non-U.S. dollar currencies on anunhedged basis. Changes in currency rates could affect incentive income, incentives created (fund level) and investment income for closed-end and evergreen funds, although the degree of impact is not readily determinable because of the many indirect effects that currencymovements may have on individual investments.Credit RiskWe are party to agreements providing for various financial services and transactions that contain an element of risk in the event thatthe counterparties are unable to meet the terms of such agreements. In such agreements, we depend on the respective counterparty to makepayment or otherwise perform. We generally endeavor to minimize our risk of exposure by limiting to reputable financial institutions thecounterparties with which we enter into financial transactions. In other circumstances, availability of financing from financial institutions maybe uncertain due to market events, and we may not be able to access these financing markets.114Interest-rate RiskAs of December 31, 2013, Oaktree and its operating subsidiaries had $579.5 million in debt obligations consisting of four seniornotes issuances and a funded term loan. Each senior notes issuance accrues interest at a fixed rate. The funded term loan accrues interest ata variable rate; however, we entered into interest-rate swaps that effectively converted the bulk of the term loan interest rate to a fixed ratethrough 2016. As a result, we estimate that there would be no material impact to interest expense of Oaktree and its operating subsidiariesresulting from a 100-basis point increase in interest rates. Of the $1.1 billion of aggregate segment cash and cash-equivalents andinvestments in U.S. Treasury and government agency securities as of December 31, 2013, we estimate Oaktree and its operatingsubsidiaries would generate an additional $11.0 million in interest income on an annualized basis as a result of a 100-basis point increase ininterest rates.Our consolidated funds have debt obligations that include revolving credit agreements and certain other investment financingarrangements. These debt obligations accrue interest at variable rates, and changes in these rates would affect the amount of interestpayments that we would have to make, impacting future earnings and cash flows. As of December 31, 2013, $2.3 billion was outstandingunder these credit facilities. We estimate that interest expense relating to variable rates would increase on an annual basis by $23.0 millionin the event interest rates were to increase by 100 basis points.As credit-oriented investors, we are also subject to interest-rate risk through the securities we hold in our consolidated funds. A 100-basis point increase in interest rates would be expected to negatively affect prices of securities that accrue interest income at fixed rates andtherefore negatively impact net change in unrealized appreciation (depreciation) on consolidated funds’ investments. The actual impact isdependent on the average duration of such holdings. Conversely, securities that accrue interest at variable rates would be expected to benefitfrom a 100-basis point increase in interest rates because these securities would generate higher levels of current income and thereforepositively impact interest and dividend income. Inasmuch as these effects are attributable to non-controlling interests, net income attributableto OCG would be unaffected. In cases where our funds pay management fees based on NAV, we would expect our segment managementfees to experience a change in direction and magnitude corresponding to that experienced by the underlying portfolios.115Item 8. Financial Statements and Supplementary DataINDEX TO FINANCIAL STATEMENTSAudited Consolidated Financial Statements:PageReport of Independent Registered Public Accounting Firm117Consolidated Statements of Financial Condition as of December 31, 2013 and 2012 118Consolidated Statements of Operations for the Years Ended December 31, 2013, 2012 and 2011119Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2013, 2012 and 2011120Consolidated Statements of Cash Flows for the Years Ended December 31, 2013, 2012 and 2011 121Consolidated Statements of Changes in Unitholders' Capital for the Years Ended December 31, 2013, 2012 and 2011123Notes to Consolidated Financial Statements 124116Report of Independent Registered Public Accounting FirmTo the Board of Directors and Unitholders ofOaktree Capital Group, LLCIn our opinion, the accompanying consolidated statements of financial condition and the related consolidated statements of operations,comprehensive income (loss), cash flows and changes in unitholders’ capital present fairly, in all material respects, the financial position ofOaktree Capital Group, LLC and its subsidiaries (the “Company”) at December 31, 2013 and December 31, 2012, and the results of theiroperations and their cash flows for each of the three years in the period ended December 31, 2013 in conformity with accounting principlesgenerally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internalcontrol over financial reporting as of December 31, 2013, based on criteria established in Internal Control - Integrated Framework 1992issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsiblefor these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting.Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting basedon our audit which was an integrated audit in 2013. We conducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assuranceabout whether the financial statements are free of material misstatement and whether effective internal control over financial reporting wasmaintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made bymanagement, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting includedobtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing andevaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing suchother procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accountingprinciples. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance ofrecords that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) providereasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generallyaccepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations ofmanagement and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, orthat the degree of compliance with the policies or procedures may deteriorate./s/ PricewaterhouseCoopers LLPLos Angeles, CaliforniaFebruary 28, 2014117Oaktree Capital Group, LLCConsolidated Statements of Financial Condition($ in thousands) As of December 31, 2013 2012Assets Cash and cash-equivalents$390,721 $458,191U.S. Treasury and government-agency securities676,600 370,614Corporate investments (includes $67,596 and $0 measured at fair value as of December 31, 2013 and2012, respectively)169,927 98,950Due from affiliates47,774 44,589Deferred tax assets278,885 159,171Other assets208,929 127,244Assets of consolidated funds: Cash and cash-equivalents2,246,944 2,470,335Investments, at fair value39,911,888 38,372,626Dividends and interest receivable159,215 177,746Due from brokers283,764 405,143Receivable for securities sold324,213 501,199Derivative assets, at fair value94,937 107,560Other assets469,457 576,630Total assets$45,263,254 $43,869,998Liabilities and Unitholders’ Capital Liabilities: Accrued compensation expense$278,655 $118,921Accounts payable, other accrued expenses and other liabilities79,999 95,390Due to affiliates242,986 136,165Debt obligations579,464 615,179Liabilities of consolidated funds: Accounts payable, accrued expenses and other liabilities29,213 104,744Payables for securities purchased697,705 629,627Securities sold short, at fair value140,251 126,530Derivative liabilities, at fair value149,880 156,647Distributions payable224,711 330,446Borrowings under credit facilities2,297,181 491,625Total liabilities4,720,045 2,805,274Commitments and contingencies (Note 12) Non-controlling redeemable interests in consolidated funds38,834,831 39,670,831Unitholders’ capital: Class A units, no par value, unlimited units authorized, 38,472,506 and 30,180,933 units issued andoutstanding as of December 31, 2013 and 2012, respectively— —Class B units, no par value, unlimited units authorized, 112,584,211 and 120,267,503 units issuedand outstanding as of December 31, 2013 and 2012, respectively— —Paid-in capital590,236 645,053Accumulated deficit(114,905) (336,903)Accumulated other comprehensive loss(1,122) (1,748)Class A unitholders’ capital474,209 306,402OCGH non-controlling interest in consolidated subsidiaries1,234,169 1,087,491Total unitholders’ capital1,708,378 1,393,893Total liabilities and unitholders’ capital$45,263,254 $43,869,998Please see accompanying notes to consolidated financial statements.118Oaktree Capital Group, LLCConsolidated Statements of Operations(in thousands, except per unit amounts) Year Ended December 31, 2013 2012 2011Revenues: Management fees$192,605 $134,568 $140,715Incentive income2,317 10,415 15,055Total revenues194,922 144,983 155,770Expenses: Compensation and benefits(365,696) (330,018) (308,194)Equity-based compensation(28,441) (36,342) (948,746)Incentive income compensation(482,551) (222,594) (179,234)Total compensation and benefits expense(876,688) (588,954) (1,436,174)General and administrative(114,404) (101,417) (97,034)Depreciation and amortization(7,119) (7,397) (6,583)Consolidated fund expenses(108,851) (92,835) (105,073)Total expenses(1,107,062) (790,603) (1,644,864)Other income (loss): Interest expense(61,160) (45,773) (50,943)Interest and dividend income1,806,361 1,966,317 2,565,630Net realized gain on consolidated funds’ investments3,503,998 4,560,782 1,744,135Net change in unrealized appreciation (depreciation) on consolidated funds’investments1,843,469 835,160 (3,064,676)Investment income56,027 25,382 8,600Other income (expense), net409 7,027 (1,209)Total other income7,149,104 7,348,895 1,201,537Income (loss) before income taxes6,236,964 6,703,275 (287,557)Income taxes(26,232) (30,858) (21,088)Net income (loss)6,210,732 6,672,417 (308,645)Less: Net income attributable to non-controlling redeemable interests in consolidated funds(5,163,939) (6,016,342) (233,573)Net (income) loss attributable to OCGH non-controlling interest in consolidatedsubsidiaries(824,795) (548,265) 446,246Net income (loss) attributable to Oaktree Capital Group, LLC$221,998 $107,810 $(95,972)Net income (loss) per unit (basic and diluted): Net income (loss) per Class A unit (1)$6.35 $3.83 $(4.23)Weighted average number of Class A units outstanding34,979 28,170 22,677 (1)All references to Class A units in these financial statements give effect to the conversion of previously outstanding 13 Class C units intoClass A units on a one-for-one basis in April 2012.Please see accompanying notes to consolidated financial statements.119Oaktree Capital Group, LLCConsolidated Statements of Comprehensive Income (Loss)(in thousands)Year Ended December 31, 2013 Oaktree CapitalGroup, LLC OCGH Non-ControllingInterest inConsolidatedSubsidiaries Non-ControllingRedeemableInterests inConsolidatedFunds TotalNet income$221,998 $824,795 $5,163,939 $6,210,732Other comprehensive income (loss), net of tax: Foreign currency translation adjustments(198) (1,348) — (1,546)Unrealized gain on interest-rate swap designated as cash-flow hedge824 2,908 — 3,732Other comprehensive income, net of tax626 1,560 — 2,186Total comprehensive income222,624 826,355 5,163,939 6,212,918Less: Comprehensive income attributable to non-controlling interests— (826,355) (5,163,939) (5,990,294)Comprehensive income attributable to Oaktree Capital Group, LLC$222,624 $— $— $222,624Year Ended December 31, 2012 Net income$107,810 $548,265 $6,016,342 $6,672,417Other comprehensive income (loss), net of tax: Foreign currency translation adjustments205 988 — 1,193Unrealized loss on interest-rate swap designated as cash-flow hedge(69) (264) — (333)Other comprehensive income, net of tax136 724 — 860Total comprehensive income107,946 548,989 6,016,342 6,673,277Less: Comprehensive income attributable to non-controlling interests— (548,989) (6,016,342) (6,565,331)Comprehensive income attributable to Oaktree Capital Group, LLC$107,946 $— $— $107,946Year Ended December 31, 2011 Net income (loss)$(95,972) $(446,246) $233,573 $(308,645)Other comprehensive loss, net of tax: Foreign currency translation adjustments(112) (601) — (713)Unrealized loss on interest-rate swap designated as cash-flow hedge(1,400) (7,768) — (9,168)Other comprehensive loss, net of tax(1,512) (8,369) — (9,881)Total comprehensive income (loss)(97,484) (454,615) 233,573 (318,526)Less: Comprehensive (income) loss attributable to non-controllinginterests— 454,615 (233,573) 221,042Comprehensive loss attributable to Oaktree Capital Group, LLC$(97,484) $— $— $(97,484)Please see accompanying notes to consolidated financial statements.120Oaktree Capital Group, LLCConsolidated Statements of Cash Flows(in thousands) Year Ended December 31, 2013 2012 2011Cash flows from operating activities: Net income (loss)$6,210,732 $6,672,417 $(308,645)Adjustments to reconcile net income (loss) to net cash provided by operatingactivities: Investment income(56,027) (25,382) (8,600)Depreciation and amortization7,119 7,397 6,583Equity-based compensation28,441 36,342 948,746Loss related to arbitration award settlement— — 1,800Net realized and unrealized (gains) losses from consolidated funds'investments(5,347,467) (5,395,942) 1,320,541Amortization of original issue and market discount of consolidated funds'investments(70,006) (119,922) (118,363)Income distributions from corporate investments in companies37,706 — —Cash flows due to changes in operating assets and liabilities: (Increase) decrease in other assets109,720 (454,325) (33,911)Increase in net due from affiliates(8,638) (21,952) (14,980)Increase (decrease) in accounts payable, other accrued expenses and otherliabilities65,312 45,077 (5,653)Cash flows due to changes in operating assets and liabilities of consolidated funds: (Increase) decrease in dividends and interest receivable18,531 90,416 (39,624)Decrease in due from brokers121,379 498,542 88,418(Increase) decrease in receivables for securities sold176,986 (441,521) 96,925Increase (decrease) in payables for securities purchased68,031 230,913 (81,545)Purchases of securities(18,277,324) (15,266,419) (15,000,195)Proceeds from maturities and sales of securities22,351,522 21,101,717 14,278,113Net cash provided by operating activities5,436,017 6,957,358 1,129,610Cash flows from investing activities: Purchases of U.S. Treasury and government-agency securities(702,456) (258,922) (306,133)Proceeds from maturities and sales of U.S. Treasury and government-agencysecurities396,470 270,005 95,000Corporate investments in funds and companies(59,682) (16,635) (53,488)Distributions from corporate investments in funds and companies2,643 63,704 12,461Purchases of fixed assets(4,609) (5,218) (10,383)Other(50,000) 2,113 —Net cash provided by (used in) investing activities(417,634) 55,047 (262,543)(continued)Please see accompanying notes to consolidated financial statements.121Oaktree Capital Group, LLCConsolidated Statements of Cash Flows - (Continued)(in thousands) Year Ended December 31, 2013 2012 2011Cash flows from financing activities: Proceeds from issuance of debt obligations$— $250,000 $300,000Payment of debt issuance costs— (2,351) (2,611)Repayments of debt obligations(35,715) (286,964) (51,429)Proceeds from issuance of Class A units, net419,908 322,260 —Purchase of OCGH units(420,741) (322,935) (39,623)Repurchase and cancellation of Class A units— (14,132) —Distributions to Class A unitholders(160,296) (66,789) (53,063)Distributions to OCGH unitholders(621,613) (357,278) (416,677)Cash flows from financing activities of consolidated funds: Contributions from non-controlling interests6,507,188 6,441,090 8,305,880Distributions to non-controlling interests(12,783,673) (13,993,859) (11,668,028)Borrowings on credit facilities3,718,026 1,458,825 512,950Repayments on credit facilities(1,936,028) (1,020,645) (554,033)Net cash used in financing activities(5,312,944) (7,592,778) (3,666,634)Effect of exchange rate changes on cash3,700 3,240 (528)Net decrease in cash and cash-equivalents(290,861) (577,133) (2,800,095)Cash and cash-equivalents, beginning balance2,928,526 3,505,659 6,305,754Cash and cash-equivalents, ending balance$2,637,665 $2,928,526 $3,505,659* * *Supplemental cash flow disclosures: Cash paid for interest$47,360 $37,738 $34,670Cash paid for income taxes15,526 18,524 18,918Please see accompanying notes to consolidated financial statements122Oaktree Capital Group, LLCConsolidated Statements of Changes in Unitholders' Capital(in thousands) Oaktree Capital Group, LLC OCGH Non-ControllingInterest inConsolidatedSubsidiaries Total Unitholders'Capital Class AUnits Class BUnits Class CUnits Paid-inCapital AccumulatedDeficit AccumulatedOtherComprehensiveIncome (Loss) Unitholders' capital as of December 31, 201022,664 125,431 13 $549,466 $(348,741) $(372) $1,036,363 $1,236,716Activity for the year ended December 31, 2011: Issuance of Class B units— 1,523 — — — — — —Cancellation of Class B units associated with forfeitures of OCGH units— (32) — — — — — —Cancellation of Class B units— (1,075) — — — — — —Repurchase and cancellation of OCGH units— — — — — — (39,623) (39,623)Equity reallocation between controlling and non-controlling interests— — — (6,413) — — 6,413 —Capital increase related to equity-based compensation— — — 144,749 — — 803,997 948,746Contributions— — — — — — 848 848Distributions declared— — — (53,063) — — (417,525) (470,588)Net loss— — — — (95,972) — (446,246) (542,218)Foreign currency translation adjustment, net of tax— — — — — (112) (601) (713)Unrealized loss on interest-rate swap designated as cash-flow hedge, net of tax— — — — — (1,400) (7,768) (9,168)Unitholders' capital as of December 31, 201122,664 125,847 13 634,739 (444,713) (1,884) 935,858 1,124,000Activity for the year ended December 31, 2012: Issuance of Class A units7,904 — — 322,260 — — — 322,260Issuance of Class B units— 2,358 — — — — — —Cancellation of Class B units associated with forfeitures of OCGH units— (33) — — — — — —Conversion of Class C units into Class A units13 — (13) — — — — —Repurchase and cancellation of Class A units(400) — — (14,132) — — — (14,132)Cancellation of Class B units— (7,904) — — — — — —Purchase of OCGH units from OCGH unitholders— — — (322,260) — — — (322,260)Deferred tax effect resulting from the purchase of OCGH units— — — 15,490 — — — 15,490Repurchase and cancellation of OCGH units— — — — — — (675) (675)Equity reallocation between controlling and non-controlling interests— — — 69,097 — — (69,097) —Capital increase related to equity-based compensation— — — 6,648 — — 29,694 36,342Distributions declared— — — (66,789) — — (357,278) (424,067)Net income— — — — 107,810 — 548,265 656,075Foreign currency translation adjustment, net of tax— — — — — 205 988 1,193Unrealized loss on interest-rate swap designated as cash-flow hedge, net of tax— — — — — (69) (264) (333)Unitholders' capital as of December 31, 201230,181 120,268 — 645,053 (336,903) (1,748) 1,087,491 1,393,893Activity for the year ended December 31, 2013: Issuance of Class A units8,292 — — 419,908 — — — 419,908Issuance of Class B units— 673 — — — — — —Cancellation of Class B units associated with forfeitures of OCGH units— (48) — — — — — —Cancellation of Class B units— (8,309) — — — — — —Purchase of OCGH units from OCGH unitholders— — — (419,908) — — — (419,908)Deferred tax effect resulting from the purchase of OCGH units— — — 19,807 — — — 19,807Repurchase and cancellation of OCGH units— — — — — — (833) (833)Equity reallocation between controlling and non-controlling interests— — — 79,052 — — (79,052) —Capital increase related to equity-based compensation— — — 6,620 — — 21,821 28,441Distributions declared— — — (160,296) — — (621,613) (781,909)Net income— — — — 221,998 — 824,795 1,046,793Foreign currency translation adjustment, net of tax— — — — — (198) (1,348) (1,546)Unrealized gain on interest-rate swap designated as cash-flow hedge, net of tax— — — — — 824 2,908 3,732Unitholders' capital as of December 31, 201338,473 112,584 — $590,236 $(114,905) $(1,122) $1,234,169 $1,708,378Please see accompanying notes to consolidated financial statements.123Oaktree Capital Group, LLCNotes to Consolidated Financial StatementsDecember 31, 2013($ in thousands, except where noted)1. ORGANIZATION AND BASIS OF PRESENTATIONOaktree Capital Group, LLC (together with its subsidiaries, “Oaktree” or the “Company”) is a leader among global investmentmanagers specializing in alternative investments. Oaktree emphasizes an opportunistic, value-oriented and risk-controlled approach toinvestments in distressed debt, corporate debt (including high yield debt and senior loans), control investing, convertible securities, realestate and listed equities. Funds managed by Oaktree (the “Oaktree funds”) include both separate accounts and commingled funds. Thecommingled funds include open-end and closed-end limited partnerships in which the Company makes an investment and for which itserves as the general partner or, in certain limited cases, co-general partner.Reorganization of Oaktree Capital Management, LLCOaktree Capital Group, LLC was formed on April 13, 2007 for the purpose of effecting a private over-the-counter equity offering. OnMay 21, 2007, the Company sold 23,000,000 Class A units to qualified institutional buyers, as such term is defined under Rule 144A of theU.S. Securities Act of 1933 as amended, (the “2007 Private Offering”) for net proceeds of $944.2 million, of which $243.0 millionrepresented primary proceeds. Prior to the 2007 Private Offering, our business was operated through Oaktree Capital Management, LLC(“OCM” or the “Predecessor Company”), formed in April 1995, which was owned by its Principals, senior employees and certain otherinvestors. In connection with the 2007 Private Offering, OCM caused all of its business to be contributed to a group of operating entitiescollectively referred to as the Oaktree Operating Group. In addition to the contribution and assignment of OCM’s business to the OaktreeOperating Group, the owners who held interests in OCM immediately prior to the 2007 Private Offering exchanged those interests for unitsof Oaktree Capital Group Holdings, L.P. (“OCGH”) and became limited partners of OCGH (together with any subsequently admitted limitedpartners, the “OCGH unitholders”). In exchange for the assignment and contribution of OCM’s business to the Oaktree Operating Group,OCGH received limited partnership units in each Oaktree Operating Group entity. These series of transactions are collectively referred to asthe May 2007 Restructuring. An Oaktree Operating Group unit is not a legal interest but represents one limited partnership interest in eachof the Oaktree Operating Group entities. As a result of the May 2007 Restructuring and other transactions associated with the 2007 Private Offering, the Company becamethe owner of, and our Class A unitholders therefore had, a 15.86% indirect economic interest in the Oaktree Operating Group, while OCGHretained an 84.14% direct economic interest in the Oaktree Operating Group. Additionally, the Company issued all of its outstanding ClassB units to OCGH. The Class B units are entitled to 10 votes per unit whereas the Class A units are only entitled to one vote per unit.Therefore, the Class B units initially held 98.15% of the voting interest of the Company.OCM is considered the predecessor of the Company for accounting purposes and its financial statements are the historical financialstatements of the Company. The May 2007 Restructuring was accounted for as a reorganization of entities under common control.Accordingly, the value of assets and liabilities recognized in OCM’s financial statements were unchanged when those assets and liabilitieswere carried forward into the Company’s financial statements. When the Company indirectly purchased Oaktree Operating Group unitsfrom OCGH and directly from the Oaktree Operating Group, it recorded the proportion of Oaktree Operating Group net assets acquired attheir historical carrying value and proportionately reduced the OCGH non-controlling interest in consolidated subsidiaries. Subsequent to thecompletion of the May 2007 Restructuring, the OCGH unitholders’ economic interest in the Oaktree Operating Group is reflected as OCGHnon-controlling interest in consolidated subsidiaries in the accompanying consolidated financial statements.Initial Public OfferingOn April 12, 2012, the Company listed its Class A units on the New York Stock Exchange (“NYSE”). In connection with the listing,the Company and selling unitholders sold 7,888,864 and 954,159 Class A units, respectively. Upon the completion of the initial publicoffering, the Company owned approximately 20% of the Oaktree Operating Group and the Company’s Principals controlled 98% of the totalcombined voting power of the Company’s units entitled to vote. The Company did not receive any of the proceeds from the sale of Class Aunits by the selling unitholders, and used the offering proceeds from the issuance of units to acquire interests in the Company’s businessfrom its Principals, employees (including former employees) and other investors.124Oaktree Capital Group, LLCNotes to Consolidated Financial Statements — (Continued)December 31, 2013($ in thousands, except where noted)Basis of PresentationThe accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in theUnited States of America (“GAAP”). The consolidated financial statements include the accounts of the Company, its wholly-owned ormajority-owned subsidiaries, the consolidated entities that are considered to be variable interest entities and for which the Company isconsidered the primary beneficiary, and certain entities that are not considered variable interest entities but in which the Company has acontrolling financial interest. All intercompany accounts and transactions have been eliminated in consolidation.2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESConsolidationThe Company consolidates those entities where it has a direct or indirect controlling financial interest based on either a variableinterest model or voting interest model. This includes two entities determined to be variable interest entities (“VIEs”), for which the Companyis considered the primary beneficiary, and substantially all of Oaktree's closed-end, commingled open-end and evergreen funds for which theCompany acts as the sole general partner and is deemed to control through a voting interest model.Variable Interest Model. The Company consolidates entities determined to be VIEs for which it is considered the primarybeneficiary. An enterprise is determined to be the primary beneficiary if it holds a controlling financial interest. A controlling financial interestis defined as (a) the power to direct the activities of a VIE that most significantly impact the entity's business and (b) the obligation to absorblosses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. The consolidation rules, whichwere revised effective January 1, 2010, require an analysis to (a) determine whether an entity in which the Company holds a variableinterest is a VIE and (b) whether the Company's involvement, through holding interests directly or indirectly in the entity or contractuallythrough other variable interests (e.g., management and performance-related fees), would give it a controlling financial interest. Theconsolidation rules may be deferred for VIEs if the VIE and the reporting entity's interest in the VIE meet the deferral conditions set forth inAccounting Standards Codification (“ASC”) 810-10-65-2(aa). Where a VIE has qualified for the deferral of the consolidation rules, the analysisis based on consolidation rules prior to January 1, 2010. These rules require an analysis to (a) determine whether an entity in which theCompany holds a variable interest is a VIE and (b) whether the Company's involvement, through holding interests directly or indirectly inthe entity or contractually through other variable interests (e.g., management and performance-related fees), would be expected to absorb amajority of the variability of the entity. Under either guideline, the Company determines whether it is the primary beneficiary of a VIE at thetime it becomes involved with a VIE and reconsiders that conclusion at each reporting date. In evaluating whether the Company is theprimary beneficiary, the Company evaluates its economic interests in the entity held either directly by the Company or indirectly throughrelated parties. The consolidation analysis can generally be performed qualitatively; however, if it is not readily apparent that the Company isnot the primary beneficiary, a quantitative analysis may also be performed. Investments and redemptions (either by the Company, affiliatesof the Company or third parties) or amendments to the governing documents of the respective Oaktree funds could affect an entity's status asa VIE or the determination of the primary beneficiary.While the Company holds variable interests in the Oaktree funds, these funds do not meet the characteristics of a VIE. As ofDecember 31, 2013, the Company consolidated two entities as VIEs for which it is the primary beneficiary, Oaktree AIF Holdings, Inc. (“AIF”)and South Grand MM CLO I, LLC (“MM CLO”), and there are no VIEs for which the Company was not the primary beneficiary. As ofDecember 31, 2012, the Company’s only consolidated VIE was AIF. AIF was formed to hold certain assets for regulatory and other purposesand is immaterial to the Company. MM CLO was formed in December 2013 to launch a collateralized loan obligation product for which theCompany will act as collateral manager and had net assets of less than $1.0 million as of December 31, 2013.Voting Interest Model. For entities that are not VIEs, the Company evaluates those entities that it controls through a majority votinginterest, including those Oaktree funds in which the Company as the sole general partner is presumed to have control (together with MMCLO, the “consolidated funds”). Although as general partner the Company typically has only a small, single-digit equity interest in eachfund, the funds' third-party limited partners do not have the right to dissolve the partnerships or have substantive kick-out or participatingrights that would overcome the presumption of control by the Company.125Oaktree Capital Group, LLCNotes to Consolidated Financial Statements — (Continued)December 31, 2013($ in thousands, except where noted)Accordingly, Oaktree's consolidated financial statements reflect the assets, liabilities, investment income, expenses and cash flowsof the consolidated funds on a gross basis, and the majority of the economic interests in those funds, which are held by third-party investors,are attributed to non-controlling redeemable interests in consolidated funds in the accompanying consolidated financial statements.Substantially all of the management fees and incentive income earned by Oaktree from those funds are eliminated in consolidation.However, because the eliminated amounts are earned from and funded by non-controlling interests, Oaktree's attributable share of the netincome from those funds is increased by the amounts eliminated. Thus, the elimination in consolidation of such amounts has no effect onnet income or loss attributable to the Company. Potential incentive allocations at the consolidated fund level that have not yet been recognizedby the Company are included in non-controlling redeemable interests in consolidated funds.The Company records non-controlling interests to reflect the economic interests of the unaffiliated limited partners. These interestsare presented as non-controlling redeemable interests in consolidated funds within the consolidated statements of financial condition, outsideof the permanent capital section. Limited partners in open-end and evergreen funds generally have the right to withdraw their capital, subjectto the terms of the respective limited partnership agreements, over periods ranging from one month to three years. While limited partners inconsolidated closed-end funds generally have not been granted redemption rights, they do have such rights in certain limited circumstancesthat are beyond the control of the Company, such as instances in which retaining the limited partnership interest could cause the limitedpartner to violate a law, regulation or rule.All intercompany transactions and balances have been eliminated in consolidation.Certain funds for which the Company shares general partner responsibilities or where the Company has no general partnerresponsibility but has the ability to exert significant influence through other means are accounted for under the equity method of accounting.Use of EstimatesThe preparation of the consolidated financial statements in accordance with GAAP requires the Company to make estimates andassumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements, as well as thereported amounts of income and expenses during the period then ended. Actual results could differ from these estimates.Fair Value of Financial InstrumentsGAAP establishes a hierarchal disclosure framework that prioritizes the inputs used in measuring financial instruments at fair valueinto three levels based on their market observability. Market price observability is affected by a number of factors, such as the type ofinstrument and the characteristics specific to the instrument. Financial instruments with readily available quoted prices from an active marketor for which fair value can be measured based on actively quoted prices generally will have a higher degree of market price observability anda lesser degree of judgment inherent in measuring fair value.Financial assets and liabilities measured and reported at fair value are classified as follows:•Level I – Quoted unadjusted prices for identical instruments in active markets to which the Company has access at the date ofmeasurement. The types of investments in Level I include exchange-traded equities, debt and derivatives with quoted prices.•Level II – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets thatare not active; and model-derived valuations in which all significant inputs are directly or indirectly observable. Level II inputs includeinterest rates, yield curves, volatilities, prepayment risks, loss severities, credit risks and default rates. The types of investments inLevel II generally include corporate bonds and loans, government and agency securities, less liquid and restricted equityinvestments, over-the-counter traded derivatives, and other investments where the fair value is based on observable inputs.•Level III – Valuations for which one or more significant inputs are unobservable. These inputs reflect the Company's assessment ofthe assumptions that market participants use to value the investment based on the best available information. Level III inputsinclude prices of quoted securities in markets for which there126Oaktree Capital Group, LLCNotes to Consolidated Financial Statements — (Continued)December 31, 2013($ in thousands, except where noted)are few transactions, less public information exists or prices vary among brokered market makers. The types of investments inLevel III include non-publicly traded equity, debt, real estate and derivatives.In some instances, an instrument may fall into multiple levels of the fair-value hierarchy. In such instances, the instrument's levelwithin the fair-value hierarchy is based on the lowest of the three levels (with Level III being the lowest) that is significant to the fair-valuemeasurement. The Company's assessment of the significance of an input requires judgment and considers factors specific to theinstrument. The Company accounts for the transfer of assets into or out of each fair-value hierarchy level as of the beginning of the reportingperiod.In the absence of observable market prices, the Company values Level III investments using valuation methodologies applied on aconsistent basis. The quarterly valuation process for Level III investments begins with each portfolio company, property or security beingvalued by the investment or valuation teams. The valuations are then reviewed and approved by the valuation team and the valuationcommittee of each investment strategy, which consists of senior members of the investment team. All Level III investment values areultimately approved by the valuation committees and designated investment professionals, as well as the valuation officer, who isindependent of the investment teams and reports directly to the Company's Managing Principal. For certain investments, the valuationprocess also includes a review by independent valuation parties, at least annually, to determine whether the fair values determined bymanagement are reasonable. Results of the valuation process are evaluated each quarter, including an assessment of whether theunderlying calculations should be adjusted or recalibrated. In connection with this process, the Company evaluates changes in fair-valuemeasurements from period to period for reasonableness, considering items such as industry trends, general economic and marketconditions, and factors specific to the investment.Certain Level III assets are valued using prices obtained from brokers or pricing vendors. The Company obtains an average of one totwo broker quotes. The Company seeks to obtain at least one quote directly from a broker making a market for the asset and one price from apricing vendor for the subject or similar securities. These investments are classified as Level III because the quoted prices may be indicativein nature for securities that are in an inactive market, may be for similar securities, or may require adjustment for investment-specific factorsor restrictions. Generally, the Company does not adjust any of the prices received from these sources, and all prices are reviewed by theCompany. The Company evaluates the prices obtained from brokers or pricing vendors based on available market information, includingtrading activity of the subject or similar securities, or by performing a comparable security analysis to ensure that fair values are reasonablyestimated. The Company also performs back-testing of valuation information obtained from brokers and pricing vendors against actual pricesreceived in transactions. In addition to on-going monitoring and back-testing, the Company performs due diligence procedures over pricingvendors to understand their methodology and controls to support their use in the valuation process.The Company has elected the fair value option for certain corporate investments that otherwise would not have reflected unrealizedgains and losses in current-period earnings. Such election is irrevocable and is applied on an investment-by-investment basis at initialrecognition. Unrealized gains and losses resulting from changes in fair value are reflected as a component of investment income in theconsolidated statements of operations. Accounting for these investments at fair value is consistent with how the Company accounts for itsother corporate investments. The valuation methods used to measure the fair value of such investments is consistent with the valuationmethodologies applied to investments held by the consolidated funds.Corporate InvestmentsCorporate investments consist of investments in funds and companies that the Company does not control. Investments where theCompany is deemed to exert significant influence are accounted for using the equity method of accounting and reflect Oaktree's ownershipinterest in each such fund or company. For investments where the Company is not deemed to exert significant influence or control, the fairvalue option of accounting has been elected. Investment income represents the Company's pro-rata share of income or loss from these fundsor companies or the change in fair value of the investment, as applicable. Oaktree's general partnership interests are substantially illiquid.While investments in funds reflect the fund’s holdings at fair value, equity-method investments in DoubleLine Capital LP and othercompanies are not adjusted to reflect the fair value of the underlying company. The fair value of the underlying investments in funds is basedon the Company's assessment, which takes into account expected cash flows, earnings multiples and/or comparisons to similar markettransactions, among other127Oaktree Capital Group, LLCNotes to Consolidated Financial Statements — (Continued)December 31, 2013($ in thousands, except where noted)factors. Valuation adjustments reflecting consideration of credit quality, concentration risk, sales restrictions and other liquidity factors areintegral to valuing these instruments.Cash and Cash-equivalentsCash and cash-equivalents include demand deposit accounts, as well as money market funds and short-term investments withmaturities of three months or less at the date of acquisition.U.S. Treasury and Government-agency SecuritiesIncludes holdings of U.S. Treasury bills and other securities issued by U.S. government agencies with maturities greater than threemonths at the date of acquisition. These securities, classified as available-for-sale, are recorded at fair value with changes in fair valueincluded in other comprehensive income (loss). Changes in fair value were not material for all years presented.Foreign CurrencyAssets and liabilities of the foreign subsidiaries of Oaktree having non-U.S. dollar functional currencies are translated at exchangerates prevailing at the end of each reporting period. Results of foreign operations are translated at the weighted average exchange rate for eachreporting period. Translation adjustments are included as a component of accumulated other comprehensive income (loss) until realized.Gains or losses resulting from foreign currency transactions are included in general and administrative expenses.Hedging and Other DerivativesThe Company enters into derivative instruments as part of its overall risk management strategy or to facilitate its investmentmanagement activities. Risks associated with fluctuations in interest rates and foreign currency exchange rates in the normal course ofbusiness are addressed as part of the Company's overall risk management strategy that may result in the use of derivative instruments toeconomically hedge or reduce these exposures. To mitigate the risk associated with fluctuations in interest rates, the Company may enterinto interest-rate swaps to manage all or a portion of the interest-rate risk associated with its variable-rate borrowings. The Company'scorporate investments in funds include investments denominated in currencies other than the U.S. dollar, which is the Company'sfunctional currency and, consequently, are subject to fluctuations in foreign currency exchange rates. The Company also receivesmanagement fees from certain funds and pays expenses in currencies other than the U.S. dollar. To manage the risks associated withforeign currency exchange gains and losses generated by the remeasurement of the Company's corporate investments, management feesand expenses denominated in non-functional currencies, the Company may enter into currency option and forward contracts. As a result ofthe use of these or other derivative contracts, the Company is exposed to the risk that counterparties will fail to fulfill their contractualobligations. The Company attempts to mitigate this counterparty risk by entering into derivative contracts only with major financialinstitutions that have investment-grade ratings. Counterparty credit risk is evaluated in determining the fair value of derivative instruments.The Company recognizes all derivatives as assets or liabilities in its consolidated statements of financial condition at fair value. Inconnection with its derivative activities, the Company generally enters into agreements subject to enforceable master netting arrangementsthat allow the Company to offset derivative assets and liabilities in the same currency by specific derivative type or, in the event of default bythe counterparty, to offset derivative assets and liabilities with the same counterparty. While these derivative instruments are eligible to beoffset in accordance with applicable accounting guidance, the Company has elected to present derivative assets and liabilities based on grossfair value in its consolidated statements of financial condition.When the Company enters into a derivative contract, the Company may elect to designate the derivative as a hedging instrumentand apply hedge accounting as part of its overall risk management strategy. In other situations, when a derivative does not qualify for hedgeaccounting or when the derivative and the hedged item are both recorded in current-period earnings and thus deemed to be economic hedges,hedge accounting is not applied.Derivatives that are designated as hedging instruments are classified as either a hedge of (a) a recognized asset or liability (“fair-value hedge”), (b) a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability(“cash-flow hedge”), or (c) a net investment in a foreign operation. For128Oaktree Capital Group, LLCNotes to Consolidated Financial Statements — (Continued)December 31, 2013($ in thousands, except where noted)a fair-value hedge, the Company records changes in the fair value of the derivative and, to the extent that it is highly effective, changes in thefair value of the hedged asset or liability attributable to the hedged risk in current-period earnings in the same caption in the consolidatedstatements of operations as the hedged item. Changes in the fair value of a derivative that is highly effective and is designated and qualifiesas a cash-flow hedge, to the extent that the hedge is effective, are recorded in other comprehensive income (loss) until earnings are affectedby the variability of cash flows of the hedged transaction. Any hedge ineffectiveness is recorded in current-period earnings. Changes in thefair value of derivatives designated as hedging instruments that are caused by factors other than changes in the risk being hedged areexcluded from the assessment of hedge effectiveness and recognized in current-period earnings. For a derivative that is not designated as ahedging instrument (“freestanding derivative”), the Company records changes in fair value in current-period earnings.The Company formally documents at inception the hedge relationship, including identification of the hedging instrument and thehedged item, as well as the risk management objectives, the strategy for undertaking the hedge transaction, and the evaluation ofeffectiveness of its hedged transaction. On a quarterly basis, the Company formally assesses whether the derivative it designated in eachhedging relationship has been and is expected to remain highly effective in offsetting changes in the estimated fair value or cash flow of thehedged items. If it is determined that a derivative is not highly effective at hedging the designated exposure, hedge accounting is discontinuedand the balance remaining in other comprehensive income is released to earnings.Depreciation and AmortizationDepreciation and amortization expense includes costs associated with the purchase of furniture and equipment, capitalized software,and leasehold improvements. Furniture and equipment and capitalized software costs are depreciated using the straight-line method over theestimated useful life of the asset, generally three-to-five years beginning in the first full month after the asset is placed in service. Leaseholdimprovements are amortized using the straight-line method over the shorter of the respective estimated useful life or the lease term.Comprehensive Income (Loss)Comprehensive income (loss) consists of net income (loss) and other gains and losses affecting unitholders' capital that, underGAAP, are excluded from net income (loss). Other gains and losses result from unrealized gains and losses on cash-flow hedges and foreigncurrency translation adjustments, net of tax.Management FeesManagement fees are recognized over the period in which the investment advisory services are performed. The contractual terms ofmanagement fees vary by fund structure. Management fees for closed-end funds are paid quarterly and typically calculated as a fixedpercentage, in the range of 1.25% to 1.75% per year, of total committed capital or drawn capital during the investment period (up through thefinal close, these fees are generally earned on a retroactive basis to the fund’s first closing date). During the liquidation period, themanagement fee remains the same fixed percentage, applied against the lesser of the total funded capital and the cost basis of assetsremaining in the fund. The Company's right to receive management fees typically ends after 10 or 11 years from the initial closing date or thestart of the investment period even if certain assets remain to be liquidated. For open-end and evergreen funds, management fees are basedon the net asset value (“NAV”) of the respective fund. Open-end funds pay management fees of approximately 0.50% of NAV per year, paidmonthly or quarterly. Evergreen funds pay a management fee quarterly, ranging from 1.5% to 2.0% per year, based on a fixed percentage ofthe NAV of the relevant fund. In the case of certain open-end and evergreen fund accounts, in lieu of charging the regular management feeapplicable to the relevant strategy, we have the potential to earn performance-based fees, typically in reference to a relevant benchmark indexor hurdle rate.The Company does not recognize incremental income for transaction, advisory, director and other ancillary fees received inconnection with providing services to portfolio companies or potential investees of the funds; rather, any such fees are offset againstmanagement fees earned from the applicable fund. These fees are typically recognized as revenue in the period in which they are offsetagainst the quarterly management fees that would otherwise be paid by the applicable fund, which is generally the quarter following theperiod in which the fees are received. Inasmuch as these fees are not paid directly by the consolidated funds, such fees do not eliminate inconsolidation and may impact the presentation of gross consolidated management fees; however, there is no impact to the Company's netincome as the amounts are included in net income (loss) attributable to non-controlling129Oaktree Capital Group, LLCNotes to Consolidated Financial Statements — (Continued)December 31, 2013($ in thousands, except where noted)redeemable interests in consolidated funds. Ancillary fees recognized in management fees for the years ended December 31, 2013, 2012and 2011 were $62.9 million, $25.9 million and $35.3 million, respectively.Incentive IncomeIncentive income generally represents 20% of each closed-end fund's profits, subject to the return of contributed capital and apreferred return of typically 8% per annum, and 20% of certain evergreen fund's annual profits, subject to high-water marks. The Companyhas elected to adopt “Method 1” for revenue recognition based on a formula. Under this method, incentive income is recognized when fixed ordeterminable, all related contingencies have been removed and collection is reasonably assured, which generally occurs in the quarter of, orthe quarter immediately prior to, the distribution of the income by the fund to Oaktree. The Method 1 criteria for revenue recognition istypically met (a) for closed-end funds, only after all contributed capital and the preferred return on that capital have been distributed to thefund's investors, and (b) for certain evergreen funds, at the conclusion of each annual measurement period. Incentives received by Oaktreebefore the above criteria are met are deferred and recorded as a deferred incentive income liability within accounts payable, other accruedexpenses and other liabilities on the consolidated statements of financial condition. There was no incentive income deferred as of December31, 2013 and 2012. The Company may receive tax distributions related to taxable income allocated by funds, which are treated as anadvance of incentive income and subject to the same recognition criteria. Tax distributions are contractually not subject to clawback.Incentive Income CompensationIncentive income compensation expense primarily includes compensation directly related to incentive income, which generallyconsists of percentage interests (sometimes referred to as “points”) that the Company grants to its investment professionals associated withthe particular fund that generated the incentive income, and secondarily includes compensation directly related to investment income. TheCompany has an obligation to pay a fixed percentage of the incentive income earned from a particular fund, including income fromconsolidated funds that is eliminated in consolidation, to specified investment professionals responsible for the management of the fund.Amounts payable pursuant to these arrangements are recorded as compensation expense when they have become probable and reasonablyestimable. The Company's determination of the point at which it becomes probable and reasonably estimable that incentive incomecompensation expense should be recorded is based on its assessment of numerous factors, particularly those related to the profitability,realizations, distribution status, investment profile and commitments or contingencies of the individual funds that may give rise to incentiveincome. Incentive income compensation is expensed no later than the period in which the underlying income is recognized. Payment ofincentive income compensation generally occurs in the same period the related income is received or in the next period. Participation inincentive income generated by the consolidated funds is subject to forfeiture upon departure and to vesting provisions (generally over a periodof five years), in each case, under certain circumstances set forth in the applicable governing documents. These provisions are generally onlyapplicable to incentive income compensation that has not yet been recognized as an expense by the Company or paid to the participant.Incentive income compensation also is expensed if the Company acquires an individual's participation interest in a fund's incentive income,thereby eliminating any contingency related to the Company's obligation to pay the compensation. In December 2011, the Company acquireda small portion of certain investment professionals' participation in the possible future incentive income from OCM Opportunities Fund VIIb,L.P. (“Opps Vllb”), in the aggregate amount of $55.5 million. The acquisition price was based on Opps VIIb's unpaid potential incentiveincome allocation to the Company as of September 30, 2011. The related incentive income was not recognized in 2011 because, as ofDecember 31, 2011, its recognition criteria had not been satisfied. The Company did not acquire any incentive income participation interest inthe years ended December 31, 2013 and 2012.Other Income (Expense), NetIn 2010, the Company received a portfolio of properties as part of an arbitration award related to a former principal and portfoliomanager of the Company's real estate group who left the Company in 2005. Other income (expense), net primarily reflects the net results ofoperating the portfolio of properties. In 2011, the Company recorded an expense of $1.2 million, reflecting an adjustment to the carrying valueof one of the properties received as part of the 2010 arbitration award. In 2012, the Company recorded income of $3.1 million attributable tothe sale of a real estate property and other proceeds received as part of the same 2010 arbitration award. Additionally, 2012 included a $0.8million write-off of debt issuance costs associated with the refinancing the Company's credit facility130Oaktree Capital Group, LLCNotes to Consolidated Financial Statements — (Continued)December 31, 2013($ in thousands, except where noted)and a $1.7 million loss related to the write-off of certain receivables related to the Company's corporate investments.Equity-based CompensationEquity-based compensation is calculated based on the fair value of a unit at the time of grant, adjusted annually or more frequently,as necessary, for actual forfeitures to reflect expense only for those units that ultimately vest. The Company utilizes a contemporaneousvaluation report which incorporates both market comparables for restricted stock liquidity discounts and multi-period put-based quantitativemethods in determining the fair value of OCGH units. Before the Company's initial public offering, fair value was typically determined usingthe latest available closing price of Class A units on the Goldman, Sachs & Co. for Tradable Unregistered Equity Securities (the “GSTrUEOTC market”), discounted for a lack of marketability. Subsequent to the Company's initial public offering, fair value is determined using theclosing price of Class A units on the NYSE, discounted for a lack of marketability where applicable. Equity-based awards that do not requirefuture service (i.e., awards vested at grant) are expensed immediately. Equity-based awards that require future service are recognized on astraight-line basis over the requisite service period.Income TaxesOaktree Holdings, Inc. and Oaktree AIF Holdings, Inc., two of the Company's Intermediate Holding Companies which wereestablished as wholly-owned corporate subsidiaries in connection with the May 2007 Restructuring, are subject to U.S. federal and stateincome taxes. The remainder of Oaktree's income is generally not subject to U.S. corporate-level taxation.Income taxes are accounted for using the liability method of accounting. Under this method, deferred tax assets and liabilities arerecognized for the expected future tax consequences of differences between the carrying amount of assets and liabilities and their respectivetax bases, using currently enacted tax rates. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income inthe period when the change is enacted. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that someportion or all of the deferred tax assets will not be realized.Oaktree analyzes its tax filing positions for all open tax years in all of the U.S. federal, state, local and foreign tax jurisdictions whereit is required to file income tax returns. If the Company determines that uncertainties in tax positions exist, a reserve is established. Oaktreerecognizes accrued interest and penalties related to uncertain tax positions in income tax expense within the consolidated statements ofoperations.Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities.Significant judgment is required in determining tax expense and in evaluating tax positions, including evaluating uncertainties under GAAP.Oaktree reviews its tax positions quarterly and adjusts its tax balances as new information becomes available.The Oaktree funds are generally not subject to U.S. federal and state income taxes and, consequently, no income tax provision hasbeen made in the accompanying consolidated financial statements because individual partners are responsible for their proportionate share ofthe taxable income.Accounting Policies of Consolidated FundsAlthough as general partner the Company typically only has a small minority economic interest in the consolidated funds, the third-party limited partners neither have the right to dissolve the partnerships nor possess substantive kick-out or participating rights that wouldovercome the presumption of control by the Company. Accordingly, the Company consolidates the consolidated funds and records non-controlling interests to reflect the economic interests of the unaffiliated limited partners.Investment Transactions and Income RecognitionThe consolidated funds record investment transactions at cost on trade date for publicly traded securities or when they have anenforceable right to acquire the security, which is generally on the closing date if not publicly traded. Realized gains and losses oninvestments are recorded on a specific identification basis. The consolidated funds record dividend income on the ex-dividend date andinterest income on an accrual basis, unless the related131Oaktree Capital Group, LLCNotes to Consolidated Financial Statements — (Continued)December 31, 2013($ in thousands, except where noted)investment is in default or if collection of the income is otherwise considered doubtful. The consolidated funds may hold investments thatprovide for interest payable in-kind rather than in cash, in which case the related income is recorded at its estimated net realizable amount.Cash and Cash-equivalentsCash and cash-equivalents held at the consolidated funds represent cash that, although not legally restricted, is not available tosupport the general liquidity needs of Oaktree as the use of such amounts is generally limited to the investment activities of the consolidatedfunds. Cash-equivalents, a Level I valuation, include highly liquid investments such as money market funds, whose carrying valueapproximates fair value due to its short-term nature.Foreign CurrencyInvestments denominated in non-U.S. currencies are recorded in the consolidated financial statements after translation into U.S.dollars utilizing rates of exchange on the last business day of the period. Interest and dividend income is recorded net of foreign withholdingtaxes and calculated using the exchange rate in effect when the income is recognized. The effect of changes in exchange rates on assets andliabilities, income and realized gains or losses is included as part of net realized gain (loss) on consolidated funds' investments and netchange in unrealized appreciation (depreciation) on consolidated funds' investments in the consolidated statements of operations.Investments, at Fair ValueThe consolidated funds are primarily investment limited partnerships that reflect their investments (the “portfolio holdings”),including majority-owned and controlled investments, at fair value. The Company has retained the specialized investment companyaccounting guidance under GAAP for the consolidated funds with respect to consolidated investments. Thus, the consolidated investmentsare reflected on the consolidated statements of financial condition at fair value, with unrealized gains and losses resulting from changes infair value reflected as a component of net change in unrealized appreciation (depreciation) on consolidated funds' investments in theconsolidated statements of operations. Fair value is the amount that would be received to sell an asset or paid to transfer a liability in anorderly transaction between market participants at the measurement date (i.e., the exit price).Non-publicly traded debt and equity securities and other securities or instruments for which reliable market quotations are notavailable are valued by management using valuation methodologies applied on a consistent basis. These securities may initially be valued atthe acquisition price as the best indicator of fair value. The Company reviews the significant unobservalbe inputs, valuations of comparableinvestments and other similar transactions for investments valued at acquisition price to determine whether another valuation methodologyshould be utilized. Subsequent valuations will depend on the facts and circumstances known as of the valuation date and the application ofvaluation methodologies further described below under “—Non-publicly Traded Equity and Real Estate Investments.” The fair value may alsobe based on a pending transaction expected to close after the valuation date.Exchange-traded InvestmentsSecurities listed on one or more national securities exchanges are valued at their last reported sales price on the date of valuation. Ifno sale occurred on the valuation date, the security is valued at the mean of the last “bid” and “ask” prices on the valuation date. Securitiesthat are not readily marketable due to legal restrictions that may limit or restrict transferability are generally valued at a discount from quotedmarket prices. The discount would reflect the amount market participants would require due to the risk relating to the inability to access apublic market for the security for the specified period and would vary depending on the nature and duration of the restriction and the perceivedrisk and volatility of the underlying securities. Securities with longer duration restrictions or higher volatility are generally valued at a higherdiscount. Such discounts are generally estimated based on put option models or analysis of market studies. Instances where the Companyhas applied discounts to quoted prices of restricted listed securities have been infrequent. The impact of such discounts is not material to theCompany's consolidated statements of financial condition and results of operations for all periods presented.132Oaktree Capital Group, LLCNotes to Consolidated Financial Statements — (Continued)December 31, 2013($ in thousands, except where noted)Credit-oriented Investments (including Real Estate Loan Portfolios)Investments in corporate and government debt which are not listed or admitted to trading on any securities exchange are valued atthe mean of the last bid and ask prices on the valuation date based on quotations supplied by recognized quotation services or by reputablebroker-dealers.The market-yield approach is considered in the valuation of non-publicly traded debt securities, utilizing expected future cash flowsand discounted using estimated current market rates. Discounted cash flow calculations may be adjusted to reflect current market conditionsand/or the perceived credit risk of the borrower. Consideration is also given to a borrower's ability to meet principal and interest obligations;this may include an evaluation of collateral and/or the underlying value of the borrower utilizing techniques described below under “—Non-publicly Traded Equity and Real Estate Investments.”Non-publicly Traded Equity and Real Estate InvestmentsThe fair value of equity and real estate investments is determined using a cost, market or income approach. The cost approach isbased on the current cost of reproducing a real estate investment less deterioration and functional and economic obsolescence. The marketapproach utilizes valuations of comparable public companies and transactions, and generally seeks to establish the enterprise value of theportfolio company or investment property using a market-multiple methodology. This approach takes into account the financial measure(such as EBITDA, adjusted EBITDA, free cash flow, net operating income, net income, book value or net asset value) believed to be mostrelevant for the given company or investment property. Consideration may also be given to factors such as acquisition price of the security orinvestment property, historical and projected operational and financial results for the portfolio company, the strengths and weaknesses of theportfolio company or investment property relative to its comparable companies or properties, industry trends, general economic and marketconditions, and others deemed relevant. The income approach is typically a discounted cash-flow method that incorporates expected timingand level of cash flows. It incorporates assumptions in determining growth rates, income and expense projections, discount and capitalizationrates, capital structure, terminal values, and other factors. The applicability and weight assigned to market and income approaches aredetermined based on the availability of reliable projections and comparable companies and transactions.The valuation of securities may be impacted by expectations of investors' receptiveness to a public offering of the securities, the sizeof the holding of the securities and any associated control, information with respect to transactions or offers for the securities (including thetransaction pursuant to which the investment was made and the period of time elapsed from the date of the investment to the valuation date),and applicable restrictions on the transferability of the securities.These valuation methodologies involve a significant degree of management judgment. Accordingly, valuations by the Company donot necessarily represent the amounts that may eventually be realized from sales or other dispositions of investments. Fair values may differfrom the values that would have been used had a ready market for the investment existed, and the differences could be material to theconsolidated financial statements.Securities Sold ShortSecurities sold short represent obligations of the consolidated funds to make a future delivery of a specific security and,correspondingly, create an obligation to purchase the security at prevailing market prices (or deliver the security, if owned by the consolidatedfunds) as of the delivery date. As a result, these short sales create the risk that the funds' obligations to satisfy the delivery requirement mayexceed the amount recorded in the accompanying consolidated statements of financial condition.Securities sold short are recorded at fair value, with the resulting change in value reflected as a component of net change inunrealized appreciation (depreciation) on consolidated funds' investments. When the securities are delivered, any gain or loss is included innet realized gain (loss) on consolidated funds' investments. The funds maintain cash deposits with prime brokers in order to cover theirobligations on short sales. These amounts are included in due from brokers in the consolidated statements of financial condition.OptionsThe purchase price of a call option or a put option is recorded as an investment, which is carried at fair value. If a purchased optionexpires, a loss in the amount of the cost of the option is realized. When there is a133Oaktree Capital Group, LLCNotes to Consolidated Financial Statements — (Continued)December 31, 2013($ in thousands, except where noted)closing sale transaction, a gain or loss is realized if the proceeds are greater or less than, respectively, the cost of the option. When a calloption is exercised, the cost of the security purchased upon exercise is increased by the premium originally paid.When a consolidated fund writes an option, the premium received is recorded as a liability and is subsequently adjusted to thecurrent fair value of the option written. If a written option expires, a gain is realized in the amount of the premium received. The differencebetween the premium and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated asa realized gain or loss. The writer of an option bears the market risk of an unfavorable change in the price of the security underlying thewritten option. Options written are included in accounts payable, accrued expenses and other liabilities in the consolidated statements offinancial condition.Credit Default SwapsA credit default swap (“CDS”) is a financial instrument used to transfer the credit risk of a reference entity from one party to anotherfor a specified period of time. In a standard CDS contract, one party (the “protection buyer”) agrees to pay a premium (commonly based on arate of a notional principal amount) to another party (the “protection seller”) in exchange for a contingent payment in the event of a pre-definedcredit event that relates to an obligation of a reference entity. The reference entity of the swap can be a single issuer, a basket of issuers or anindex. Types of underlying referenced obligations can be, but are not limited to, corporate bonds, bank loans, sovereign debt and asset-backedsecurities. When a credit event is triggered, the protection seller is obligated to pay the contingent payment to the buyer, which is typically thepar value (full notional value) of the reference obligation, though the actual payment may be mitigated by terms of the International Swapsand Derivatives Association Master Agreement allowing for netting arrangements and collateral. The contingent payment may be a cashsettlement or a physical delivery of the reference obligation in return for payment of the face amount of the obligation. These contingentamounts are partially offset by any recovery value of the respective referenced obligation, upfront payments received upon entering into theagreement, if any, or net amounts received from the settlement of buy protection agreements entered into by the consolidated funds for thesame referenced entity or entities. If a consolidated fund is a protection buyer and no credit event occurs, the fund may lose its investmentand recover nothing. However, if a credit event occurs, the protection buyer typically receives full notional value for a reference obligation thatmay have little or no value. Based on the complex nature of the settlement process and volatility of the market, the Company is generallyunable to reasonably estimate the amount of potential future recovery values.In addition to general market risks, CDS contracts are subject to liquidity and counterparty risk. A CDS may entail greater risks thanthose of other instruments, including the risk of mispricing due to limited availability of pricing sources and the risk that changes in the valueof the swap may not correlate with the underlying asset. A CDS may be highly illiquid because such instruments typically are traded over-the-counter and are not exchange traded. When a fund is a protection buyer, the fund is exposed to credit risk relating to whether thecounterparty will meet its obligation upon the occurrence of a credit event. When a fund is a protection seller, it is exposed to off-balance sheetrisk to the extent that its ultimate obligation to the counterparty upon the occurrence of a credit event may be significantly higher than the fairvalue reflected in the consolidated statements of financial condition.CDS contracts are valued by the Company based in part on quotations provided by an independent pricing service, with changes invalue recorded as unrealized appreciation or depreciation. Upfront payments received or paid by the consolidated funds are reflected as anasset or liability in the consolidated statements of financial condition. For further information regarding CDS contracts, please see note 5.Total Return SwapsA total return swap is an agreement to exchange cash flows based on an underlying asset. Pursuant to these agreements, a fundmay deposit collateral with the counterparty and may pay a swap fee equal to a fixed percentage of the value of the underlying security(notional amount). A fund earns interest on cash collateral held on account with the counterparty and may be required to deposit additionalcollateral equal to the unrealized appreciation or depreciation on the underlying asset. Changes in the underlying value of the swaps recordedas unrealized gains or losses are based on changes in the underlying value of the security. All amounts exchanged with the swapcounterparty representing capital appreciation or depreciation, dividend income and expense, items of interest income on short proceeds,borrowing costs on short sales, and commissions are recorded as realized134Oaktree Capital Group, LLCNotes to Consolidated Financial Statements — (Continued)December 31, 2013($ in thousands, except where noted)gains or losses. Dividend income and expense on the underlying assets are accrued as unrealized gains or losses on the ex-date. Theaverage notional amounts of total return swap contracts outstanding during 2013 were $463,596 long and $30,536 short. The averagenotional amounts of total return swaps outstanding during 2012 were $487,706 long and $33,891 short.Due From BrokersDue from brokers represents cash owned by the consolidated funds, as well as cash collateral, on deposit with brokers andcounterparties, and is used as collateral for the consolidated funds' securities and swaps.Risks and UncertaintiesCertain consolidated funds invest primarily in the securities of entities that are undergoing, or are considered likely to undergo,reorganization, debt restructuring, liquidation or other extraordinary transactions. Investments in such entities are considered speculative andinvolve substantial risk of principal loss. Certain of the consolidated funds' investments may also consist of securities that are thinly traded,securities and other assets for which no market exists, and securities which are restricted as to their transferability. Additionally, investmentsare subject to concentration and industry risks, reflecting numerous factors, including political, regulatory or economic issues that couldcause the investments and their markets to be relatively illiquid and their prices relatively volatile. Investments denominated in non-U.S.currencies or involving non-U.S. domiciled entities are subject to risks and special considerations not typically associated with U.S.investments. Such risks may include, but are not limited to, investment and repatriation restrictions; currency exchange-rate fluctuations;adverse political, social and economic developments; less liquidity; smaller capital markets; and certain local tax law considerations.Credit risk is the potential loss that may be incurred from the failure of a counterparty or an issuer to make payments according to theterms of a contract. Some consolidated funds are subject to additional credit risk due to strategies of investing in debt of financially distressedissuers or derivative instruments, as well as involvement in privately-negotiated structured notes and structured-credit transactions.Counterparties include custodian banks, major brokerage houses and their affiliates. The Company monitors the creditworthiness of thefinancial institutions with which it conducts business.Bank debt has exposure to certain types of risk, including interest rate, market and the potential non-payment of principal andinterest as a result of default or bankruptcy of the issuer. Loans are generally subject to prepayment risk, which will affect the maturity of suchloans. The consolidated funds may enter into bank debt participation agreements through contractual relationships with a third-partyintermediary, causing the consolidated funds to assume the credit risk of both the borrower and the intermediary.The consolidated funds may invest in real property and real estate-related investments, including commercial mortgage-backedsecurities (“CMBS”) and real estate loans, that entail substantial inherent risks. There can be no assurance that such investments willincrease in value or that significant losses will not be incurred. CMBS are subject to a number of risks, including credit, interest rate,prepayment and market. These risks can be affected by a number of factors, including general economic conditions, particularly those in thearea where the related mortgaged properties are located, the level of the borrowers' equity in the mortgaged properties, and the relative timingand rate of delinquencies and prepayments of mortgage loans bearing a higher rate of interest. Real estate loans include residential orcommercial loans that are non-performing at the time of their acquisition or that become non-performing following their acquisition. Non-performing real estate loans may require a substantial amount of workout negotiations or restructuring, which may entail, among otherthings, a substantial reduction in the interest rate and/or write-down of the principal balance. Moreover, foreclosure on collateral securing oneor more real estate loans held by the consolidated funds may be necessary, which may be lengthy and expensive. Residential loans aretypically subject to risks associated with the value of the underlying properties, which may be affected by a number of factors includinggeneral economic conditions, mortgage qualification standards, local market conditions such as employment levels, the supply of homes,and the safety, convenience and attractiveness of the properties and neighborhoods. Commercial loans are typically subject to risksassociated with the ability of the borrower to repay, which may be impacted by general economic conditions, as well as borrower-specificfactors including the quality of management, the ability to generate sufficient income to make scheduled principal and interest payments, orthe ability to obtain alternative financing to repay the loan.135Oaktree Capital Group, LLCNotes to Consolidated Financial Statements — (Continued)December 31, 2013($ in thousands, except where noted)Certain consolidated funds hold over-the-counter derivatives that may allow counterparties to terminate derivative contracts prior tomaturity under certain circumstances, thereby resulting in an accelerated payment of any net liability owed to the counterparty.Recent Accounting DevelopmentsIn December 2011, the Financial Accounting Standards Board (“FASB”) issued amended guidance requiring enhanced disclosuresthat will enable users to evaluate the effect or potential effect of netting arrangements on an entity's financial position, including the effect orpotential effect of rights of setoff associated with certain financial instruments and derivative instruments. In January 2013, the FASB issuedadditional guidance to clarify that ordinary receivables and payables are not in the scope of the amended guidance. The amendments wereeffective for the Company beginning January 1, 2013. The Company adopted this guidance in the first quarter of 2013 and determined thatadoption did not have a material impact on its consolidated financial statements. Please see note 5 for required disclosures.In February 2013, the FASB issued guidance on reporting amounts reclassified out of accumulated other comprehensive income(“AOCI”), which requires entities to disclose additional information about reclassification adjustments, including changes in AOCI balancesby component and significant items reclassified out of AOCI. The guidance was effective for the Company beginning January 1, 2013 andapplied prospectively. The Company adopted this guidance in the first quarter of 2013 and determined that adoption did not have a materialimpact on its consolidated financial statements.In June 2013, the FASB issued guidance that amended the criteria by which an entity qualifies as an investment company foraccounting purposes. The guidance also clarified the characteristics of an investment company and provided measurement and disclosurerequirements for an investment company. The amendment is effective for the Company beginning January 1, 2014. The Company does notexpect that adoption of this guidance will have a material impact on its consolidated financial statements.136Oaktree Capital Group, LLCNotes to Consolidated Financial Statements — (Continued)December 31, 2013($ in thousands, except where noted)3. INVESTMENTS, AT FAIR VALUEInvestments held and securities sold short in the consolidated funds are summarized below: Fair Value as of December 31, Fair value as a percentage ofinvestments of consolidated fundsas of December 31,Investments:2013 2012 2013 2012United States: Fixed income securities: Consumer discretionary$3,017,755 $5,072,283 7.6% 13.2%Consumer staples801,959 697,300 2.0 1.8Energy650,336 565,151 1.6 1.5Financials554,115 1,013,230 1.4 2.6Health care600,570 658,932 1.5 1.7Industrials1,768,600 1,957,259 4.4 5.1Information technology1,130,614 908,662 2.8 2.4Materials1,094,476 826,008 2.7 2.2Telecommunication services289,046 282,101 0.7 0.7Utilities2,182,098 1,717,978 5.6 4.5Total fixed income securities (cost: $12,008,435 and$13,320,475 as of December 31, 2013 and 2012,respectively)12,089,569 13,698,904 30.3 35.7Equity securities: Consumer discretionary3,164,000 3,289,347 7.9 8.6Consumer staples482,521 444,735 1.2 1.2Energy570,839 448,412 1.4 1.2Financials6,474,365 6,001,493 16.3 15.6Health care310,582 134,239 0.8 0.3Industrials1,840,900 1,201,156 4.6 3.1Information technology227,608 199,003 0.6 0.5Materials923,933 1,407,850 2.3 3.7Telecommunication services51,881 15,022 0.1 0.0Utilities193,984 140,037 0.5 0.4Total equity securities (cost: $11,104,484 and $11,637,988as of December 31, 2013 and 2012, respectively)14,240,613 13,281,294 35.7 34.6137Oaktree Capital Group, LLCNotes to Consolidated Financial Statements — (Continued)December 31, 2013($ in thousands, except where noted) Fair Value as of December 31, Fair value as a percentage ofinvestments of consolidated fundsas of December 31,Investments:2013 2012 2013 2012Europe: Fixed income securities: Consumer discretionary$1,519,530 $1,607,822 3.8% 4.2%Consumer staples159,489 486,037 0.4 1.3Energy295,942 272,079 0.7 0.7Financials612,123 627,161 1.5 1.6Health care39,189 19,585 0.1 0.0Industrials378,797 531,770 1.0 1.4Information technology22,216 5,397 0.1 0.0Materials663,984 717,294 1.7 1.9Telecommunication services175,231 190,369 0.4 0.5Utilities18,581 28,561 0.0 0.1Total fixed income securities (cost: $3,349,740 and$4,383,068 as of December 31, 2013 and 2012,respectively)3,885,082 4,486,075 9.7 11.7Equity securities: Consumer discretionary198,045 117,485 0.5 0.3Consumer staples385,595 1,336,420 1.0 3.5Energy129,207 91,724 0.3 0.2Financials2,763,198 1,553,598 6.9 4.1Health care13,084 — 0.0 —Industrials784,524 1,388 2.0 0.0Information technology1,341 335 0.0 0.0Materials249,732 374,169 0.6 1.0Telecommunication services1,382 — 0.0 —Total equity securities (cost: $4,111,171 and $2,960,210 asof December 31, 2013 and 2012, respectively)4,526,108 3,475,119 11.3 9.1Asia and other: Fixed income securities: Consumer discretionary93,087 680,273 0.2 1.8Consumer staples25,424 3,615 0.1 0.0Energy74,167 47,776 0.2 0.1Financials159,369 22,186 0.4 0.1Health care31,057 1,622 0.1 0.0Industrials1,247,793 290,639 3.1 0.8Information technology21,842 33,260 0.1 0.1Materials84,107 92,974 0.2 0.2Telecommunication services1,884 1,939 0.0 0.0Utilities6,808 129,474 0.0 0.3Total fixed income securities (cost: $1,639,694 and$1,298,868 as of December 31, 2013 and 2012,respectively)1,745,538 1,303,758 4.4 3.4138Oaktree Capital Group, LLCNotes to Consolidated Financial Statements — (Continued)December 31, 2013($ in thousands, except where noted) Fair Value as of December 31, Fair value as a percentage ofinvestments of consolidated fundsas of December 31,Investments:2013 2012 2013 2012Asia and other: Equity securities: Consumer discretionary$422,731 $99,527 1.1% 0.3%Consumer staples42,937 42,688 0.1 0.1Energy267,494 213,490 0.7 0.6Financials1,211,033 973,745 3.0 2.5Health care8,124 71 0.0 0.0Industrials1,136,934 613,020 2.9 1.6Information technology130,714 75,583 0.3 0.2Materials63,395 51,296 0.2 0.1Telecommunication services17,719 6,044 0.0 0.0Utilities123,897 52,012 0.3 0.1Total equity securities (cost: $2,734,160 and $1,726,145 asof December 31, 2013 and 2012, respectively)3,424,978 2,127,476 8.6 5.5Total fixed income securities17,720,189 19,488,737 44.4 50.8Total equity securities22,191,699 18,883,889 55.6 49.2Total investments, at fair value$39,911,888 $38,372,626 100.0% 100.0%Securities Sold Short: Securities sold short – equities (proceeds: $137,092and $123,575 as of December 31, 2013 and 2012, respectively)$(140,251) $(126,530) As of December 31, 2013 and 2012, no single issuer or investment had a fair value that exceeded 5% of Oaktree's total consolidatednet assets. Net Gains (Losses) From Investment Activities of Consolidated FundsNet gains (losses) from investment activities in the consolidated statements of operations consist primarily of the realized andunrealized gains and losses on the consolidated funds' investments (including foreign exchange gains and losses attributable to foreign-denominated investments and related activities) and other financial instruments. Unrealized gains or losses result from changes in the fairvalue of these investments and other financial instruments. Upon disposition of an investment, unrealized gains or losses are reversed andan offsetting realized gain or loss is recognized in the current period.139Oaktree Capital Group, LLCNotes to Consolidated Financial Statements — (Continued)December 31, 2013($ in thousands, except where noted)The following table summarizes net gains (losses) from investment activities: Year Ended December 31, 2013 2012 2011 Net Realized Gain(Loss) onInvestments Net Change inUnrealizedAppreciation(Depreciation) onInvestments Net Realized Gain(Loss) onInvestments Net Change inUnrealizedAppreciation(Depreciation) onInvestments Net Realized Gain(Loss) onInvestments Net Change inUnrealizedAppreciation(Depreciation) onInvestmentsInvestments and other financialinstruments$3,649,821 $2,152,662 $4,421,219 $952,478 $2,008,111 $(3,233,102)Total return, credit default andinterest-rate swaps (1)89,333 (22,619) 66,992 33,445 80,398 (60,023)Foreign currency forward contracts(1)(217,234) (286,336) 85,773 (148,791) (307,681) 233,816Options and futures (1)(17,922) (238) (13,202) (1,972) (36,693) (5,367)Total$3,503,998 $1,843,469 $4,560,782 $835,160 $1,744,135 $(3,064,676) (1)Please see note 5 for additional information.4. FAIR VALUEFair Value of Financial Assets and LiabilitiesThe short-term nature of cash and cash-equivalents, U.S. Treasury and government-agency securities, receivables and accountspayable causes each of their carrying values to approximate fair value. The fair value of U.S. Treasury securities and short-term investmentsincluded in cash and cash-equivalents is a Level I valuation and the fair value of government-agency securities is a Level II valuation. The fairvalue of the Company's debt obligations, which are carried at amortized cost, is a Level III valuation that is estimated based on a discountedcash-flow calculation using estimated rates that would be offered to Oaktree for debt of similar terms and maturities. The estimated fair valueof these debt obligations was $611.1 million and $652.9 million as of December 31, 2013 and 2012, respectively, utilizing an averageborrowing rate of 3.2% and 3.1%, respectively. As of December 31, 2013, a 10% increase in the assumed average borrowing rate wouldlower the estimated fair value to $603.7 million, whereas a 10% decrease would increase the estimated fair value to $618.7 million. The fairvalue of the Company's interest-rate swaps and foreign exchange contracts is a Level II valuation and is included in accounts payable, otheraccrued expenses and other liabilities. As of December 31, 2013 and 2012, the fair value of the interest-rate swaps was a net liability of $4.2million and $7.9 million, respectively, and the fair value of the foreign exchange contracts was a net asset of $1.8 million and a net liability of$0.8 million, respectively. The fair value of the Company's total-return swap, a Level II valuation, included in other assets on theconsolidated balance sheet, was an asset of $4.5 million as of December 31, 2013.In 2013, the Company elected the fair value option for certain corporate investments that otherwise would not have reflectedunrealized gains and losses in current-period earnings. As of December 31, 2013, the fair value of those securities was $67.6 million andconsisted of available-for-sale equity securities. The gain from changes in fair value included in 2013 earnings was $17.1 million, and isincluded in investment income on the consolidated statements of operations. Accounting for these investments at fair value is consistentwith how the Company accounts for its other corporate investments, which are primarily investments in funds. The valuation methods usedto measure the fair value of such investments is consistent with the valuation methodologies applied to investments held by the consolidatedfunds.140Oaktree Capital Group, LLCNotes to Consolidated Financial Statements — (Continued)December 31, 2013($ in thousands, except where noted)Fair Value of Financial Instruments Held By Consolidated FundsThe table below summarizes the valuation of investments and other financial instruments of the consolidated funds by fair-valuehierarchy levels:As of December 31, 2013:Level I Level II Level III TotalCorporate debt – bank debt$— $7,352,129 $2,809,437 $10,161,566Corporate debt – all other798 5,125,646 2,432,179 7,558,623Equities – common stock4,804,068 1,109,270 6,700,015 12,613,353Equities – preferred stock4,101 8,483 919,771 932,355Real estate— 37,184 6,221,294 6,258,478Real estate loan portfolio— — 2,369,441 2,369,441Other2,656 1,708 13,708 18,072Total investments$4,811,623 $13,634,420 $21,465,845 $39,911,888Securities sold short – equities$(140,251) $— $— $(140,251)Options written (net)$(1,862) $16,853 $— $14,991Swaps (net)— 11,222 — 11,222Swaptions (net)— 5,392 — 5,392Forward contracts (net)— (83,481) — (83,481)Futures (net)(3,067) — — (3,067)As of December 31, 2012:Level I Level II Level III TotalCorporate debt – bank debt$— $7,412,691 $2,253,476 $9,666,167Corporate debt – all other— 6,663,519 3,159,051 9,822,570Equities – common stock3,362,742 1,055,465 8,101,051 12,519,258Equities – preferred stock2,520 2,133 650,096 654,749Real estate— — 3,946,142 3,946,142Real estate loan portfolio— — 1,737,822 1,737,822Other1,933 8,438 15,547 25,918Total investments$3,367,195 $15,142,246 $19,863,185 $38,372,626Securities sold short – equities$(126,530) $— $— $(126,530)Options written (net)$— $5,520 $— $5,520Swaps (net)— (5,539) 44,705 39,166Forward contracts (net)— (93,863) — (93,863)Futures (net)90 — — 90141Oaktree Capital Group, LLCNotes to Consolidated Financial Statements — (Continued)December 31, 2013($ in thousands, except where noted)The following tables set forth a summary of changes in the fair value of the Level III investments: Corporate Debt –Bank Debt Corporate Debt –All Other Equities –Common Stock Equities –Preferred Stock Real Estate Real EstateLoan Portfolio Swaps Other Total2013: Beginning balance$2,253,476 $3,159,051 $8,101,051 $650,096 $3,946,142 $1,737,822 $44,705 $15,547 $19,907,890Transfers intoLevel III377,448 2,410 367,562 387,757 15,055 — — — 1,150,232Transfers out ofLevel III(656,354) (327,612) (1,222,610) (35,771) — — — — (2,242,347)Purchases1,673,352 428,783 1,437,693 280,531 2,200,559 1,226,791 — — 7,247,709Sales(1,120,160) (1,029,515) (2,590,023) (316,187) (978,064) (866,588) (91,101) — (6,991,638)Realized gains(losses), net33,427 120,610 956,094 41,553 194,681 39,755 91,070 (27,386) 1,449,804Unrealizedappreciation(depreciation),net248,248 78,452 (349,752) (88,208) 842,921 231,661 (44,674) 25,547 944,195Ending balance$2,809,437 $2,432,179 $6,700,015 $919,771 $6,221,294 $2,369,441 $— $13,708 $21,465,845Net change inunrealizedappreciation(depreciation)attributable to assetsstill held at end ofperiod$198,469 $165,124 $246,039 $(42,108) $777,549 $231,662 $— $(1,783) $1,574,9522012: Beginning balance$1,978,637 $3,155,241 $6,164,025 $1,090,107 $2,786,862 $479,690 $— $18,824 $15,673,386Transfers intoLevel III476,034 688,299 785,470 6,884 39,199 — 2,317 — 1,998,203Transfers out ofLevel III(547,130) (592,397) (306,648) (98,797) (5,353) — — — (1,550,325)Purchases1,667,292 953,076 1,009,258 53,788 1,361,920 2,104,577 — 500 7,150,411Sales(1,329,534) (1,183,277) (564,217) (410,261) (914,108) (988,399) — (7,835) (5,397,631)Realized gains(losses), net50,938 112,396 178,115 318,498 249,933 35,650 — 5,404 950,934Unrealizedappreciation(depreciation),net(42,761) 25,713 835,048 (310,123) 427,689 106,304 42,388 (1,346) 1,082,912Ending balance$2,253,476 $3,159,051 $8,101,051 $650,096 $3,946,142 $1,737,822 $44,705 $15,547 $19,907,890Net change inunrealizedappreciation(depreciation)attributable to assetsstill held at end ofperiod$(45,214) $23,779 $847,098 $14,873 $531,768 $106,304 $42,388 $(64) $1,520,932Total realized and unrealized gains and losses recorded for Level III investments are included in net realized gain on consolidatedfunds' investments or net change in unrealized appreciation (depreciation) on consolidated funds' investments in the consolidated statementsof operations.Transfers between Level I and Level II for the years ended December 31, 2013 and 2012 included transfers from Level II to Level I of$1,295.4 million and $11.5 million, respectively, as certain common equity securities began trading on a securities exchange.Transfers out of Level III were generally attributable to certain investments that experienced a more significant level of market activityduring the period and thus were valued using observable inputs. Transfers into Level III were typically due to certain investments thatexperienced a less significant level of market activity during142Oaktree Capital Group, LLCNotes to Consolidated Financial Statements — (Continued)December 31, 2013($ in thousands, except where noted)the period or portfolio companies that undertook restructurings or bankruptcy proceedings and thus were valued in the absence of observableinputs.The following table sets forth a summary of the valuation technique and quantitative information utilized in determining the fairvalue of the consolidated funds' Level III investments as of December 31, 2013:Investment Type Fair Value Valuation Technique Significant Unobservable Inputs(9)(10)(11) Range Weighted Average(12) Credit-oriented investments: Consumer discretionary: $40,998 Discounted cash flow (1) Discount rate 13% – 15% 14% 571,865 Market approach(comparable companies) (2) Earnings multiple (3) 4x – 11x 5x 321,619 Recent transaction price (5) Not applicable Not applicable Not applicable 139,002 Recent market information (6) Quoted prices / discount(discount not applicable) Not applicable Not applicableIndustrials: 328,712 Discounted cash flow (1) Discount rate 12% – 17% 14% 335,270 Discounted cash flow (1) /Sales approach (8) Discount rate / Market transactions 11% – 20% 14% 59,349 Market approach(comparable companies) (2) Earnings multiple (3) 4x – 6x 6x 77,550 Market approach(value of underlying assets) (2)(4) Underlying asset multiple 0.9x – 1.1x 1x 208,436 Recent transaction price (5) Not applicable Not applicable Not applicable 840,871 Recent market information (6) Quoted prices / discount(discount not applicable) Not applicable Not applicableMaterials: 67,280 Discounted cash flow (1) Discount rate 13% – 14% 13% 437,522 Market approach(comparable companies) (2) Earnings multiple (3) 6x – 7x 6x 79,020 Recent transaction price (5) Not applicable Not applicable Not applicableOther: 704,430 Discounted cash flow (1) Discount rate 8% – 15% 11% 337,406 Market approach(comparable companies) (2) Earnings multiple (3) 6x – 7x 7x 291,925 Recent transaction price (5) Not applicable Not applicable Not applicable 400,361 Recent market information (6) Quoted prices / discount(discount not applicable) Not applicable Not applicableEquity investments: Consumer discretionary: 57,560 Discounted cash flow (1) Discount rate 12% – 14% 13% 504,550 Market approach(comparable companies) (2) Earnings multiple (3) 4x – 11x 9x 97,834 Recent transaction price (5) Not applicable Not applicable Not applicable 140,705 Recent market information (6) Quoted prices / discount(discount not applicable) Not applicable Not applicableFinancials: 344,636 Market approach(comparable companies) (2) Earnings multiple (3) 12x – 14x 13x 407,823 Market approach(value of underlying assets) (2)(4) Underlying asset multiple 1x – 1.2x 1.1x 185,140 Recent transaction price (5) Not applicable Not applicable Not applicableIndustrials: 1,511,811 Market approach(comparable companies) (2) Earnings multiple (3) 4x – 12x 8x 1,064,686 Market approach(value of underlying assets) (2)(4) Underlying asset multiple 1x – 1.4x 1.1x 745,519 Recent transaction price (5) Not applicable Not applicable Not applicable143Oaktree Capital Group, LLCNotes to Consolidated Financial Statements — (Continued)December 31, 2013($ in thousands, except where noted)Investment Type Fair Value Valuation Technique Significant Unobservable Inputs(9)(10)(11) Range Weighted Average(12) Materials: $1,014,930 Market approach(comparable companies) (2) Earnings multiple (3) 6x – 8x 7x 1,604 Recent market information (6) Quoted prices / discount(discount not applicable) Not applicable Not applicable 56,064 Recent transaction price (5) Not applicable Not applicable Not applicableOther: 60,451 Discounted cash flow (1) Discount rate 10% – 12% 11% 1,052,158 Market approach(comparable companies) (2) Earnings multiple (3) 5x – 11x 9x 21,790 Recent transaction price (5) Not applicable Not applicable Not applicable 107,361 Recent market information (6) Quoted prices / discount(discount not applicable) Not applicable Not applicable 245,164 Other Not applicable Not applicable Not applicableReal estate-orientedinvestments: 1,997,927 Discounted cash flow (1)(7) Discount rate 8% – 36% 14% Terminal capitalization rate 6% – 15% 8% Direct capitalization rate 7% – 8% 8% Net operating income growth rate 1% – 30% 9% Absorption rate 16% – 44% 32% 1,230,234 Market approach(comparable companies) (2) Earnings multiple (3) 6x – 12x 12x 427,452 Market approach(value of underlying assets) (2)(4) Underlying asset multiple 1.3x – 1.5x 1.4x 710,888 Recent transaction price (5) Not applicable Not applicable Not applicable 684,802 Sales approach (8) Market transactions Not applicable Not applicable 1,169,991 Recent market information (6) Quoted prices / discount 0% – 6% 5%Real estate loan portfolios: 593,986 Recent transaction price (5) Not applicable Not applicable Not applicable 1,775,455 Discounted cash flow (1)(7) Discount rate 10% – 24% 15%Other 13,708 Total Level III investments $21,465,845 144Oaktree Capital Group, LLCNotes to Consolidated Financial Statements — (Continued)December 31, 2013($ in thousands, except where noted)The following table sets forth a summary of the valuation technique and quantitative information utilized in determining the fairvalue of the Company's Level III investments as of December 31, 2012:Investment Type Fair Value Valuation Technique Significant Unobservable Inputs(9)(10)(11) Range Weighted Average(12) Credit-oriented investments: Consumer discretionary: $163,978 Discounted cash flow (1) Discount rate 7% – 15% 13% 233,160 Market approach(comparable companies) (2) Earnings multiple (3) 5x – 12x 8x 673,870 Recent transaction price (5) Not applicable Not applicable Not applicable 202,878 Recent market information (6) Quoted prices / discount(discount not applicable) Not applicable Not applicableConsumer staples: 317,589 Discounted cash flow (1) Discount rate 12% – 14% 12% 283,020 Market approach(comparable companies) (2) Earnings multiple (3) 9x – 10x 9x 104,956 Recent transaction price (5) Not applicable Not applicable Not applicable 7,424 Recent market information (6) Quoted prices / discount(discount not applicable) Not applicable Not applicableFinancials: 15,055 Discounted cash flow (1) Discount rate 9% – 11% 10% 106,777 Market approach(comparable companies) (2) Earnings multiple (3) 9x – 11x 10x 22,774 Recent transaction price (5) Not applicable Not applicable Not applicable 439,281 Recent market information (6) Quoted prices / discount(discount not applicable) Not applicable Not applicableIndustrials: 544,628 Discounted cash flow (1) Discount rate 8% – 19% 14% 173,006 Market approach(comparable companies) (2) Earnings multiple (3) 5x – 10x 8x 92,899 Market approach(value of underlying assets) (2)(4) Underlying asset multiple 0.9x – 1.1x 1x 419,825 Recent transaction price (5) Not applicable Not applicable Not applicable 176,334 Recent market information (6) Quoted prices / discount(discount not applicable) Not applicable Not applicableMaterials: 63,132 Discounted cash flow (1) Discount rate 13% – 15% 14% 464,236 Market approach(comparable companies) (2) Earnings multiple (3) 6x – 8x 7x 173,248 Recent transaction price (5) Not applicable Not applicable Not applicableOther: 252,080 Discounted cash flow (1) Discount rate 7% – 16% 14% 208,950 Market approach(comparable companies) (2) Earnings multiple (3) 5x – 6x 6x 103,269 Market approach(value of underlying assets) (2)(4) Underlying asset multiple 0.9x – 1.1x 1x 104,760 Recent transaction price (5) Not applicable Not applicable Not applicable 110,103 Recent market information (6) Quoted prices / discount(discount not applicable) Not applicable Not applicableEquity investments: Consumer staples: 1,591,730 Market approach(comparable companies) (2) Earnings multiple (3) 5x – 9x 8xFinancials: 758,887 Market approach(comparable companies) (2) Earnings multiple (3) 10x – 14x 12x 306,977 Market approach(value of underlying assets) (2)(4) Underlying asset multiple 1x – 1.2x 1.1x 1,412,616 Recent transaction price (5) Not applicable Not applicable Not applicable 9,630 Recent market information (6) Quoted prices / discount(discount not applicable) Not applicable Not applicable145Oaktree Capital Group, LLCNotes to Consolidated Financial Statements — (Continued)December 31, 2013($ in thousands, except where noted)Investment Type Fair Value Valuation Technique Significant Unobservable Inputs(9)(10)(11) Range Weighted Average(12) Industrials: $879,752 Market approach(comparable companies) (2) Earnings multiple (3) 4x – 11x 8x 1,388 Market approach(value of underlying assets) (2)(4) Underlying asset multiple 0.9x – 1.1x 1x 658,463 Recent transaction price (5) Not applicable Not applicable Not applicableMaterials: 1,685,758 Market approach(comparable companies) (2) Earnings multiple (3) 6x – 8x 7x 81,673 Recent transaction price (5) Not applicable Not applicable Not applicableOther: 57,560 Discounted cash flow (1) Discount rate 13% – 15% 14% 1,031,830 Market approach(comparable companies) (2) Earnings multiple (3) 5x – 12x 8x 82,131 Market approach(value of underlying assets) (2)(4) Underlying asset multiple 0.9x – 1.1x 1x 32,955 Recent transaction price (5) Not applicable Not applicable Not applicable 86,828 Recent market information (6) Quoted prices / discount(discount not applicable) Not applicable Not applicable 72,969 Other Not applicable Not applicable Not applicableReal estate-orientedinvestments: 1,306,815 Discounted cash flow (1)(7) Discount rate 8% – 28% 14% Terminal capitalization rate 6% – 11% 8% Direct capitalization rate 7% – 8% 8% Net operating income growth rate 1% – 29% 11% Absorption rate 14% – 33% 27% 844,610 Market approach(comparable companies) (2) Earnings multiple (3) 6x – 13x 12x 737,011 Market approach(value of underlying assets) (2)(4) Underlying asset multiple 1.7x – 1.8x 1.8x 674,292 Recent transaction price (5) Not applicable Not applicable Not applicable 243,791 Sales approach (8) Market transactions Not applicable Not applicable 139,623 Recent market information (6) Quoted prices / discount(discount not applicable) Not applicable Not applicableReal estate loan portfolios: 1,245,538 Recent transaction price (5) Not applicable Not applicable Not applicable 102,153 Recent market information (6) Quoted prices / discount(discount not applicable) Not applicable Not applicable 390,131 Discounted cash flow (1)(7) Discount rate 14% – 20% 15%Other 15,547 Total Level III investments $19,907,890 (1)A discounted cash flow method is generally used to value performing credit-oriented investments in which the consolidated funds do not have a controllinginterest in the underlying issuer, as well as certain equity investments, real estate-oriented investments and real estate loan portfolios.(2)A market approach is generally used to value distressed investments and investments in which the consolidated funds have a controlling interest in theunderlying issuer.(3)Earnings multiples are based on comparable public companies and transactions with comparable companies. The Company typically utilizes multiples ofEBITDA; however, in certain cases the Company may use other earnings multiples believed to be most relevant to the146Oaktree Capital Group, LLCNotes to Consolidated Financial Statements — (Continued)December 31, 2013($ in thousands, except where noted)investment. The Company typically applies the multiple to trailing-twelve months' EBITDA. However, in certain cases other earnings measures, such as proforma EBITDA, may be utilized if deemed to be more relevant.(4)A market approach using the value of underlying assets utilizes a multiple, based on comparable companies, of underlying assets or the net book value ofthe portfolio company. The Company typically obtains the value of underlying assets from the underlying portfolio company's financial statements or frompricing vendors. The Company may value the underlying assets by using prices and other relevant information from market transactions involvingcomparable assets.(5)Certain investments are valued based on recent transactions, generally defined as investments purchased or sold within six months of the valuation date.The fair value may also be based on a pending transaction expected to close after the valuation date.(6)Certain investments are valued using quoted prices for the subject or similar securities. Generally, investments valued in this manner are classified asLevel III because the quoted prices may be indicative in nature for securities that are in an inactive market, may be for similar securities, or may requireadjustment for investment-specific factors or restrictions.(7)The discounted cash flow model for certain real estate-oriented investments and certain real estate loan portfolios contains a sell-out analysis. In these cases,the discounted cash flow is based on the expected timing and prices of sales of the underlying properties. The Company's determination of the sales prices ofthese properties typically includes consideration of prices and other relevant information from market transactions involving comparable properties.(8)The sales approach uses prices and other relevant information generated by market transactions involving comparable assets. The significant unobservableinputs used in the sales approach generally include adjustments to transactions involving comparable assets or properties, adjustments to external or internalappraised values, and the Company's assumptions regarding market trends or other relevant factors.(9)The discount rate is the significant unobservable input used in the fair-value measurement of performing credit-oriented investments in which theconsolidated funds do not have a controlling interest in the underlying issuer, as well as certain equity investments and real estate loan portfolios. Anincrease (decrease) in the discount rate would result in a lower (higher) fair-value measurement.(10)Multiple of either earnings or underlying assets is the significant unobservable input used in the market approach for the fair-value measurement ofdistressed credit-oriented investments, credit-oriented investments in which the consolidated funds have a controlling interest in the underlying issuer,equity investments and certain real estate-oriented investments. An increase (decrease) in the multiple would result in a higher (lower) fair-valuemeasurement.(11)The significant unobservable inputs used in the fair-value measurement of real estate investments utilizing a discounted cash flow analysis can include oneor more of the following: discount rate, terminal capitalization rate, direct capitalization rate, net operating income growth rate or absorption rate. An increase(decrease) in a discount rate, terminal capitalization rate or direct capitalization rate would result in a lower (higher) fair-value measurement. An increase(decrease) in a net operating income growth rate or absorption rate would result in a higher (lower) fair-value measurement. Generally, a change in a netoperating income growth rate or absorption rate would be accompanied by a directionally similar change in the discount rate.(12)The weighted average is based on the fair value of the investments included in the range.A significant amount of judgment may be required when using unobservable inputs, including assessing the accuracy of sourcedata and the results of pricing models. The Company assesses the accuracy and reliability of the sources it uses to develop unobservableinputs. These sources may include third-party vendors that the Company believes are reliable and commonly utilized by other market placeparticipants. As described in note 2, other factors beyond the unobservable inputs described above may have a significant impact oninvestment valuations.During the year ended December 31, 2013, there were changes in the techniques used for purposes of valuing certain Level III-typeinvestments. One real estate-oriented investment commenced trading on a securities exchange; thus, it changed from a market approachbased on the value of underlying assets to a valuation based on recent market information, as adjusted for factors stemming from thestructure of the equity interests owned by the consolidated funds. The valuation technique for certain real estate loan portfolios changed to adiscounted cash flow method from a combination of recent market and sales information, as a result of a lack of recent market transactiondata. One credit-oriented investment changed to a market approach based on comparable companies from a valuation based on underlyingassets as a result of a change in the composition of the underlying investment.During the year ended December 31, 2012, the valuation technique for two real estate-oriented investments changed to a marketapproach based on comparable companies from a discounted cash flow approach as a result of a change in the composition of the underlyinginvestments.147Oaktree Capital Group, LLCNotes to Consolidated Financial Statements — (Continued)December 31, 2013($ in thousands, except where noted)5. HEDGES AND OTHER DERIVATIVE INSTRUMENTSThe Company enters into derivative instruments as part of its overall risk management strategy or to facilitate its investmentmanagement activities. Risks associated with fluctuations in interest rates and foreign currency exchange rates in the normal course ofbusiness are addressed as part of the Company's overall risk management strategy that may include the use of derivative instruments toeconomically hedge or reduce these exposures. From time to time, the Company may enter into (a) foreign currency option and forwardcontracts to reduce earnings and cash flow volatility associated with changes in foreign currency exchange rates, and (b) interest-rate swapsto manage all or a portion of the interest-rate risk associated with its variable rate borrowings. As a result of the use of these or other derivativecontracts, the Company is exposed to the risk that counterparties will fail to fulfill their contractual obligations. The Company attempts tomitigate this counterparty risk by entering into derivative contracts only with major financial institutions that have investment-grade creditratings. Counterparty credit risk is evaluated in determining the fair value of derivative instruments.In January 2013, the Company entered into an interest-rate swap with a notional value of $175.0 million, of which $168.8 millionwas designated to hedge a portion of the interest-rate risk associated with its variable-rate borrowings. In conjunction with the Company’sexisting interest-rate swap, this swap effectively fixed the annual interest rate at a blended rate of 2.60%, based on the Company's currentcredit ratings, on the bulk of the first four years of the Company's term loan.As of December 31, 2013, the Company had two interest-rate swaps designated as cash-flow hedges with a combined notionalvalue of $378.8 million. These hedges continued to be effective as of December 31, 2013. As of December 31, 2012, the Company had oneinterest-rate swap designated as a cash-flow hedge with a notional value of $240.0 million.In August 2013, to facilitate its investment management activities, the Company entered into a two-year total return swap (“TRS”)agreement with a financial institution to meet certain investment objectives for which the primary risk exposure is credit. Pursuant to theTRS agreement, as of December 31, 2013, the Company had deposited $50 million in cash collateral with the counterparty and had theability to access up to $200 million of U.S. dollar-denominated debt securities underlying the TRS. The Company will be entitled to receive orobligated to pay certain amounts based on the interest income or expense, as well as changes in the market values, of the TRS's underlyingreference securities. The Company pays interest on the outstanding notional amount of the underlying reference securities at a spread toLIBOR. The TRS's fair value is based on changes in the fair value of the underlying reference securities, which are recorded as unrealizedgains or losses until realized.Freestanding derivatives are instruments that the Company enters into as part of its overall risk management strategy but does notdesignate as hedging instruments for accounting purposes. These instruments may include foreign currency exchange contracts, interest-rate swaps and other derivative contracts.The fair value of forward currency sell contracts consisted of the following:As of December 31, 2013:Contract Amount inLocal Currency Contract Amount inU.S. Dollars Market Value inU.S. Dollars Net UnrealizedAppreciation(Depreciation)Euro, expiring 1/8/14-10/31/14115,685 $153,959 $159,485 $(5,526)USD (buy GBP), expiring 1/8/14-9/30/1454,361 54,361 50,286 4,075GBP, expiring 4/30/143,000 4,643 4,966 (323)Japanese Yen, expiring 1/31/14-1/30/156,261,700 63,107 59,581 3,526Total $276,070 $274,318 $1,752As of December 31, 2012: Euro, expiring 1/7/13-10/31/1393,500 $104,155 $105,997 $(1,842)Japanese Yen, expiring 2/28/13-5/31/131,330,000 16,418 15,379 1,039Total $120,573 $121,376 $(803)148Oaktree Capital Group, LLCNotes to Consolidated Financial Statements — (Continued)December 31, 2013($ in thousands, except where noted)The fair value of the TRS contract, which is included in other assets in the consolidated statements of financial condition, consistedof the following:As of December 31, 2013Notional Fair ValueTotal-return swap$189,089 $4,515Realized and unrealized gains and losses arising from freestanding derivative instruments were recorded on the consolidatedstatements of operations as follows: For the Year Ended December 31,Foreign Currency Forward Contracts:2013 2012 2011General and administrative expenses (1)$3,763 $1,545 $(1,688) Total-return Swap: Investment income$4,515 $— $— (1)To the extent that the Company's freestanding derivatives are utilized to hedge its exposure to investment income and management feesearned from consolidated funds, the related hedged items are eliminated in consolidation, with the derivative impact (a positive numberreflects a reduction of expenses) reflected in consolidated general and administrative expenses.As of both December 31, 2013 and 2012, the Company had not designated any derivatives as fair-value hedges or hedges of netinvestments in foreign operations.Derivatives Held By Consolidated FundsCertain consolidated funds utilize derivative instruments in ongoing investment operations. These derivatives primarily consist offoreign currency forward contracts utilized to manage currency risk, interest-rate swaps to hedge interest-rate risk, options and futures used tohedge exposure for specific securities, and total-return and credit-default swaps utilized mainly to obtain exposure to leveraged loans or toparticipate in foreign markets not readily accessible. The primary risk exposure for options and futures is price, while the primary riskexposure for total-return and credit-default swaps is credit. None of the derivative instruments is accounted for as a hedging instrumentutilizing hedge accounting.The impact of derivative instruments held by the consolidated funds on the consolidated statements of operations was as follows: Year Ended December 31, 2013 2012 2011 Net Realized Gain(Loss) onInvestments Net Change inUnrealizedAppreciation(Depreciation) onInvestments Net Realized Gain(Loss) onInvestments Net Change inUnrealizedAppreciation(Depreciation) onInvestments Net Realized Gain(Loss) onInvestments Net Change inUnrealizedAppreciation(Depreciation) onInvestmentsTotal-return, credit-default and interest-rate swaps$89,333 $(22,619) $66,992 $33,445 $80,398 $(60,023)Foreign currency forward contracts(217,234) (286,336) 85,773 (148,791) (307,681) 233,816Options and futures(17,922) (238) (13,202) (1,972) (36,693) (5,367)Total$(145,823) $(309,193) $139,563 $(117,318) $(263,976) $168,426149Oaktree Capital Group, LLCNotes to Consolidated Financial Statements — (Continued)December 31, 2013($ in thousands, except where noted)Foreign Currency ContractsCertain consolidated funds enter into foreign currency contracts to hedge foreign currencies utilized in certain current investments orfuture purchase commitments. All commitments are valued using the applicable foreign currency exchange rate, with the resultingunrealized gain or loss included in income. Gains or losses are realized at the time forward contracts are either extinguished or closed ifentering into an offsetting contract.The average notional amounts of foreign currency contracts outstanding during 2013 were $4.5 billion long and $243.6 millionshort, and during 2012 were $3.8 billion long and $205.2 million short. Outstanding foreign currency contracts as of December 31, 2013 and2012, which included $51.8 million and $53.3 million of gross unrealized appreciation, and $135.2 million and $147.2 million of grossunrealized depreciation, respectively, were as follows.As of December 31, 2013:Contract Amount inLocal Currency Contract Amount inU.S. Dollars Market Value in U.S.Dollars Net UnrealizedAppreciation(Depreciation)Euro, expiring 1/6/14-3/4/15(1,324,989) $1,832,932 $1,878,449 $(45,517)Pound Sterling, expiring 1/6/14-12/12/14(905,090) 1,437,028 1,510,779 (73,751)Canadian Dollar, expiring 1/16/14-2/13/14(8,289) 7,864 7,706 158Australian Dollar, expiring 1/16/14-6/12/14(404,642) 376,193 361,010 15,183Hong Kong Dollar, expiring 1/23/14(37,208) 4,800 4,799 1Japanese Yen, expiring 1/10/14-11/28/14(37,773,587) 383,383 359,072 24,311Swiss Franc, expiring 1/23/14(2,355) 2,635 2,648 (13)Singapore Dollar, expiring 1/23/14(5,741) 2,717 2,633 84South Korean Won, expiring 1/23/14(1,236,110) 1,161 1,177 (16)New Zealand Dollar, expiring 2/13/14-6/12/14(114,303) 94,065 92,984 1,081Danish Krone, expiring 11/4/14(314,524) 57,007 58,047 (1,040)Indian Rupee, expiring 1/2/14-12/1/15424,331 (6,106) (6,502) 396Korean Won, expiring 2/4/14-7/23/14(104,273,576) 93,775 98,133 (4,358)Total $4,287,454 $4,370,935 $(83,481) As of December 31, 2012:Contract Amount inLocal Currency Contract Amount inU.S. Dollars Market Value in U.S.Dollars Net UnrealizedAppreciation(Depreciation)Euro, expiring 1/7/13-6/27/14(1,612,565) $2,030,641 $2,126,806 $(96,165)Pound Sterling, expiring 1/7/13-8/3/15(419,386) 666,362 680,600 (14,238)Canadian Dollar, expiring 1/10/13-3/14/13(14,743) 15,056 14,789 267Australian Dollar, expiring 1/10/13-3/14/13(643,136) 654,139 665,263 (11,124)Hong Kong Dollar, expiring 1/17/13(31,301) 4,038 4,038 —Japanese Yen, expiring 1/10/13-11/29/13(32,661,235) 413,138 377,884 35,254Swiss Franc, expiring 1/7/13-1/17/13(10,041) 10,803 10,971 (168)Singapore Dollar, expiring 1/17/13(1,858) 1,520 1,521 (1)Chinese Yuan, expiring 3/7/13— — (55) (632)New Zealand Dollar, expiring 1/10/13(68,079) 54,573 56,133 (1,560)Korean Won, expiring 2/4/13-6/19/14(85,515,234) 74,002 79,498 (5,496)Total $3,924,272 $4,017,448 $(93,863)150Oaktree Capital Group, LLCNotes to Consolidated Financial Statements — (Continued)December 31, 2013($ in thousands, except where noted)Credit Default SwapsChanges in the value of a CDS are recorded as unrealized appreciation or depreciation. Upfront payments received or paid by theconsolidated funds are reflected as an asset or liability in the consolidated statements of financial condition.As of December 31, 2013As of December 31, 2013, payments in the amount of $3,506 had been received as upfront payments. Periodic premiums receivedor payments made by the consolidated funds are recorded as realized gains or losses on consolidated funds' investments, respectively, in theconsolidated statements of operations. Gains or losses are realized upon early termination of the swap agreement. Collateral, in the form ofcash or securities, may be required to be held in segregated accounts with a custodian in compliance with a CDS contract.As of December 31, 2013, the consolidated funds have bought protection on various index swaps. The maximum receipts on thesebuy protection contracts were approximately $50,000, with terms up to five years. The net unrealized depreciation on these contracts was$4,335 as of December 31, 2013.As of December 31, 2012As of December 31, 2012, payments in the amount of $4,350 had been received or paid as upfront payments. Periodic premiumsreceived or payments made by the consolidated funds are recorded as realized gains or losses on consolidated funds' investments,respectively, in the consolidated statements of operations. Gains or losses are realized upon early termination of the swap agreement.Collateral, in the form of cash or securities, may be required to be held in segregated accounts with a custodian in compliance with a CDScontract.As of December 31, 2012, the consolidated funds have sold protection and bought protection on various single-name swaps andindex swaps. There was a maximum payout of approximately $269,800 on sell protection contracts and maximum receipt of approximately$10,000 on buy protection contracts, with terms up to five years. The maximum payout amount could be offset by the subsequent sale, ifany, of assets obtained via the execution of a payout event. The net unrealized appreciation on these contracts was $7,692 as of December31, 2012. The table below summarizes the CDSs for which the consolidated funds were protection sellers as of December 31, 2012: Single-name CDS Bank Loan SwapIndexReference Asset TypeBank Loan Corporate Bond Fair value of sell protection$3,115 $164 $92Maximum potential future payments221,700 5,600 42,500Collateral held at third party(20,503) (196) (3,040)The credit spread on the underlying asset is generally indicative of the current status of the underlying risk of the CDS. Higher creditspreads with a shorter contract term could be indicative of a higher likelihood for the protection seller to perform. The current credit spreads foreach contract term period where the consolidated funds were protection sellers is summarized below: Maximum Payout Amounts By Contract TermCurrent Credit Spread (in Basis Points)0-1 Year 1-3 Years0-1,000$269,800 $—151Oaktree Capital Group, LLCNotes to Consolidated Financial Statements — (Continued)December 31, 2013($ in thousands, except where noted)Balance Sheet OffsettingThe Company recognizes all derivatives as assets or liabilities at fair value in its consolidated statements of financial condition. Inconnection with its derivative activities, the Company generally enters into agreements subject to enforceable master netting arrangementsthat allow the Company to offset derivative assets and liabilities in the same currency by specific derivative type or, in the event of default bythe counterparty, to offset derivative assets and liabilities with the same counterparty. The table below sets forth the rights of setoff and relatedarrangements associated with derivative instruments held by the Company. The “gross amounts not offset in statements of financialcondition” column in the table below relates to derivative instruments that are eligible to be offset in accordance with applicable accountingguidance, but for which management has elected not to offset in the consolidated statements of financial condition. Gross Amounts ofAssets (Liabilities) Gross Amounts Offsetin Assets (Liabilities) Net Amounts ofAssets (Liabilities)Presented Gross Amounts Not Offset in Statements ofFinancial Condition Net AmountAs of December 31, 2013 Derivative Assets(Liabilities) Cash CollateralReceived (Pledged) Derivative Assets: Foreign currency forward contracts$7,893 $— $7,893 $5,951 $— $1,942Total-return swaps4,515 — 4,515 — — 4,515Subtotal12,408 — 12,408 5,951 — 6,457Derivative assets of consolidated funds: Foreign currency forward contracts51,765 — 51,765 31,223 — 20,542Total-return, credit-default and interest-rate swaps18,318 — 18,318 483 — 17,835Options and futures18,138 — 18,138 — — 18,138Swaptions6,716 — 6,716 1,324 — 5,392Subtotal94,937 — 94,937 33,030 — 61,907Total$107,345 $— $107,345 $38,981 $— $68,364 Derivative Liabilities: Foreign currency forward contracts$(6,141) $— $(6,141) $(4,466) $— $(1,675)Interest-rate swaps(4,171) — (4,171) (1,485) — (2,686)Subtotal(10,312) — (10,312) (5,951) — (4,361)Derivative liabilities of consolidated funds: Foreign currency forward contracts(135,246) — (135,246) (31,223) (11,583) (92,440)Total-return, credit-default and interest-rate swaps(7,096) — (7,096) (483) (4,358) (2,255)Options and futures(6,214) — (6,214) — (3,067) (3,147)Swaptions(1,324) — (1,324) (1,324) — —Subtotal(149,880) — (149,880) (33,030) (19,008) (97,842)Total$(160,192) $— $(160,192) $(38,981) $(19,008) $(102,203)152Oaktree Capital Group, LLCNotes to Consolidated Financial Statements — (Continued)December 31, 2013($ in thousands, except where noted) Gross Amounts ofAssets (Liabilities) Gross AmountsOffset in Assets(Liabilities) Net Amounts ofAssets (Liabilities)Presented Gross Amounts Not Offset in Statements ofFinancial Condition Net AmountAs of December 31, 2012 Derivative Assets(Liabilities) Cash CollateralReceived (Pledged) Derivative Assets: Foreign currency forward contracts$1,558 $1,558 $— $(549) $— $549Derivative assets of consolidated funds: Foreign currency forward contracts52,663 — 52,663 34,139 — 18,524Total-return, credit-default and interest-rate swaps48,727 — 48,727 312 340 48,075Options and futures6,170 — 6,170 — — 6,170Subtotal107,560 — 107,560 34,451 340 72,769Total$109,118 $1,558 $107,560 $33,902 $340 $73,318 Derivative Liabilities: Foreign currency forward contracts$(2,361) $(1,558) $(803) $654 $— $(1,457)Interest-rate swaps(7,900) — (7,900) (105) — (7,795)Subtotal(10,261) (1,558) (8,703) 549 — (9,252)Derivative liabilities of consolidated funds: Foreign currency forward contracts(146,526) — (146,526) (34,139) (632) (111,755)Total-return, credit-default and interest-rate swaps(9,561) — (9,561) (312) (1,828) (7,421)Options and futures(560) — (560) — (47) (513)Subtotal(156,647) — (156,647) (34,451) (2,507) (119,689)Total$(166,908) $(1,558) $(165,350) $(33,902) $(2,507) $(128,941)6. DEBT OBLIGATIONS AND CREDIT FACILITIESThe Company had the following debt obligations: As of December 31, 2013 2012$75,000, 5.03%, issued in June 2004, payable in seven equal annual installments starting June 14, 2008$10,714 $21,429$50,000, 6.09%, issued in June 2006, payable on June 6, 201650,000 50,000$50,000, 5.82%, issued in November 2006, payable on November 8, 201650,000 50,000$250,000, 6.75%, issued in November 2009, payable on December 2, 2019250,000 250,000$250,000, rate as described below, term loan issued in December 2012, payable 2.5% per quarter throughSeptember 2017, final $125,000 payment on December 21, 2017218,750 243,750Total remaining principal$579,464 $615,179153Oaktree Capital Group, LLCNotes to Consolidated Financial Statements — (Continued)December 31, 2013($ in thousands, except where noted)As of December 31, 2013, future principal payments of debt obligations were as follows:2014$35,714201525,0002016125,0002017143,7502018—Thereafter250,000Total$579,464The Company was in compliance with all financial covenants associated with its senior notes and credit facilities as of and for theyears ended December 31, 2013 and 2012.In December 2012, the Company's subsidiaries Oaktree Capital Management, L.P., Oaktree Capital II, L.P., Oaktree AIFInvestments, L.P. and Oaktree Capital I, L.P. entered into a credit agreement with a bank syndicate for senior unsecured credit facilities (the“Credit Facility”), consisting of a $250 million fully-funded term loan (the “Term Loan”) and a $500 million revolving credit facility (the“Revolver”), each with a five-year term. The Credit Facility replaced the amortizing term loan, which had a principal balance of $247.5million, and the undrawn revolver under the Company's prior credit facility. The Term Loan amortizes quarterly in an amount equal to 2.5%of the original principal amount of $250 million, with principal payments due in March, June, September and December of each year, andthe remaining principal payable upon maturity in December 2017. Borrowings under the Credit Facility generally bear interest at a spread toeither LIBOR or an alternative base rate. Based on the current credit ratings of Oaktree Capital Management, L.P., the interest rate onborrowings is LIBOR plus 1.00% per annum and the commitment fee on the unused portions of the Revolver is 0.125% per annum.Utilizing interest-rate swaps, the bulk of the first four years of the Term Loan's annual interest rate is fixed at 2.60%, based on the currentcredit ratings of Oaktree Capital Management, L.P. The Credit Facility contains customary financial covenants and restrictions, includingones regarding a maximum leverage ratio of 3.0-to-1.0, minimum fixed charge coverage ratio of 2.5-to-1.0 and minimum required levels ofassets under management and net worth (as defined in the credit agreement) of $50 billion and $600 million, respectively. As of December31, 2013, the Company had no outstanding borrowings under the Revolver and was able to draw the full amount available without violatingany financial covenants.In January 2011, the Company's subsidiaries Oaktree Capital Management, L.P., Oaktree Capital II, L.P., Oaktree AIF Investments,L.P. and Oaktree Capital I, L.P. entered into a credit facility with a bank syndicate, consisting of the $300 million five-year fully-funded termloan and a $250 million three-year revolving credit facility. The Company was required to make quarterly principal payments of $7.5 millionin respect of the term loan in March, June, September and December, with a final payment of $150 million, constituting the remainder of theterm loan, due on January 7, 2016. This credit facility was terminated and replaced by the Credit Facility in December 2012, with proceedsfrom the Term Loan used to pay off the $247.5 million outstanding balance under this credit facility.Credit Facilities of the Consolidated FundsCertain consolidated funds maintain revolving credit facilities to fund investments between capital drawdowns. These facilitiesgenerally (a) are collateralized by the unfunded capital commitments of the consolidated funds' limited partners, (b) bear an annualcommitment fee based on unfunded commitments, and (c) contain various affirmative and negative covenants and reporting obligations,including restrictions on additional indebtedness, liens, margin stock, affiliate transactions, dividends and distributions, release of capitalcommitments, and portfolio asset dispositions. Additionally, certain consolidated funds have issued senior variable rate notes to fundinvestments on a longer term basis, generally up to ten years. One consolidated VIE, MM CLO, has secured warehouse financing pursuantto which it has issued senior variable rate notes. The obligations of the consolidated funds are nonrecourse to the Company. For all periodspresented, carrying value approximates fair value of the credit facilities and senior variable rate notes due to the short-term nature or recentissuance date. The credit facilities and senior variable rate notes are Level III valuations and were valued using a discounted cash flowanalysis. As of December 31, 2013, the consolidated funds were in compliance with all covenants.154Oaktree Capital Group, LLCNotes to Consolidated Financial Statements — (Continued)December 31, 2013($ in thousands, except where noted)The consolidated funds had the following revolving credit facilities and term loans outstanding: Credit AgreementOutstanding Amount as of FacilityCapacity LIBORMargin (1) Maturity Commitment FeeRate L/C Fee (2)December 31,2013 December 31,2012Credit facility (3)$434,000 $63,000 $435,000 1.45% 11/14/2018 N/A N/ASenior variable rate notes (3)249,500 249,500 $249,500 1.55% 10/20/2022 N/A N/ASenior variable rate notes (3)498,916 — $500,000 1.20% 4/20/2023 N/A N/ASenior variable rate notes (3)402,375 — $402,500 1.20% 7/20/2023 N/A N/ASenior variable rate notes (3)64,500 — $64,500 1.65% 7/20/2023 N/A N/ASenior variable rate notes (3)(4)— — $126,000 Variable 12/23/2018 Variable N/ARevolving credit facility400,000 — $500,000 1.60% 6/26/2015 0.25% N/AMulti-currency term loan (5)— 49,158 $275,000 3.00% N/A N/A N/ARevolving credit facility67,000 38,000 $150,000 1.75% 12/15/2014 0.35% N/ARevolving credit facility— 8,625 $125,000 1.75% 5/20/2014 0.35% N/ARevolving credit facility— 19,400 $55,000 2.00% 12/15/2015 0.35% 2.00%Revolving credit facility— — $40,000 1.50% 12/5/2014 0.30% 1.50%Euro-denominated revolvingcredit facility13,090 63,942 €100,000 1.75% 12/17/2015 0.30% 2.00%Revolving credit facility2,800 — $10,000 2.25% 9/1/2014 0.38% N/ARevolving credit facility165,000 — $350,000 1.65% 3/22/2015 0.25% N/ARevolving credit facility— — $20,000 2.00% 1/31/2015 0.35% N/ARevolving credit facility— — $30,000 1.50% 12/11/2015 0.20% N/A $2,297,181 $491,625 (1)The facilities bear interest, at the borrower's option, at (a) an annual rate of LIBOR plus the applicable margin or (b) an alternate base rate,as defined in the respective credit agreement.(2)Certain facilities allow for the issuance of letters of credit at an applicable annual fee. As of December 31, 2013 and 2012, outstandingstandby letters of credit totaled $55,954 and $76,975, respectively.(3)The credit facility is collateralized by the portfolio investments and cash and cash-equivalents of the fund.(4)The LIBOR margin is determined based on a formula defined in the borrowing agreement which incorporates different borrowing valuesbased on the characteristics of collateral investments purchased. The unused commitment fee rate ranges from 0% to 2.0%.(5)The loan was fully repaid and terminated on September 20, 2013.155Oaktree Capital Group, LLCNotes to Consolidated Financial Statements — (Continued)December 31, 2013($ in thousands, except where noted)7. NON-CONTROLLING REDEEMABLE INTERESTS IN CONSOLIDATED FUNDSThe following table sets forth a summary of changes in the non-controlling redeemable interests in the consolidated funds: Year Ended December 31, 2013 2012 2011Beginning balance$39,670,831 $41,048,607 $44,466,116Contributions6,507,188 6,441,090 8,305,880Distributions(12,783,673) (13,993,859) (11,668,028)Net income5,163,939 6,016,342 233,573Change in distributions payable105,735 49,109 (151,645)Change in accrued or deferred contributions— 41,000 (41,000)Foreign currency translation and other170,811 68,542 (96,289)Ending balance$38,834,831 $39,670,831 $41,048,6078. UNITHOLDERS’ CAPITALSet forth below are the distributions per Class A unit: Payment Date Record Date Applicable to Quarterly Period Ended Distribution PerUnitNovember 15, 2013 November 13, 2013 September 30, 2013 $0.74August 20, 2013 August 16, 2013 June 30, 2013 1.51May 21, 2013 May 17, 2013 March 31, 2013 1.41March 1, 2013 February 25, 2013 December 31, 2012 1.05Total 2013 $4.71 November 20, 2012 November 16, 2012 September 30, 2012 $0.55August 21, 2012 August 17, 2012 June 30, 2012 0.79May 25, 2012 May 21, 2012 March 31, 2012 0.55March 7, 2012 March 1, 2012 December 31, 2011 0.42Total 2012 $2.31 October 28, 2011 October 24, 2011 September 30, 2011 $0.29July 29, 2011 July 25, 2011 June 30, 2011 0.51April 29, 2011 April 25, 2011 March 31, 2011 0.64January 31, 2011 January 25, 2011 December 31, 2010 0.90Total 2011 $2.34 The OCGH unitholders’ economic interest in the Oaktree Operating Group is reflected as OCGH non-controlling interest inconsolidated subsidiaries and is determined at the Oaktree Operating Group level based on the proportionate share of Oaktree OperatingGroup units held by the OCGH unitholders. Certain expenses, such as income tax and related administrative expenses of Oaktree CapitalGroup, LLC and its Intermediate Holding Companies, are solely attributable to the Class A unitholders. As of December 31, 2013 and 2012,respectively, OCGH units represented 112,584,211 of the total 151,056,717 Oaktree Operating Group units and 120,267,503 of the total150,448,436 Oaktree Operating Group units. Based on total Oaktree Operating Group capital of $1,655,911 and $1,360,331, as ofDecember 31, 2013 and 2012, respectively, the OCGH non-controlling interest was $1,234,169 and $1,087,491.156Oaktree Capital Group, LLCNotes to Consolidated Financial Statements — (Continued)December 31, 2013($ in thousands, except where noted)The following table sets forth a summary of the net income (loss) attributable to the OCGH non-controlling interest and to theClass A unitholders: Year Ended December 31, 2013 2012 2011Weighted average Oaktree Operating Group units outstanding(in thousands): OCGH non-controlling interest115,992 122,369 125,956Class A unitholders34,979 28,170 22,677Total weighted average units outstanding150,971 150,539 148,633Oaktree Operating Group net income (loss): Net income (loss) attributable to OCGH non-controlling interest$824,795 $548,265 $(446,246)Net income (loss) attributable to Class A unitholders243,250 126,826 (80,391)Oaktree Operating Group net income (loss)$1,068,045 $675,091 $(526,637)Net income (loss) attributable to Oaktree Capital Group, LLC: Oaktree Operating Group net income (loss) attributable to Class A unitholders$243,250 $126,826 $(80,391)Non-Operating Group other income— 6,260 —Non-Operating Group expenses(1,195) (553) (768)Income tax expense of Intermediate Holding Companies(20,057) (24,723) (14,813)Net income (loss) attributable to Oaktree Capital Group, LLC$221,998 $107,810 $(95,972)Set forth below are the effects of changes in the Company’s ownership interest in the Oaktree Operating Group: Year Ended December 31, 2013 2012 2011Net income (loss) attributable to Oaktree Capital Group, LLC$221,998 $107,810 $(95,972)Equity reallocation between controlling and non-controlling interests79,052 69,097 (6,413)Change from net income (loss) attributable to Oaktree Capital Group, LLC andtransfers from (to) non-controlling interest$301,050 $176,907 $(102,385)In May 2013, the Company issued and sold 8,050,000 Class A units in a public offering at a price to the public of $53.50 per Class Aunit (the “May 2013 Offering”), resulting in $419.9 million in net proceeds to the Company, after deducting underwriting discounts andcommissions. The Company did not retain any proceeds from the sale of Class A units in the May 2013 Offering. The net proceeds from theMay 2013 Offering were used to acquire interests in the Company's business from certain of the Company's directors, employees and otherinvestors, including certain Principals and other members of the Company's senior management.In June 2012, the Company repurchased and subsequently canceled 400,000 Class A units from an unrelated third party broker-dealer in a privately negotiated transaction. The aggregate purchase price was $14.1 million excluding commissions, which represented a perunit price of $35.30. The Company repurchased the Class A units using cash on hand. The Company did not repurchase any Class A unitsin the years ended December 31, 2013 and 2011.Please see notes 9, 10 and 11 for additional information regarding transactions that impacted unitholders’ capital.157Oaktree Capital Group, LLCNotes to Consolidated Financial Statements — (Continued)December 31, 2013($ in thousands, except where noted)9. EARNINGS PER UNITThe computations of net income (loss) per Class A unit are set forth below: Year Ended December 31, 2013 2012 2011Weighted average units outstanding:(in thousands, except per unit amounts)Class A units outstanding34,979 28,170 22,677OCGH units exchangeable into Class A units (1)— — —Total weighted average units outstanding34,979 28,170 22,677Net income (loss) per Class A unit: Net income (loss)$221,998 $107,810 $(95,972)Weighted average units outstanding34,979 28,170 22,677Basic and diluted net income (loss) per Class A unit$6.35 $3.83 $(4.23) (1)Vested OCGH units are potentially exchangeable on a one-for-one basis into Class A units. As of December 31, 2013, there were112,584,211 OCGH units outstanding, accordingly, the Company may cumulatively issue up to 112,584,211 additional Class Aunits through March 1, 2023 if all such units were exchanged. For all periods presented, OCGH units have been excluded from thecalculation of diluted earnings per unit because the exchange of these units would proportionally increase Oaktree Capital Group,LLC’s interest in the Oaktree Operating Group and could have an anti-dilutive effect on earnings per unit to the extent that tax-relatedor other expenses were to be incurred by the Company as a result of the exchange.10. EQUITY-BASED COMPENSATIONAs a part of the May 2007 Restructuring, the OCGH unitholders exchanged their interests in the Predecessor Company for units inOCGH. As a result of the service requirement, the OCGH units subject to the risk of forfeiture, equal to $4,644.8 million based on the fairvalue of Class A units sold in the 2007 Private Offering, were charged to compensation expense over the service period from May 25, 2007through January 2, 2012. These units vested 20% on each of January 2, 2008, 2009, 2010, 2011 and 2012. The Company expensed thisequity-based compensation with a corresponding increase in capital.Pursuant to the Company’s exchange agreement, as amended, the general partner of OCGH may elect at its discretion to declarean open period during which an OCGH unitholder may exchange its unrestricted vested OCGH units for, at the option of the Company’sboard of directors, Class A units, an equivalent amount of cash based on then-prevailing market prices, other consideration of equal value, orany combination of the foregoing. The general partner determines the number of units eligible for exchange within a given open period and, ifthe OCGH unitholders request to exchange a number of units in excess of the amount eligible for exchange, the general partner determineswhich units to exchange taking into account appropriate factors. Upon approval by the Company’s board of directors, OCGH units selected forexchange in accordance with the foregoing will be exchanged, at the option of the board of directors, into Class A units, an equivalent amountof cash based on then-prevailing market prices, other consideration of equal value, or any combination of the foregoing pursuant to the termsof the exchange agreement.The exchange agreement generally provides that (a) such OCGH units will be acquired by the Intermediate Holding Companies inexchange for, at the option of the Company’s board of directors, Class A units, an equivalent amount of cash based on then-prevailing marketprices, other consideration of equal value, or any combination of the foregoing, (b) the OCGH units acquired by the Intermediate HoldingCompanies may then be redeemed by OCGH in exchange for Oaktree Operating Group units, (c) the Intermediate Holding Companiesmay exchange Oaktree Operating Group units with each other such that, immediately after such exchange, each Intermediate158Oaktree Capital Group, LLCNotes to Consolidated Financial Statements — (Continued)December 31, 2013($ in thousands, except where noted)Holding Company holds Oaktree Operating Group units only in the Oaktree Operating Group entity for which such Intermediate HoldingCompany serves as the general partner and (d) the Company will cancel a corresponding number of Class B units. The partnershipagreement of OCGH generally provides that, in the event an employee’s employment with the Oaktree Operating Group is terminated forany reason, the unvested portion of his or her OCGH units will be forfeited, unless the termination is due to his or her death or disability.The Company utilizes a contemporaneous valuation report in determining fair value at the date of grant for OCGH unit awards.Each valuation report is based on the market price of Oaktree's Class A units, which were traded on the GSTrUE OTC market prior to listingon the NYSE. A discount is then applied to the Class A unit market price to reflect the lack of marketability for the OCGH units. Thedetermination of an appropriate discount for lack of marketability is based on a review of discounts on the sale of restricted shares of publiclytraded companies and multi-period put-based quantitative methods. Factors that influence the size of the discount for lack of marketabilityinclude (a) the estimated time it would take for an OCGH unitholder to exchange units into Class A units, (b) the volatility of the Company'sbusiness, (c) thin trading of the Class A units, and (d) prior to the initial public offering in April 2012, restrictive trading of the Class A units.Each of these factors is subject to significant judgment.The estimated time-to-liquidity assumption has increased from approximately three years in the first quarter of 2011 to approximatelyfive years in the most recent valuation in 2013. The estimated time to liquidity is influenced primarily by the need for (a) the general partnerof OCGH to elect in its discretion to declare an open period during which an OCGH unitholder may exchange his or her unrestricted vestedOCGH units for, at the option of the Company's board of directors, Class A units on a one-for-one basis, an equivalent amount of cash basedon then-prevailing market prices, other consideration of equal value or any combination of the foregoing, and (b) the approval of theCompany's board of directors to exchange such OCGH units into any of the foregoing. Board approval is based primarily on the objective ofmaintaining an orderly market for Oaktree's units, but may take into account any other factors that the board may deem appropriate in itssole discretion. Volatility is estimated from historical and implied volatilities of comparable public alternative asset management companies.Prior to the Company's initial public offering in April 2012, three comparable publicly-owned alternative asset managers were used in thevolatility calculation. Subsequent to the Company's initial public offering in April 2012, three additional comparable companies, in addition tothe Company, were included in the volatility calculations.In valuing employee unit grants, the discount percentage applied to the Class A then-prevailing trading price was 30% for unitsgranted in the three-year period ended December 31, 2013, except for those units granted in the first quarter of 2012 and after the first quarterof 2013, for which the discount was 25%. The decline in the discount percentage in the first quarter of 2012 was primarily attributable todeclining volatility. The subsequent increase in the discount percentage in the third quarter of 2012 was primarily due to an increase in theestimated time to liquidity, while the decline in the discount rate after the first quarter of 2013 was primarily attributable to declining volatility.The calculation of compensation expense assumes a forfeiture rate of up to 1.5% annually, based on expected employee turnover.Compensation expense is revised annually or more frequently, as necessary, to adjust for actual forfeitures and to reflect expense only forthose units that ultimately vest. In each period presented, forfeitures were not materially different from the assumed rate.A total of 4,954,976 OCGH units were awarded and issued pursuant to the 2007 Oaktree Capital Group Equity Incentive Plan (the“2007 Plan”) before the Plan was discontinued on March 28, 2012. As of December 31, 2013, a maximum of 22,567,265 units have beenauthorized to be awarded pursuant to the 2011 Oaktree Capital Group, LLC Equity Incentive Plan (the “2011 Plan”), and 3,206,379 units(including 15,000 phantom units) have been awarded (of which 3,016,379 have been issued) under the 2011 Plan. Units under the 2011Plan can be awarded in the form of options, unit appreciation rights, restricted unit awards, unit bonus awards, phantom equity awards orother unit-based awards. Each unit, when issued, represents an indirect interest in one Oaktree Operating Group unit. Total vested andunvested Class A and OCGH units issued and outstanding were 151,056,717 as of December 31, 2013.In 2013, the Company granted 663,000 restricted OCGH units and 100,000 deferred OCGH units to certain of its employees and8,508 Class A units to certain of its directors, subject to equal annual vesting generally over periods of five to ten years. As of December 31,2013, the Company expected to recognize compensation expense on its unvested equity-based awards of $100.5 million over a weightedaverage period of 5.0 years. Please see note 17 for additional equity awards granted subsequent to December 31, 2013.159Oaktree Capital Group, LLCNotes to Consolidated Financial Statements — (Continued)December 31, 2013($ in thousands, except where noted)A summary of the status of the Company’s unvested equity-based awards as of December 31, 2013 and a summary of changes forthe three years then ended are presented below (actual dollars per unit): Class A Units Class C Units OCGH Units Number ofUnits WeightedAverageGrant DateFair Value Number ofUnits WeightedAverageGrant DateFair Value Number of Units WeightedAverageGrant DateFair ValueBalance, December 31, 2010— $— 1,800 $24.75 44,867,807 $43.48Granted— — — — 1,523,300 25.12Vested— — (600) 24.75 (22,229,038) 43.29Forfeited— — — — (31,500) 25.16Balance, December 31, 2011— — 1,200 24.75 24,130,569 41.13Granted14,969 43.14 — — 2,457,502 32.55Vested(3,900) 44.00 (600) 24.75 (21,652,473) 43.11Exchanged600 24.75 (600) 24.75 — —Forfeited— — — — (33,250) 28.74Balance, December 31, 201211,669 41.91 — — 4,902,348 28.17Granted8,508 47.83 — — 763,000 34.60Vested(3,595) 40.07 — — (1,152,026) 24.10Forfeited— — — — (47,600) 29.54Balance, December 31, 201316,582 $45.34 — $— 4,465,722 $30.30As of December 31, 2013, unvested units were expected to vest as follows: Number ofUnits WeightedaverageRemaining Service Term(Years) Class A units16,582 3.5OCGH units4,465,722 5.011. INCOME TAXES AND RELATED PAYMENTSOaktree is a publicly traded partnership and Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc., two of its Intermediate HoldingCompanies, are wholly-owned corporate subsidiaries. Income earned by these corporate subsidiaries is subject to U.S. federal and stateincome taxation and taxed at prevailing rates. Income earned by non-corporate subsidiaries is not subject to U.S. federal corporate income taxand is allocated to the Oaktree Operating Group’s unitholders. For periods prior to January 1, 2012, Oaktree incurred income tax expensedespite reporting losses before income taxes for financial reporting purposes because the non-cash equity-based compensation expenserelated to the 2007 Private Offering, which caused the reported losses, was generally not deductible for income tax purposes. The finalportion of the non-cash equity-based compensation expense associated with the 2007 Private Offering was charged against pre-tax income inthe first quarter of 2012 and did not result in a loss before taxes for financial reporting purposes for the year ended December 31, 2012. TheCompany’s effective tax rate is dependent on many factors, including the estimated nature of many amounts and the mix of revenues andexpenses between the two corporate subsidiaries that are subject to income tax and the three other subsidiaries that are not; consequently,the effective tax rate is subject to significant variation from period to period.160Oaktree Capital Group, LLCNotes to Consolidated Financial Statements — (Continued)December 31, 2013($ in thousands, except where noted)Income tax expense from operations consisted of the following: Year Ended December 31, 2013 2012 2011Current: U.S. federal income tax$5,516 $11,232 $8,869State and local income tax5,148 3,737 4,786Foreign income tax3,195 3,351 3,588 $13,859 $18,320 $17,243Deferred: U.S. federal income tax$11,253 $7,432 $3,285State and local income tax1,120 5,106 560 $12,373 $12,538 $3,845Total: U.S. federal income tax$16,769 $18,664 $12,154State and local income tax6,268 8,843 5,346Foreign income tax3,195 3,351 3,588Income tax expense$26,232 $30,858 $21,088The Company’s income before income taxes consisted of the following: Year Ended December 31, 2013 2012 2011Domestic income (loss) before income taxes$6,233,758 $6,710,286 $(264,603)Foreign income (loss) before income taxes3,206 (7,011) (22,954)Total income (loss) before income taxes$6,236,964 $6,703,275 $(287,557)The Company’s effective tax rate differed from the federal statutory rate for the following reasons: Year Ended December 31, 2013 2012 2011Income tax expense at federal statutory rate35.00 % 35.00 % 35.00 %Income passed through(34.69) (34.78) (19.49)State and local taxes, net of federal benefit0.09 0.07 (1.75)Foreign taxes0.03 0.09 (4.04)Equity-based compensation expense— — (17.44)Other, net(0.01) 0.08 0.39Total effective rate0.42 % 0.46 % (7.33)%161Oaktree Capital Group, LLCNotes to Consolidated Financial Statements — (Continued)December 31, 2013($ in thousands, except where noted)The income tax effect of temporary differences that give rise to significant portions of deferred tax assets and liabilities was as follows: As of December 31, 2013 2012 2011Deferred tax assets: Investment in partnerships$277,039 $157,999 $67,918Equity-based compensation expense3,695 3,994 3,703Other, net1,822 1,697 1,365Total deferred tax assets282,556 163,690 72,986Total deferred tax liabilities3,671 4,519 4,548Net deferred tax assets before valuation allowance278,885 159,171 68,438Valuation allowance— — —Net deferred tax assets$278,885 $159,171 $68,438In assessing the realizability of deferred tax assets, the Company considers whether it is probable that some or all of the deferred taxassets will not be realized. In determining whether the deferred tax assets are realizable, the Company considers the period of expiration ofthe tax asset, historical and projected taxable income, and tax liabilities for the tax jurisdiction in which the tax asset is located. Although theCompany had recorded pre-tax losses for financial reporting purposes in years prior to 2012, the entities that generate taxable income havegenerated (and are expected to generate in subsequent years) substantial book and tax basis pre-tax income. The deferred tax assetrecognized by the Company, as it relates to the higher tax basis in the carrying value of certain assets compared to the book basis of thoseassets, will be recognized in future years by these taxable entities. Deferred tax assets are based on the amount of the asset that theCompany’s management has determined is more likely than not to be realized in future periods. In determining the realizability of this asset,management has considered numerous factors which will give rise to pre-tax income in future periods. Among these are the historical andexpected future book and tax basis pre-tax income of the Company and unrealized gains in the Company’s assets at the determination date.Based on these and other factors, the Company has determined that, as of December 31, 2013, all deferred tax assets are more likely thannot to be realized in future periods.The Company recognizes tax benefits related to its tax positions only where the position is “more likely than not” to be sustained inthe event of examination by tax authorities. As part of its assessment, the Company analyzes its tax filing positions in all of the federal, stateand foreign tax jurisdictions where it is required to file income tax returns, and for all open tax years in these jurisdictions. As ofDecember 31, 2013, the total reserve balance including interest and penalties was $14.8 million.The following is a reconciliation of unrecognized tax benefits (excluding interest and penalties thereon): Year Ended December 31, 2013 2012 2011Unrecognized tax benefits, January 1$9,472 $8,594 $7,955Additions for tax positions related to the current year1,633 72 822Additions for tax positions related to prior years1,029 806 —Reductions for tax positions related to prior years(806) — —Settlement of tax positions— — —Lapse of statute of limitations(938) — (183)Unrecognized tax benefits, December 31$10,390 $9,472 $8,594The Company accrues potential interest and penalties related to uncertain tax positions as income tax expense in the consolidatedstatements of operations. The Company accrued $0.5 million, $1.4 million and $1.1 million in such expense for the years endedDecember 31, 2013, 2012 and 2011, respectively, resulting in reserves for potential interest and penalties of $4.4 million, $3.9 million and$2.5 million as of December 31, 2013, 2012 and 2011, respectively.162Oaktree Capital Group, LLCNotes to Consolidated Financial Statements — (Continued)December 31, 2013($ in thousands, except where noted)The Company files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course ofbusiness, the Company is subject to examination by federal, state, local and foreign tax regulators. With limited exceptions, the Company isno longer subject to income tax audits by taxing authorities for the years before 2009. Although the outcome of tax audits is always uncertain,the Company does not believe the outcome of any current audit will have a material adverse effect on the Company’s consolidated cashflows, financial position or results of operations.U.S. and non-U.S. taxing authorities are currently examining certain income tax returns of Oaktree, with certain of theseexaminations at an advanced stage. The Company believes that it is reasonably possible that one outcome of these current examinations,combined with other items, may be to reduce in the next 12 months approximately $8 million to $10 million of previously accrued OperatingGroup income taxes. The other items are related to years with expiring statutes of limitation. The Company believes that it has adequatelyprovided for any reasonably foreseeable outcomes related to its tax examinations and that any settlements related thereto will not have amaterial adverse effect on the Company's financial position or results of operations. However, there can be no assurances as to the ultimateoutcomes.Tax Receivable AgreementSubject to certain restrictions, each holder of OCGH units has the right to exchange his or her vested units for, at the option of theCompany’s board of directors, Class A units, an equivalent amount of cash based on then-prevailing market prices, other consideration ofequal value, or any combination of the foregoing. Certain of the Oaktree Operating Group entities made an election under Section 754 of theU.S. Internal Revenue Code, as amended (the “Code”), which may result in an adjustment to the tax basis of the assets owned by OaktreeOperating Group at the time of an exchange. These exchanges may result in increases in tax deductions and tax basis that would reduce theamount of tax that Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc. would otherwise be required to pay in the future.Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc. have entered into a tax receivable agreement with OCGH unitholders that, asamended, provides for the payment to an exchanging or selling OCGH unitholder of 85.0% of the amount of cash savings, if any, in U.S.federal, state, local and foreign income taxes that they actually realize (or are deemed to realize in the case of an early termination paymentby Oaktree Holdings, Inc. or Oaktree AIF Holdings, Inc., or a change of control) as a result of an increase in the tax basis of the assets ownedby the Oaktree Operating Group.The May 2007 Restructuring involved Oaktree's purchase of Oaktree Operating Group units from the OCGH unitholders, resultingin an increase in the tax basis of the assets owned by the Oaktree Operating Group. As a result, the Company recorded a deferred tax assetand an associated liability for payments to OCGH unitholders under the tax receivable agreement. These payments are expected to occurover the period ending approximately in 2029. The establishment of a deferred tax asset increased additional paid-in capital because thetransaction was between Oaktree and its unitholders. As a result of a change in state tax law that reduced the combined federal and state taxrate applicable to income from Oaktree Holdings, Inc. from 41% to 38%, the deferred tax asset under the tax receivable agreement associatedwith the May 2007 Restructuring was reduced from $64.4 million to $56.6 million in the second quarter of 2012, consequently reducing therelated tax receivable agreement liability payable to OCGH unitholders by $6.3 million. The $6.3 million reduction in the tax receivableagreement payable was reflected in other income (expense), net in the consolidated statements of operations. The tax receivable agreementliability was further reduced by $3.3 million and $3.4 million as a result of payments made under the tax receivable agreement in November2012 and November 2013, respectively, resulting in a tax receivable agreement liability related to the 2007 Private Offering payable toOCGH unitholders of $43.8 million as of December 31, 2013.The exchange of OCGH units in connection with the Company’s initial public offering in April 2012 increased the tax basis of thetangible and intangible assets of the Oaktree Operating Group. As a result of this increase in tax basis, the Company recorded a deferred taxasset of $103.3 million and an associated liability of $87.8 million for payments to OCGH unitholders under the tax receivable agreement,which had the effect of increasing capital by $15.5 million. These payments are expected to occur over the period ending approximately in2034. Upon the filing of the tax returns for the year ended December 31, 2012 for Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc., theCompany finalized its calculation of the increased tax basis of the tangible and intangible assets of the Oaktree Operating Group resultingfrom the April 2012 initial public offering. As a result, the163Oaktree Capital Group, LLCNotes to Consolidated Financial Statements — (Continued)December 31, 2013($ in thousands, except where noted)Company recorded a reduction to the deferred tax asset of $2.3 million and an associated reduction in liability of $2.0 million for payments toOCGH unitholders under the tax receivable agreement, which had the effect of decreasing capital by $0.3 million. The tax receivableagreement liability was further reduced by $2.9 million as a result of payments made under the tax receivable agreement in November2013, resulting in a tax receivable agreement liability related to the initial public offering in April 2012 payable to OCGH unitholders of $82.9million as of December 31, 2013.The exchange of OCGH units in connection with the May 2013 Offering resulted in increases in the tax basis of the tangible andintangible assets of the Oaktree Operating Group. As a result, the Company recorded a deferred tax asset of $134.4 million and anassociated liability of $114.2 million for payments to OCGH unitholders under the tax receivable agreement, which together increased capitalby $20.2 million. These payments are expected to occur over the period ending approximately in 2035.12. COMMITMENTS AND CONTINGENCIESIn the normal course of business, Oaktree enters into contracts that contain certain representations, warranties and indemnifications.The Company’s exposure under these arrangements would involve future claims that have not yet been asserted. Inasmuch as no suchclaims currently exist or are expected to arise, the Company has not accrued any liability in connection with these indemnifications.Legal ActionsPeriodically, the Company is a party to legal actions arising in the ordinary course of business. The Company is currently not subjectto any pending actions that either individually or in the aggregate are expected to have a material impact on its results of operations, cashflows or financial condition.On June 8, 2011, Kaplan Industry, Inc. v. Oaktree Capital Management, L.P. was filed in the U.S. District Court for the SouthernDistrict of Florida. In Kaplan, the plaintiff alleges that Oaktree Capital Management, L.P. tortiously interfered with a business relationshipand engaged in a civil conspiracy through the actions of Gulmar Offshore Middle East, LLC (“Gulmar”), a business acquired by subsidiariesof OCM European Principal Opportunities Fund II, L.P. (“EPOF II”). Oaktree Capital Management, L.P. serves as investment manager toEPOF II. The complaint alleges that Gulmar breached a consortium agreement between Gulmar and Kaplan Industry, Inc. relating to theconsortium’s performance of services to Petróleos de Venezuela, S.A., the state-owned oil producer of Venezuela. The plaintiff alleges thatOaktree is responsible for these breaches by Gulmar. The complaint seeks damages in excess of $800 million. The substance of the claimrelates almost exclusively to actions by Gulmar prior to EPOF II’s acquisition and the basis of the claim is currently subject to an ongoingarbitration in the United Kingdom between Kaplan and Gulmar. On August 18, 2011, the court granted Oaktree Capital Management, L.P.’smotion to stay pending the completion of a related arbitration proceeding in London. Oaktree Capital Management, L.P. believes the case iswithout merit and that any exposure to loss is remote.Incentive IncomeIn addition to the incentive income recognized by the Company, certain of its funds have amounts recorded as potentially allocable tothe Company as its share of potential future incentive income, based on each fund’s NAV. Inasmuch as this incentive income is contingentupon future investment activity and other factors, it is not recognized by the Company until it is fixed or determinable. As of December 31,2013, 2012 and 2011, the aggregate of such amounts recorded at the fund level in excess of incentive income recognized by the Companywas $2,211,979, $2,137,798 and $1,686,967, respectively, for which related direct incentive income compensation expense wasestimated to be $994,879, $855,604 and $659,256, respectively.Commitments to FundsAs of December 31, 2013 and 2012, the Company, generally in the capacity as general partner, had undrawn capital commitments of$327,254 and $265,401, respectively, including commitments to both non-consolidated and consolidated funds.Operating LeasesOaktree leases its main headquarters office in Los Angeles and offices in 15 other cities in the U.S., Asia and Europe, pursuant tocurrent lease terms expiring through 2022. Occupancy costs, including non-lease expenses,164Oaktree Capital Group, LLCNotes to Consolidated Financial Statements — (Continued)December 31, 2013($ in thousands, except where noted)for the years ended December 31, 2013, 2012 and 2011, were $17,878, $18,084 and $17,602, respectively. Additionally, Oaktree leases acorporate plane pursuant to an agreement with a scheduled termination in February 2015.As of December 31, 2013, aggregate estimated minimum commitments under Oaktree’s operating leases were as follows:2014$15,591201512,123201610,58520175,26620184,096Thereafter8,545Total$56,206Investment Commitments of Consolidated FundsThe consolidated funds are parties to certain credit agreements, providing for the issuance of letters of credit and revolving loans,which may require the consolidated funds to extend additional loans to investee companies. The consolidated funds use the sameinvestment criteria in making these unrecorded commitments as they do for investments that are included in the consolidated statements offinancial condition. The unfunded liability associated with these credit agreements is equal to the amount by which the contractual loancommitment exceeds the sum of the amount of funded debt and cash held in escrow, if any. As of December 31, 2013 and 2012, theconsolidated funds had aggregate potential credit and investment commitments of $1,307,880 and $912,001, respectively. Thesecommitments will be funded by the funds’ cash balances, asset sales proceeds or drawdowns against existing capital commitments.A consolidated fund may agree to guarantee the repayment obligations of certain investee companies. On December 20, 2012, certainconsolidated funds (“Funds”) entered into a £200.0 million revolving credit facility (the “RCF”) pursuant to which certain portfolio companies ofthe Funds (“the borrowers”) will be able to draw under the RCF during a three-year period. The RCF has an annual commitment fee onunused commitments of 1.0% and bears interest at an annual rate equal to Libor or Euribor, as applicable, plus 2.0%. The Funds guaranteethe payment and other obligations of the borrowers under the RCF. The amounts borrowed, accrued interest and other costs of the RCF willbe paid by the portfolio companies. As of December 31, 2013 and 2012, there were $317.0 million and zero borrowings outstanding,respectively. The Funds, as guarantors, must maintain compliance with certain financial covenants at all times. As of December 31, 2013,the Funds were in compliance with these financial covenants.The aggregate amounts guaranteed in addition to those described for the RCF were not material to the consolidated financialstatements as of December 31, 2013 and 2012.13. EMPLOYEE BENEFITSOaktree provides certain employee benefits, including a voluntary 401(k) savings plan for which the Company makes an annual profitsharing contribution equal to up to 4.5% of total compensation for employees below certain compensation levels and up to 13.4% of totalcompensation, subject to prescribed limits, for employees meeting certain eligibility requirements. For the years ended December 31, 2013,2012 and 2011, the Company incurred expenses of $6.0 million, $6.4 million and $5.2 million, respectively, in connection with the plan.Oaktree also has a discretionary annual bonus program for all employees, which is based, in part, on annual adjusted net income.165Oaktree Capital Group, LLCNotes to Consolidated Financial Statements — (Continued)December 31, 2013($ in thousands, except where noted)14. RELATED PARTY TRANSACTIONSThe Company considers its Principals, employees and non-consolidated Oaktree funds to be affiliates. Amounts due from and toaffiliates were comprised of the following: As of December 31, 2013 2012Due from affiliates: Loans$41,095 $38,091Amounts due from non-consolidated funds1,220 661Payments made on behalf of non-consolidated entities3,272 3,444Non-interest bearing advances made to certain non-controlling interest holders and employees2,187 2,393Total due from affiliates$47,774 $44,589Due to affiliates: Due to OCGH unitholders in connection with the tax receivable agreement (please see note 11)$240,911 $134,953Amounts due to Principals, certain non-controlling interest holders and employees2,075 1,212Total due to affiliates$242,986 $136,165LoansLoans primarily consist of interest-bearing advances made to certain non-controlling interest holders, primarily the Company’semployees, to meet tax obligations related to vesting of equity awards. The notes, which are generally recourse to the borrower or secured byvested equity and other collateral, bear interest at the Company’s cost of capital and generated interest income of $1,629, $1,396 and $939for the years ended December 31, 2013, 2012 and 2011, respectively.Due From Oaktree Funds and Portfolio CompaniesIn the normal course of business, the Company pays certain expenses on behalf of the Oaktree funds, for which it is reimbursed.Amounts advanced on behalf of consolidated funds are eliminated in consolidation. Certain expenses initially paid by the Company,primarily employee travel and other costs associated with particular portfolio company holdings, are reimbursed by the portfolio companies.Other Investment TransactionsThe Company’s Principals, directors and senior professionals are permitted to invest their own capital (or the capital of family trusts orother estate planning vehicles they control) in Oaktree funds, for which they pay the particular fund’s full management fee but not itsincentive allocation. To facilitate the funding of capital calls by funds in which employees are invested, the Company periodically advances ona short-term basis the capital calls on certain employees' behalf. These advances are generally reimbursed toward the end of the calendarquarter in which the capital calls occurred. Amounts temporarily advanced by the Company are included in non-interest bearing advancesmade to certain non-controlling interest holders and employees.Aircraft ServicesA subsidiary of the Company leases an airplane for business purposes. The Company’s Chairman may use this aircraft forpersonal travel and, pursuant to a policy adopted by such subsidiary relating to such personal use, the Company is reimbursed by theCompany’s Chairman for the costs of using the aircraft for personal travel. Additionally, the Company occasionally makes use of an airplaneowned by one of its Principals for business purposes at a price to the Company that is based on market rates.166Oaktree Capital Group, LLCNotes to Consolidated Financial Statements — (Continued)December 31, 2013($ in thousands, except where noted)Special AllocationsCertain Principals receive special allocations based on a percentage of profits of the Oaktree Operating Group. These specialallocations, which are recorded as compensation expense, are made on a current basis only for so long as they remain Principals of theCompany.Transactions with Meyer Memorial TrustOne of the Company’s directors, Mr. Pierson, is the Chief Financial and Investment Officer of Meyer Memorial Trust. MeyerMemorial Trust invests in certain Oaktree funds on the same terms as the other investors in those funds.15. CAPITAL REQUIREMENTS OF REGULATED ENTITIESOne of the Company's indirect subsidiaries is a registered U.S. broker-dealer that is subject to the minimum net capital requirementsof the U.S. Securities and Exchange Commission and the U.S. Financial Industry Regulatory Authority. Additionally, one of the Company'sindirect subsidiaries based in London is subject to the capital requirements of the U.K. Financial Services Authority, and another based inHong Kong is subject to the capital requirements of the Hong Kong Securities and Futures Ordinance. These entities operate in excess oftheir respective regulatory capital requirements.The regulatory capital requirements referred to above may restrict the Company’s ability to withdraw capital from its entities forpurposes such as paying cash distributions or advances to the Company. As of December 31, 2013 and 2012, there was approximately$16.0 million and $14.0 million, respectively, of such potentially restricted amounts.16. SEGMENT REPORTINGThe Company’s business is comprised of one segment, the investment management segment. As a global investment manager, theCompany provides investment management services through funds and separate accounts. Management makes operating decisions andassesses business performance based on financial and operating metrics and data that are presented without the consolidation of any funds.The Company conducts its investment management business primarily in the United States, where substantially all of its revenuesare generated.Adjusted Net IncomeThe Company’s chief operating decision maker uses adjusted net income (“ANI”) to help evaluate the financial performance of, andmake resource allocations and other operating decisions for, the investment management segment. The components of revenues andexpenses used in the determination of ANI do not give effect to the consolidation of the funds that the Company manages. In addition, ANIexcludes the effect of (a) non-cash equity-based compensation charges related to unit grants made before the Company’s initial publicoffering, (b) income taxes, (c) expenses that Oaktree Capital Group, LLC or its Intermediate Holding Companies bear directly and (d) theadjustment for the OCGH non-controlling interest. Incentive income and incentive income compensation expense are included in ANI whenthe underlying fund distributions are known or knowable as of the respective quarter end, which may be later than the time at which thesame revenue or expense is included in the GAAP-basis statements of operations, for which the revenue standard is fixed or determinableand the expense standard is probable and reasonably estimable. ANI is calculated at the Operating Group level.167Oaktree Capital Group, LLCNotes to Consolidated Financial Statements — (Continued)December 31, 2013($ in thousands, except where noted)ANI was as follows: Year Ended December 31, 2013 2012 2011Revenues: Management fees$749,901 $747,440 $724,321Incentive income1,030,195 461,116 303,963Investment income258,654 202,392 23,763Total revenues2,038,750 1,410,948 1,052,047Expenses: Compensation and benefits(365,306) (329,741) (308,115)Equity-based compensation(3,828) (318) —Incentive income compensation(436,217) (222,594) (179,234)General and administrative(117,361) (102,685) (94,655)Depreciation and amortization(7,119) (7,397) (6,583)Total expenses(929,831) (662,735) (588,587)Adjusted net income before interest and other income (expense)1,108,919 748,213 463,460Interest expense, net of interest income (1)(28,621) (31,730) (33,867)Other income (expense), net409 767 (1,209)Adjusted net income$1,080,707 $717,250 $428,384 (1)Interest income was $3.2 million, $2.6 million and $2.3 million for the years ended December 31, 2013, 2011 and 2010,respectively.A reconciliation of net income (loss) attributable to Oaktree Capital Group, LLC to adjusted net income of the investmentmanagement segment is presented below. Year Ended December 31, 2013 2012 2011Net income (loss) attributable to Oaktree Capital Group, LLC$221,998 $107,810 $(95,972)Incentive income (1) (64,460) — —Incentive income compensation (1) 46,334 — —Equity-based compensation (2) 24,613 36,024 948,746Income taxes (3)26,232 30,858 21,088Non-Operating Group other income (4)— (6,260) —Non-Operating Group expenses (4)1,195 553 768OCGH non-controlling interest (4) 824,795 548,265 (446,246)Adjusted net income$1,080,707 $717,250 $428,384 (1)This adjustment adds back the effect of timing differences associated with the recognition of incentive income and incentive incomecompensation expense between adjusted net income and net income attributable to OCG. There were no adjustments attributable totiming differences for 2012 and 2011.(2)This adjustment adds back the effect of equity-based compensation charges related to unit grants made before the Company’s initialpublic offering, which is excluded from adjusted net income because it is a non-cash charge that does not affect the Company'sfinancial position.(3)Because adjusted net income is a pre-tax measure, this adjustment eliminates the effect of income tax expense from adjusted netincome.168Oaktree Capital Group, LLCNotes to Consolidated Financial Statements — (Continued)December 31, 2013($ in thousands, except where noted)(4)Because adjusted net income is calculated at the Operating Group level, this adjustment adds back the effect of items applicable toOCG, its Intermediate Holding Companies or the OCGH non-controlling interest.The following tables reconcile the Company’s segment information to the consolidated financial statements: As of or for the Year Ended December 31, 2013 Segment Adjustments ConsolidatedManagement fees (1)$749,901 $(557,296) $192,605Incentive income (1)1,030,195 (1,027,878) 2,317Investment income (1)258,654 (202,627) 56,027Total expenses (2) (929,831) (177,231) (1,107,062)Interest expense, net (3)(28,621) (32,539) (61,160)Other income, net409 — 409Other income of consolidated funds (4)— 7,153,828 7,153,828Income taxes— (26,232) (26,232)Net income attributable to non-controlling redeemable interests in consolidatedfunds— (5,163,939) (5,163,939)Net income attributable to OCGH non-controlling interest in consolidatedsubsidiaries— (824,795) (824,795)Adjusted net income/net income attributable to Oaktree Capital Group, LLC$1,080,707 $(858,709) $221,998Corporate investments (5)$1,197,173 $(1,027,246) $169,927Total assets(6) $2,817,127 $42,446,127 $45,263,254 (1)The adjustment represents the elimination of amounts attributable to the consolidated funds.(2)The expense adjustment consists of (a) equity-based compensation charges of $24,613 related to unit grants made before theCompany’s initial public offering, (b) consolidated fund expenses of $105,089, (c) expenses incurred by the Intermediate HoldingCompanies of $1,195 and (d) the effect of timing differences in the recognition of incentive income compensation expense betweenadjusted net income and net income attributable to OCG of $46,334.(3)The interest expense adjustment represents the inclusion of interest expense attributable to non-controlling interests of theconsolidated funds and the exclusion of segment interest income.(4)The adjustment to other income of consolidated funds primarily represents the inclusion of interest, dividend and other investmentincome attributable to non-controlling interests of the consolidated funds.(5)The adjustment to corporate investments is to remove from segment assets the consolidated funds that are treated as equity methodinvestments for segment reporting purposes.(6)The total assets adjustment represents the inclusion of investments and other assets of the consolidated funds, net of segment assetseliminated in consolidation, which are primarily corporate investments in funds and incentive income receivable.169Oaktree Capital Group, LLCNotes to Consolidated Financial Statements — (Continued)December 31, 2013($ in thousands, except where noted) As of or for the Year Ended December 31, 2012 Segment Adjustments ConsolidatedManagement fees (1) $747,440 $(612,872) $134,568Incentive income (1)461,116 (450,701) 10,415Investment income (1)202,392 (177,010) 25,382Total expenses (2) (662,735) (127,868) (790,603)Interest expense, net (3) (31,730) (14,043) (45,773)Other income, net (4) 767 6,260 7,027Other income of consolidated funds (5) — 7,362,259 7,362,259Income taxes— (30,858) (30,858)Net income attributable to non-controlling redeemable interests in consolidatedfunds— (6,016,342) (6,016,342)Net loss attributable to OCGH non-controlling interest in consolidatedsubsidiaries— (548,265) (548,265)Adjusted net income/net income attributable to Oaktree Capital Group, LLC$717,250 $(609,440) $107,810Corporate investments (6)$1,115,952 $(1,017,002) $98,950Total assets (7)$2,359,548 $41,510,450 $43,869,998 (1)The adjustment represents the elimination of amounts attributable to the consolidated funds.(2)The expense adjustment consists of (a) equity-based compensation charges of $36,024 related to unit grants made before theCompany’s initial public offering, (b) consolidated fund expenses of $91,291 and (c) expenses incurred by the Intermediate HoldingCompanies of $553.(3)The interest expense adjustment represents the inclusion of interest expense attributable to non-controlling interests of theconsolidated funds and the exclusion of segment interest income.(4)The other income, net adjustment represents other income or expenses of OCG or its Intermediate Holding Companies. Thisamount is attributable to a reduction in the amount of the deferred tax asset associated with the Company's tax receivable agreement,which reduced the tax receivable agreement liability payable to OCGH unitholders.(5)The adjustment to other income of consolidated funds primarily represents the inclusion of interest, dividend and other investmentincome attributable to non-controlling interests of the consolidated funds.(6)The adjustment to corporate investments is to remove from segment assets the consolidated funds that are treated as equity methodinvestments for segment reporting purposes.(7)The total assets adjustment represents the inclusion of investments and other assets of the consolidated funds, net of segment assetseliminated in consolidation, which are primarily corporate investments in funds and incentive income receivable.170Oaktree Capital Group, LLCNotes to Consolidated Financial Statements — (Continued)December 31, 2013($ in thousands, except where noted) As of or for the Year Ended December 31, 2011 Segment Adjustments ConsolidatedManagement fees (1) $724,321 $(583,606) $140,715Incentive income (1)303,963 (288,908) 15,055Investment income (1)23,763 (15,163) 8,600Total expenses (2) (588,587) (1,056,277) (1,644,864)Interest expense, net (3) (33,867) (17,076) (50,943)Other income, net(1,209) — (1,209)Other income of consolidated funds (4) — 1,245,089 1,245,089Income taxes— (21,088) (21,088)Net income attributable to non-controlling redeemable interests in consolidatedfunds— (233,573) (233,573)Net loss attributable to OCGH non-controlling interest in consolidatedsubsidiaries— 446,246 446,246Adjusted net income/net loss attributable to Oaktree Capital Group, LLC$428,384 $(524,356) $(95,972)Corporate investments (5)$1,159,287 $(1,037,462) $121,825Total assets (6)$2,083,908 $42,210,248 $44,294,156 (1)The adjustment represents the elimination of amounts attributable to the consolidated funds.(2)The expense adjustment consists of (a) equity-based compensation charges of $948,746 related to unit grants made before theCompany’s initial public offering, (b) consolidated fund expenses of $106,763 and (c) expenses incurred by the Intermediate HoldingCompanies of $768.(3)The interest expense adjustment represents the inclusion of interest expense attributable to non-controlling interests of theconsolidated funds and the exclusion of segment interest income.(4)The adjustment to other income of consolidated funds primarily represents the inclusion of interest, dividend and other investmentincome attributable to non-controlling interests of the consolidated funds.(5)The adjustment to corporate investments is to remove from segment assets the consolidated funds that are treated as equity methodinvestments for segment reporting purposes.(6)The total assets adjustment represents the inclusion of investments and other assets of the consolidated funds, net of segment assetseliminated in consolidation, which are primarily corporate investments in funds and incentive income receivable.171Oaktree Capital Group, LLCNotes to Consolidated Financial Statements — (Continued)December 31, 2013($ in thousands, except where noted)17. SUBSEQUENT EVENTSIn January 2014, the Company issued 1,667,300 restricted OCGH units and 7,164 Class A units to its employees and directors.These issuances are subject to annual vesting over a weighted average period of approximately five years and were not eligible to participatein the distribution paid on February 27, 2014, which was related to the fourth quarter of 2013.On February 13, 2014, the Company declared a distribution attributable to the fourth quarter of 2013 of $1.00 per Class A unit,bringing the aggregate distributions for fiscal year 2013 to $4.66. The distribution of $1.00 was paid on February 27, 2014 to Class Aunitholders of record at the close of business on February 24, 2014.18. QUARTERLY FINANCIAL DATA (UNAUDITED) Three Months Ended March 31, 2013 June 30, 2013 September 30, 2013 December 31, 2013Revenues$42,539 $52,414 $56,786 $43,183Expenses(275,505) (285,540) (214,158) (331,859)Other income2,626,671 1,285,947 1,247,329 1,989,157Income before income taxes$2,393,705 $1,052,821 $1,089,957 $1,700,481Net income$2,383,548 $1,044,830 $1,089,231 $1,693,123Net income attributable to Oaktree Capital Group, LLC$57,566 $56,577 $42,948 $64,907Net income per unit (basic and diluted): Net income per Class A unit$1.91 $1.71 $1.12 $1.69Distributions declared per Class A unit$1.05 $1.41 $1.51 $0.74 Three Months Ended March 31, 2012 June 30, 2012 September 30, 2012 December 31, 2012Revenues$37,068 $29,207 $31,906 $46,802Expenses(167,567) (207,008) (168,020) (248,008)Other income2,416,536 1,015,349 2,356,217 1,560,793Income before income taxes$2,286,037 $837,548 $2,220,103 $1,359,587Net income$2,278,270 $823,623 $2,214,302 $1,356,222Net income attributable to Oaktree Capital Group, LLC$18,608 $24,719 $25,212 $39,271Net income per unit (basic and diluted): Net income per Class A unit$0.82 $0.84 $0.84 $1.30Distributions declared per Class A unit$0.42 $0.55 $0.79 $0.55172Item 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNone.Item 9A. Controls and ProceduresEvaluation of Disclosure Controls and ProceduresWe maintain disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act)that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act isrecorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information isaccumulated and communicated to our management, including our Managing Principal and Chief Financial Officer, as appropriate, to allowtimely decisions regarding required disclosure. In designing disclosure controls and procedures, our management necessarily was requiredto apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosurecontrols and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurancethat any design will succeed in achieving its stated goals under all potential future conditions. Any controls and procedures, no matter howwell designed and operated, can provide only reasonable assurance of achieving the desired objectives.Our management, including our Managing Principal and Chief Financial Officer, evaluated the effectiveness of our disclosurecontrols and procedures pursuant to Rule 13a-15 under the Exchange Act as of the end of the period covered by this report. Based on thatevaluation, our Managing Principal and Chief Financial Officer have concluded that, as of the end of the period covered by this report, ourdisclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) are effective at the reasonable assurance level toaccomplish their objectives of ensuring that information we are required to disclose in reports that we file or submit under the Exchange Act isrecorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information isaccumulated and communicated to our management, including our Managing Principal and Chief Financial Officer, as appropriate, to allowtimely decisions regarding required disclosure.Changes in Internal Control Over Financial ReportingNo changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under theExchange Act) occurred during our most recent quarter, that have materially affected, or are reasonably likely to materially affect, our internalcontrol over financial reporting.Management's Report on Internal Control Over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal controlover financial reporting is a process designed under the supervision of management, including our Managing Principal and Chief FinancialOfficer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our consolidated financialstatements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America.Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurance that transactions arerecorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and thatreceipts and expenditures are being made only in accordance with authorizations of management and the directors; and provide reasonableassurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a materialeffect on our financial statements.Our management conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31,2013 based on criteria established in Internal Control—Integrated Framework 1992 issued by the Committee of Sponsoring Organizations ofthe Treadway Commission. Based on this assessment, management has determined that our internal control over financial reporting as ofDecember 31, 2013 was effective.Attestation Report of the Independent Registered Public Accounting FirmPricewaterhouseCoopers LLP, an independent registered public accounting firm, has audited our financial statements included inthis annual report and has issued its attestation report on our internal control over financial reporting as of December 31, 2013, which isincluded in “Financial Statements and Supplementary Data.”173Item 9B. Other InformationAppointment of Chief Accounting Officer and Designation of Principal Accounting OfficerOn February 24, 2014, the Company’s board of directors appointed Susan Gentile as Chief Accounting Officer and designated Ms.Gentile as our principal accounting officer, replacing David Kirchheimer, our Chief Financial Officer and Chief Administrative Officer and aPrincipal of our firm, who previously served as our principal accounting officer. Mr. Kirchheimer will continue to serve as our Chief FinancialOfficer and Chief Administrative Officer and as a Principal. Please see “Directors, Executive Officers and Corporate Governance—ExecutiveOfficers and Directors” for Ms. Gentile’s biography.PART III.Item 10. Directors, Executive Officers and Corporate GovernanceExecutive Officers and DirectorsThe following table sets forth information about our executive officers and directors as of February 28, 2014: NameAgePositionHoward S. Marks67Director, Chairman and Principal Bruce A. Karsh58Director, President, Chief Investment Officer and Principal John B. Frank57Director and Managing Principal David M. Kirchheimer57Director, Chief Financial Officer, Chief Administrative Officer and Principal Susan Gentile47Chief Accounting Officer and Managing Director Kevin L. Clayton51Director and Principal Stephen A. Kaplan55Director and Principal Larry W. Keele56Director and Principal Sheldon M. Stone61Director and Principal Robert E. Denham68Director D. Richard Masson55Director Wayne G. Pierson63Director Marna C. Whittington66Director Jay S. Wintrob56Director Todd E. Molz42General Counsel, Managing Director and Secretary Scott L. Graves42Head of Credit Strategies and Managing Director B. James Ford45Managing Director Caleb S. Kramer44Managing Director174Howard S. Marks is our Chairman and a co-founder and has been a director since May 2007. Since the formation of Oaktree in1995, Mr. Marks has been responsible for ensuring the firm's adherence to its core investment philosophy, communicating closely withclients concerning products and strategies, and managing the firm. From 1985 until 1995, Mr. Marks led the groups at The TCW Group, Inc.that were responsible for investments in distressed debt, high yield bonds, and convertible securities. He was also Chief Investment Officerfor Domestic Fixed Income at TCW. Previously, Mr. Marks was with Citicorp Investment Management for 16 years, where from 1978 to1985 he was Vice President and senior portfolio manager in charge of convertible and high yield securities. Between 1969 and 1978, he wasan equity research analyst and, subsequently, Citicorp’s Director of Research. Mr. Marks holds a B.S.Ec. degree cum laude from theWharton School of the University of Pennsylvania with a major in finance and an M.B.A. in accounting and marketing from the Booth Schoolof Business of the University of Chicago, where he received the George Hay Brown Prize. He is a CFA® charterholder and a CharteredInvestment Counselor. Mr. Marks serves on the Board of Trustees of the University of Pennsylvania and from 2000 to 2010 was Chairmanof its Investment Board. With over 40 years of investment experience, Mr. Marks's extensive expertise in our industry, his perceptive marketinsights and his importance to our client development bring considerable value to our board of directors and our overall business.Bruce A. Karsh is our President and a co-founder and has been a director since May 2007. He also is Chief Investment Officer andserves as portfolio manager for Oaktree's Distressed Opportunities and Value Opportunities strategies. Prior to co-founding Oaktree, Mr.Karsh was a Managing Director of TCW Asset Management Company, and the portfolio manager of the Special Credits Funds from 1988until 1995. Prior to joining TCW, Mr. Karsh worked as Assistant to the Chairman of SunAmerica, Inc. Prior to that, he was an attorney withthe law firm of O'Melveny & Myers. Before working at O'Melveny & Myers, Mr. Karsh clerked for the Honorable Anthony M. Kennedy, then ofthe U.S. Court of Appeals for the Ninth Circuit and presently Associate Justice of the U.S. Supreme Court. Mr. Karsh holds an A.B. degree inEconomics summa cum laude from Duke University, where he was elected to Phi Beta Kappa. He went on to earn a J.D. from theUniversity of Virginia School of Law, where he served as Notes Editor of the Virginia Law Review and was a member of the Order of theCoif. Mr. Karsh currently serves on the Board of Trustees of Duke University and is Chairman of the board of directors for Duke University'sinvestment management subsidiary, DUMAC, LLC. In addition, he currently serves on the boards of Tribune Company and a number ofprivately held companies. He previously served on the boards of Charter Communications, Inc., Furniture Brands International, KinderCareLearning Centers, Inc. and Littelfuse Inc. Mr. Karsh is highly respected as one of the leading portfolio managers in the area of distressed debtinvesting, one of our flagship investment strategies. Additionally, Mr. Karsh's extensive leadership and management skills and his currentand past service on boards of other public companies add significant value to our board of directors and our overall business.John B. Frank is Oaktree’s principal executive officer and works closely with Messrs. Marks and Karsh in managing the firm. From2001 until early 2006, Mr. Frank served as the firm’s General Counsel. Prior to joining Oaktree in 2001, Mr. Frank was a partner of the LosAngeles law firm of Munger, Tolles & Olson LLP. While at that firm, Mr. Frank acted as principal lawyer in a number of notable merger andacquisition transactions; as primary outside counsel to a number of public and privately held corporations; and as special counsel to variousboards of directors and special board committees. Prior to joining Munger Tolles in 1984, Mr. Frank served as a law clerk to the HonorableFrank M. Coffin of the United States Court of Appeals for the First Circuit. Prior to attending law school, Mr. Frank served as a LegislativeAssistant to the Honorable Robert F. Drinan, Member of Congress. Mr. Frank holds a B.A. degree with honors in History from WesleyanUniversity and a J.D. magna cum laude from the University of Michigan Law School, where he was Managing Editor of the Michigan LawReview and a member of the Order of the Coif. He is a member of the State Bar of California and, while in private practice, was listed inWoodward & White's Best Lawyers in America. Mr. Frank is a trustee of Wesleyan University, Polytechnic School and Good SamaritanHospital of Los Angeles. Mr. Frank brings a deep knowledge of our business to our board of directors, as well as many years of experience asa corporate lawyer. Mr. Frank has broad responsibility for our business and his service on our board of directors helps ensure both that ourboard is well informed about our operations and that the board's priorities are implemented.David M. Kirchheimer has been our Chief Financial Officer and Chief Administrative Officer since our founding, a Principal since2002 and a director since May 2007. Prior to joining Oaktree in 1995, Mr. Kirchheimer was a Vice President and the Chief AdministrativeOfficer of Ticketmaster Corporation, a leading ticket processing and distribution company. Previously, he was Executive Vice President andChief Financial Officer of Republic Pictures Corporation, a publicly held entertainment company. From 1979 to 1986, Mr. Kirchheimer waswith Price Waterhouse in Los Angeles, most recently serving as a Senior Audit Manager. Mr. Kirchheimer graduated Phi Beta Kappa andsumma cum laude with a B.A. degree in Economics from Colorado College and an M.B.A. in Accounting and Finance from the BoothSchool of Business of the University of Chicago. He is a Certified Public Accountant175(inactive). Mr. Kirchheimer serves on the Board of Trustees of Huntington Memorial Hospital. As our Chief Financial and AdministrativeOfficer, Mr. Kirchheimer has thorough knowledge of the day-to-day operations of our business. Additionally, his extensive experience infinancial reporting, accounting and controls adds a valuable resource to our board of directors.Susan Gentile is our Chief Accounting Officer and a Managing Director. Ms. Gentile joined Oaktree in September 2013 from theClorox Company, where she most recently served as Controller and Chief Accounting Officer, and was employed from March 2006 toSeptember 2013. Additionally, she has held accounting, internal controls and financial reporting roles for Levi Strauss & Co., Motorola, Inc.and Next Level Communications, Inc. Ms. Gentile began her career in the audit and assurance practice at Deloitte & Touche LLP. Shereceived her B.S. and B.A. degrees in Finance from Boston University, School of Management. Ms. Gentile is a Certified Public Accountant.Kevin L. Clayton is a Principal who is dedicated to developing and maintaining key investor relationships and has been a directorsince May 2007. Mr. Clayton is also Supervising Principal of OCM Investments, LLC, Oaktree's registered broker-dealer entity and memberof FINRA. Mr. Clayton founded the Marketing and Client Relations department at Oaktree in 1995 and managed the group until 2010. Hespent five years in the marketing and client relations area at Trust Company of the West before joining Oaktree in 1995. Mr. Clayton's priorexperience includes six years at Chrysler Corporation where he held a number of assignments in the U.S. Automotive Sales and MarketingDivision. Mr. Clayton holds a B.A. degree from Lehigh University and an M.B.A. from Saint Joseph's University in Philadelphia. He is ViceChair of Lehigh's Board of Trustees and also chairs the university's Advancement Committee. Mr. Clayton also serves on the ExecutiveCommittee of the Board of Trustees at Blair Academy and chairs the school's Investment Committee. Mr. Clayton's extensive experienceand knowledge in developing and maintaining client relationships enhance the breadth of experiences of our board of directors.Stephen A. Kaplan is a Principal and the former head of our Global Principal Group and has been a director since May 2007. Mr.Kaplan joined Oaktree in 1995, having previously served as a Managing Director of TCW and Portfolio Manager in the TCW Special CreditsGroup. Prior to joining TCW in 1993, Mr. Kaplan was a partner with the law firm of Gibson, Dunn & Crutcher and responsible for that firm’sEast Coast bankruptcy and workout practice. During his career as an attorney, Mr. Kaplan specialized in transactions involving the purchaseand sale of companies undergoing financial restructurings. Mr. Kaplan presently serves on the board of Regal Entertainment Group. He haspreviously served on the boards of Alliance Healthcare Services, Inc., Genco Shipping and Trading Ltd. and General Maritime Corporation. In addition, he currently serves on the boards of numerous private companies. Mr. Kaplan is also a trustee of numerous nonprofit boards ofdirectors, including the Jonsson Comprehensive Cancer Center Foundation and the New York University School of Law. Mr. Kaplangraduated with a B.S. degree in Political Science summa cum laude from the State University of New York at Stony Brook and a J.D. fromthe New York University School of Law. Mr. Kaplan has over 18 years of experience making and managing control investments. Hisknowledge of the private equity markets and his experiences as a director of public companies broadens and diversifies the experiences of ourboard of directors as he is very familiar with board responsibilities, oversight and control.Larry W. Keele is a Principal and a co-founder and has been a director since May 2007. Mr. Keele heads our Convertible Securitiesgroup. Mr. Keele managed Trust Company of the West’s Convertible Value portfolios from 1986 to 1995. Prior to joining TCW, Mr. Keeleorganized and managed the NationsBank Equity Income Fund, a commingled fund specializing in convertible securities and high yieldingequities. He also served as a Security Analyst and Institutional Portfolio Manager. Mr. Keele holds a B.B.A. degree in Finance fromTennessee Technological University and an M.B.A. in Finance from the University of South Carolina and is a CFA charterholder. With over25 years of experience in investing and managing convertible securities, Mr. Keele has extensive experience in that asset class. As one ofour co-founders, he is also closely familiar with our business. His investment background and insights to the convertible markets bring valueto our board of directors and our business.Sheldon M. Stone is a Principal and a co-founder and has been a director since May 2007. Mr. Stone serves as the portfolio managerof Oaktree’s U.S. High Yield Bond strategy and co-portfolio manager of its Global High Yield Bond strategy. In addition, he has supervisoryresponsibility for Oaktree’s European High Yield Bond strategy. Mr. Stone established TCW’s High Yield Bond Department with Mr. Marks in1985 and ran the department for ten years. Prior to joining TCW, Mr. Stone worked with Mr. Marks at Citibank for two years where heperformed credit analysis and managed high yield bond portfolios. From 1978 to 1983, Mr. Stone worked at The Prudential InsuranceCompany where he was a Director of Corporate Finance, managing a fixed income portfolio exceeding176$1 billion. Mr. Stone holds a B.A. degree from Bowdoin College and an M.B.A. in Accounting and Finance from Columbia University. Mr.Stone serves as a Trustee of Colonial Williamsburg Foundation and Bowdoin College. With over 35 years of experience in the fixed incomemarkets, Mr. Stone brings a wealth of knowledge. As one of our co-founders, he is also closely familiar with our business. His investmentbackground and insights into the fixed income markets bring value to our board of directors and our business.Robert E. Denham has been a director since December 2007. Mr. Denham is a partner in the law firm of Munger, Tolles &Olson LLP, having rejoined the firm as a partner in 1998 to advise clients on strategic and financial issues, after serving as the Chairmanand Chief Executive Officer of Salomon Inc. Mr. Denham joined Salomon in late August 1991 as General Counsel of Salomon and itssubsidiary, Salomon Brothers, and became Chairman and CEO of Salomon in June 1992. Prior to joining Salomon, Mr. Denham had beenat Munger, Tolles & Olson LLP for twenty years, including five years as managing partner. Mr. Denham graduated magna cum laude fromthe University of Texas, where he was elected to Phi Beta Kappa. He received a master’s degree in Government from Harvard University in1968 and a J.D. from Harvard Law School in 1971, where he graduated magna cum laude and was a Case and Developments Editor of theHarvard Law Review. Mr. Denham is a member of the California, American and Los Angeles County Bar Associations. Mr. Denham serveson the board of directors of the Russell Sage Foundation (Chair) and the James Irvine Foundation and is a trustee of the Good SamaritanHospital of Los Angeles (Vice Chairman). He is also a public member of the Professional Ethics Executive Committee of the AmericanInstitute of Certified Public Accountants. Mr. Denham presently serves on the boards of the Chevron Corporation, Fomento EconomicoMexicano, S.A. de CV (FEMSA) and The New York Times. Mr. Denham previously served on the board of Wesco Financial Corporation andUGL Limited. Mr. Denham has served as a member of the board of directors of a number of publicly traded companies and, therefore, isexperienced with board responsibilities, oversight and control which will benefit our board of directors and our business. Mr. Denham alsoprovides a broader range of expertise on the board of directors given his background as a corporate lawyer and a former chief executive officerof a global financial services company, where among other responsibilities, he chaired the risk management committee.D. Richard Masson has been a director since May 2007. Prior to his retirement from Oaktree in 2009, Mr. Masson was a co-founderand Principal of Oaktree, where he served as head of analysis for the Distressed Debt strategy from 1995 to 2001 and as co-head of analysisfrom 2001 to 2009. Prior thereto, he was Managing Director of TCW and its affiliate, TCW Asset Management Company, and head of theSpecial Credits Analytical Group. Prior to joining TCW in 1988, Mr. Masson worked for three years at Houlihan, Lokey, Howard andZukin, Inc., where he was responsible for the valuation and analysis of securities and businesses. Prior to Houlihan, Mr. Masson was aSenior Accountant with the Comprehensive Professional Services Group at Price Waterhouse in Los Angeles. Mr. Masson holds a B.S. inBusiness Administration from the University of California at Berkeley and an M.B.A. in Finance from the University of California at LosAngeles. He is a Certified Public Accountant (inactive). Mr. Masson’s extensive experience in distressed debt investing and his knowledge ofour company brings value to our board of directors and our business.Wayne G. Pierson has been a director since November 2007. Mr. Pierson is Chief Financial and Investment Officer of MeyerMemorial Trust, a member of the original consortium of seven longstanding Oaktree clients who became institutional investors in Oaktreein February, 2004. Mr. Pierson currently serves as President of Acorn Investors, LLC, an investor in OCGH. Prior to joining MeyerMemorial Trust, Mr. Pierson served as Treasurer of Gregory Affiliates from 1980 until 1982. From 1973 until 1980, he served as an auditsupervisor with Ernst & Young. Mr. Pierson initiated and continues to conduct a comprehensive investment survey for the FoundationFinancial Officers Group, representing more than 150 foundations with assets in excess of $200 billion. He serves on a number of privateequity fund advisory boards and is a trustee for several private trusts. In addition, he serves on the board of directors of M Fund, Inc. and is aprincipal with Clifford Capital Partners, LLC. Mr. Pierson received a B.S. in Business Administration cum laude from California StateUniversity, Northridge and is a Certified Public Accountant and CFA charterholder. Mr. Pierson’s investment and finance expertise and hisfamiliarity with our company add value to our board of directors and to our business.Marna C. Whittington, Ph.D. has been a director since June 2012. Ms. Whittington was the Chief Executive Officer of Allianz GlobalInvestors Capital from 2001 until her retirement in January 2012. From 2002 to 2011, she was Chief Operating Officer of Allianz GlobalInvestors, the parent company of Allianz Global Investors Capital. Prior to that, she was Managing Director and Chief Operating Officer ofMorgan Stanley Investment Management. Ms. Whittington started in the investment management industry in 1992, joining Philadelphia-based Miller Anderson & Sherrerd. Previously, she was Executive Vice President and CFO of the University of Pennsylvania, and earlier,Secretary of Finance for the State of Delaware. Ms. Whittington currently serves as a director of Macy’s, Inc. and Phillips 66. She holds anM.S. degree and a Ph.D. from the University of Pittsburgh, both in Quantitative Methods,177and a B.A. degree in Mathematics from the University of Delaware. Ms. Whittington’s twenty years of experience in the investmentmanagement industry and her service on the board of other public companies enhance and contribute to the range of experience andindependence of our board of directors.Jay S. Wintrob has been a director since September 2011. Mr. Wintrob has served as President and Chief Executive Officer of AIGLife and Retirement, the U.S. based life and retirement services businesses of American International Group, Inc. (“AIG”), and ExecutiveVice President – Life and Retirement of AIG since 2009. Mr. Wintrob was Executive Vice President – Retirement Services of AIG from 2002to 2009 and also served as a director of AIG from 1999 to 2004. Mr. Wintrob joined SunAmerica Inc. in 1987 as Assistant to the Chairman,was elected Senior Vice President in 1989, Executive Vice President in 1991 and Vice Chairman in 1995. Mr. Wintrob also served asPresident of SunAmerica Investments, Inc., overseeing the company's invested asset portfolio, from 1994 through 2000. Following AIG'sacquisition of SunAmerica, Mr. Wintrob served as Vice Chairman of AIG Retirement Services, Inc. from 1998 to 2005, Chief OperatingOfficer from 1998 to 2001 and has served as President since 2000 and Chief Executive Officer since 2001. Prior to joining SunAmerica, Mr.Wintrob was with the law firm of O'Melveny & Myers. Mr. Wintrob received his B.A. from the University of California at Berkeley and a J.D.from the Boalt Hall School of Law at the University of California at Berkeley. Mr. Wintrob is a member of the board of the American Council ofLife Insurers and is a board member of several non-profit organizations, including The Broad Foundations, The J. Paul Getty Trust and theSkirball Cultural Center. Mr. Wintrob's investment and finance expertise and his service as chief executive officer of one of the largest lifeinsurance and retirement services organizations in the United States add value to our board of directors and to our business.Todd E. Molz is our General Counsel and a Managing Director. Mr. Molz manages all aspects of our legal activities, including fundformation, acquisitions and other special projects. Prior to joining Oaktree in 2006, Mr. Molz was a partner of the Los Angeles law firm ofMunger, Tolles & Olson LLP, where his practice focused on tax and structuring aspects of complex and novel business transactions. Prior tojoining Munger Tolles, Mr. Molz served as a law clerk to the Honorable Alfred T. Goodwin of the United States Court of Appeals for the NinthCircuit. Mr. Molz received a B.A. degree in Political Science cum laude from Middlebury College and a J.D. degree with honors from theUniversity of Chicago. While at Chicago, Mr. Molz served on the Law Review, received the John M. Olin Student Fellowship and was amember of the Order of the Coif. Mr. Molz serves on the Board of Trustees of the Children's Hospital of Los Angeles.Scott L. Graves is a Managing Director and serves as Head of Credit Strategies for Oaktree with responsibility for overseeing theMulti-Strategy Credit, U.S. Senior Loan, European Senior Loan, Mezzanine Finance and Strategic Credit strategies. He is also active incorporate management matters for the firm and is responsible for Oaktree’s corporate and strategic development efforts. Since joining thefirm in 2001 and through to 2013, Mr. Graves served as an investment professional in the Distressed Opportunities, Value Opportunitiesand Strategic Credit strategies, where he was most recently a co-portfolio manager and contributed to the analysis, portfolio construction andmanagement of the investment funds. Prior to joining Oaktree, Mr. Graves served as a Principal in William E. Simon & Sons' PrivateEquity Group where he was responsible for sourcing, structuring, executing and managing corporate leveraged buy-outs and growth capitalinvestments. Before joining William E. Simon & Sons in 1998, Mr. Graves worked at Merrill Lynch & Company in the Mergers andAcquisitions Group, where he focused on leveraged buy-out situations and the valuation of public and private companies. Prior thereto, Mr.Graves worked at Price Waterhouse LLP in the Audit Business Services division. Mr. Graves received a B.A. degree in History from theUniversity of California at Los Angeles and an M.B.A. in Entrepreneurial Finance from the Wharton School at the University ofPennsylvania. He is a Certified Public Accountant (inactive).B. James Ford is a Managing Director and portfolio manager within our Global Principal Group. He is responsible for overseeing allactivities of the Global Principal Group, including investment commitments and approvals, client relations and administrative andpersonnel-related matters. Since joining Oaktree in 1996, he has been involved in sourcing and executing a number of the firm's mostsignificant investments and led the group's efforts in the media and energy sectors prior to being named a portfolio manager in 2006. Mr.Ford has worked extensively with a variety of Oaktree portfolio companies, including currently serving on the Boards of Directors ofContango Oil & Gas Company, Exco Resources and Townsquare Media, as well as numerous private companies. Mr. Ford formerly servedon the boards of Cequel Communications; Forcenergy, Inc; Dial Global, Inc. and Regal Entertainment. Mr. Ford earned a B.A. in Economicsfrom the University of California at Los Angeles and an M.B.A. from the Stanford University Graduate School of Business. He serves as anactive member of the board of directors of the Children's Bureau.Caleb S. Kramer is a Managing Director and the portfolio manager of our European Principal Group. Prior to joining Oaktree in2000, Mr. Kramer co-founded Seneca Capital Partners LLC, a private equity investment firm. 178From 1994 to 1996, Mr. Kramer was employed by Archon Capital Partners, an investment firm. Prior to 1994, Mr. Kramer was anAssociate in M&A at Dillon Read and Co. Inc. and an Analyst at Merrill Lynch and Co. Inc. Mr. Kramer received a B.A. degree in Economicsfrom the University of Virginia.There are no family relationships among any of our executive officers and directors.Board Structure and GovernanceComposition of Our Board of DirectorsOur operating agreement establishes a board of directors responsible for the oversight of our business and operations. So long as theOaktree control condition is satisfied, the number of directors that comprise our board of directors is determined from time to time by ourmanager. Our board of directors consists of Messrs. Marks, Karsh, Frank, Kirchheimer, Clayton, Kaplan, Keele, Stone, Masson, Denham,Pierson and Wintrob and Ms. Whittington (for a total of 13 directors). Actions by our board of directors must be taken with the approval of amajority of its members. So long as the Oaktree control condition is satisfied, our manager is entitled to designate all the members of ourboard of directors.Control of Oaktree Capital Group Holdings GP, LLCOaktree Capital Group Holdings GP, LLC acts as our manager and is the general partner of OCGH, which owns 100% of ouroutstanding Class B units. Under its operating agreement, Oaktree Capital Group Holdings GP, LLC is managed by an executive committeethat is comprised of our eight Principals. In general, the executive committee seeks to act by consensus or, absent a consensus, by a vote ofa majority of the voting percentage of the executive committee members (or such higher threshold as may be determined from time to timeby the executive committee). The executive committee also, from time to time, delegates to one or more of its members or to other personssuch authority and duties as the executive committee may deem advisable. Oaktree Capital Group Holdings GP, LLC has agreed that theadmission of any member who is not a Principal is prohibited.The voting percentage of each member of the executive committee is equal to the fraction, expressed as a percentage, the numeratorof which is his percentage interest in OCGH and the denominator of which is the aggregate percentage interest of all of the executivecommittee members in OCGH. Accordingly, members with larger economic stakes in the Oaktree Operating Group (including Messrs.Marks, Karsh and Stone) are able to exercise greater voting power than members with smaller economic stakes on any matter submitted tothe executive committee for a vote. The combined voting percentages of Messrs. Marks and Karsh by themselves are sufficient, for theforeseeable future, to constitute a majority of the voting percentage of the executive committee members.Controlled Company ExemptionUnder the NYSE rules, a company of which more than 50% of the voting power is held by an individual, group or another companyis a “controlled company” and may elect not to comply with certain NYSE corporate governance standards. Because our Principals representmore than 50% of our voting power, we are therefore a “controlled company.” As a result, we have elected not to comply with certain NYSEcorporate governance standards, including the requirement that a majority of the board of directors consist of independent directors andthe requirement to have a compensation committee and a nominating/corporate governance committee that are composed entirely ofindependent directors with written charters addressing the committee's purpose and responsibilities. In addition, we are not required to holdannual meetings of our unitholders. Accordingly, our Class A unitholders do not have the same protections afforded to shareholders ofcompanies that are subject to all of the NYSE corporate governance requirements.Audit CommitteeThe purpose of the audit committee is to assist our board of directors in overseeing and monitoring the quality and integrity of ourfinancial statements, our compliance with legal and regulatory requirements, the performance of our internal audit function and ourindependent registered public accounting firm's qualifications, independence and performance. Our audit committee is comprised of Messrs.Masson and Wintrob and Ms. Whittington. Our board of directors has determined that Messrs. Masson and Wintrob and Ms. Whittingtonmeet the independence standards and financial literacy requirements for service on an audit committee of a board of directors under Rule10A-3 promulgated under the Exchange Act and the NYSE rules. In addition, our board of directors has determined that each of Mr. Massonand Ms. Whittington is an “audit committee financial expert”179within the meaning of Item 407(d)(5) of Regulation S-K and has “accounting or related financial management expertise” under applicableNYSE rules. The audit committee has a charter that is available on our website at www.oaktreecapital.com under the “Unitholders” section.Executive CommitteeOur board of directors has established an executive committee that acts, when necessary, in place of our full board of directors duringintervals between meetings of our board of directors. The executive committee consists of Messrs. Marks, Karsh and Frank.Code of EthicsWe have a Code of Ethics, which applies to our directors, executive officers and employees and is available on our website atwww.oaktreecapital.com under the “Unitholders” section. We intend to disclose any amendment to or waiver of the Code of Ethics on behalfof a director or executive officer either on our website or in a Current Report on Form 8-K filing.Corporate Governance GuidelinesOur board of directors has a governance policy, which addresses matters such as the board of directors' responsibilities and duties,the board of directors' composition, policies and compensation and director independence, and is available on our website atwww.oaktreecapital.com under the “Unitholders” section.Communications to the Board of DirectorsThe non-management members of our board of directors meet quarterly. The non-management directors have currently selected Mr.Pierson, one of our non-management directors, to lead these meetings for 2014. All interested parties, including any employee or unitholder,may send communications to the non-management members of our board of directors by writing to: Oaktree Capital Group, LLC, Attn:General Counsel, 333 South Grand Avenue, 28th Floor, Los Angeles, CA 90071.Section 16(a) Beneficial Ownership Reporting ComplianceSection 16(a) of the Exchange Act requires our executive officers and directors and persons who own more than ten percent of aregistered class of our equity securities to file initial reports of ownership and reports of changes in ownership with the SEC and furnish uswith copies of all Section 16(a) forms they file. To our knowledge, based solely on our review of the copies of such reports furnished to us orwritten representations from such persons that they were not required to file a Form 5 to report previously unreported ownership or changesin ownership, we believe that, with respect to the year ended December 31, 2013, such persons complied with all such filing requirements.180Item 11. Executive CompensationCompensation Discussion and AnalysisOverview of Compensation Philosophy and ProgramOur fundamental philosophy in compensating our key personnel has always been, and will continue to be, to align their interestswith the interests of our clients and unitholders. The alignment of interests is a defining characteristic of our business and one that webelieve best optimizes long-term sustainable value. Consistent with that philosophy, most of our founding Principals, including Howard S.Marks, our Chairman, receive no compensation and only receive the regular distributions in respect of their OCGH units payable to them intheir capacity as equity holders of our company.We intend to continue our historical compensation practices, although we anticipate that in the future we may find it appropriate toprovide compensation to our founding Principals in addition to the distributions on their OCGH units. Nonetheless, we expect that thesubstantial majority of their compensation as a whole will continue to come from their indirect ownership of the Oaktree Operating Group forthe foreseeable future.Our named executive officers (“NEOs”) consisted of the following individuals: (a) Bruce A. Karsh, our President and ChiefInvestment Officer; (b) John B. Frank, our Managing Principal and principal executive officer; (c) David M. Kirchheimer, our Chief FinancialOfficer and Chief Administrative Officer; (d) Caleb S. Kramer, who manages our European Principal Investments strategy; and (e) Scott L.Graves, Head of our Credit Strategies.Compensation Elements for Named Executive OfficersOur NEOs (other than Mr. Graves) have historically been compensated primarily or exclusively through a combination of equitygrants and profit and fee sharing. We have generally designed our NEOs' compensation as long-term arrangements that are structured toalign our NEOs' interests with the interests of our company and our clients, motivate and reward long-term performance, and reduce theneed for recurring and potentially distracting compensation negotiations.Generally speaking, we do not review our NEOs' compensation arrangements on an annual basis. To the extent that an NEO'scompensation is modified, such decisions are based upon Messrs. Marks's and Karsh's, or Mr. Frank's, as applicable, subjectiveassessment of a multitude of factors, including the scope and complexity of the NEO's responsibilities, the NEO's individual performance,the alignment of interests between the NEO and our clients and unitholders, and the NEO's historic and anticipated contributions to ourbusiness results and financial performance. None of the factors considered by Messrs. Marks and Karsh, or Mr. Frank, as applicable, isassigned any particular weighting in determining the amount of compensation to award. As further discussed below, Mr. Graves recentlytransitioned out of our Distressed Debt group. His cash compensation for 2013 reflects his historic compensation arrangements as amember of the Distressed Debt group, which were generally the same for similarly situated senior investment professionals of the group.What We Reward and Why We Pay Each Pay ElementThe compensation packages for our NEOs are intended to align their interests with our clients and unitholders, reward risk mitigationand sustained financial and operational performance and to motivate these individuals to remain with us for long and productive careers. Ourcompensation arrangements are intended to attract, retain and motivate individuals of the highest level of quality and effectiveness. We arefocused on rewarding the types of sustained, longer-term performance that provides attractive risk-adjusted returns for clients and increaseslong-term unitholder value.Our compensation structure enables our NEOs to receive remuneration via distributions on their indirect ownership of the OaktreeOperating Group and from various profit-sharing arrangements. Allowing our NEOs to participate in profit-sharing arrangements aligns theirinterests with those of our unitholders and clients. The indirect ownership of the Oaktree Operating Group by our NEOs results indistributions to our NEOs that are by design performance-based since all of the distributions are determined based on our profits and inrespect of the officers' allocated shares of the carried interest or incentive fees payable in respect of our investment funds. Equity grants underthe 2007 Plan and the 2011 Plan further align the interests of our NEOs with those of our unitholders.A portion of the compensation earned by Mr. Kramer and all of the compensation earned by Mr. Karsh consist of carried interests theyeach received in respect of the funds for which they act as portfolio manager. In addition, a significant portion of the compensation earned byMr. Kramer has consisted of his share of the181management fees paid by the funds for which he serves as portfolio manager. Mr. Frank receives a share of the carried interest from ourlargest closed-end strategy, Distressed Debt, both in recognition of his historic contributions to the management of some of the strategy'sinvestments and in lieu of other compensation, such as a greater profit-sharing percentage or additional OCGH units.In the case of Mr. Graves, compensation he received in 2013 primarily related to his role as a senior investment professional in ourDistressed Debt group prior to his transition into his current role as head of credit strategies. We generally compensate our senior investmentprofessionals through a mix of a base salary (generally capped at $130,000), discretionary bonus, and carried interest for strategies fromwhich we may earn incentive income. For Mr. Graves, the bonus and carried interest he received in 2013 were consistent with the amountswe paid other similarly situated senior investment professionals in the Distressed Debt group and reflect the significant incentive incomegenerated from funds managed by that group in 2013.Indirect Ownership of the Oaktree Operating GroupAll of our executive officers, including our NEOs, have significant indirect equity stakes in the Oaktree Operating Group through theirholdings of OCGH units, which we believe provide a long-term incentive to improve the value of our business without creating undue risk.This ownership entitles our NEOs to a portion of the aggregate earnings of the Oaktree Operating Group, and allows our NEOs to realizeappreciation in the value of our units through their ability to exchange OCGH units for Class A units and then sell such units. For purposesof our financial statements, we treat distributions paid on the Oaktree Operating Group units as distributions on equity rather than ascompensation, and therefore these payments are not reflected in the Summary Compensation Table below. As described under “CertainRelationships and Related Transactions, and Director Independence—Exchange Agreement,” subject to certain restrictions, each OCGHunitholder will have the right to exchange his or her vested OCGH units into, at the option of our board of directors, Class A units, anequivalent amount of cash based on then-prevailing market prices, other consideration of equal value or any combination of the foregoingpursuant to the terms of an exchange agreement.Our NEOs will forfeit all unvested units in OCGH upon their departure from Oaktree for any reason unless the departure is due todeath or disability, in which case all unvested units automatically vest in full, or if the forfeiture requirement is waived by us. All of our NEOsare subject to transfer restrictions in respect of their OCGH units by virtue of the fact that each of our NEOs must obtain board approval toexchange their OCGH units for Class A units, which may be sold, or the equivalent amount of cash as discussed above.As of December 31, 2013, our NEOs beneficially owned the following number of OCGH units and Class A units:Name Number of OCGHUnits Number of Class AUnits Total Number of Units Percentage ofBeneficialOwnership ofOaktree OperatingGroupBruce A. Karsh20,030,937 1,826 20,032,763 13.26%John B. Frank2,327,490 185 2,327,675 1.54%David M. Kirchheimer1,646,716 136 1,646,852 1.09%Caleb S. Kramer1,124,281 79 1,124,360 0.74%Scott L. Graves1,149,471 72 1,149,543 0.76%Following the May 2007 Restructuring, the OCGH unitholders' interests in OCGH continued to take into account anydisproportionate sharing in historical incentive income in accordance with the terms of the OCGH limited partnership agreement that were ineffect prior to the May 2007 Restructuring. As a result, distributions to the OCGH unitholders by OCGH that are attributable to historicalincentive income are not made pro rata in proportion to the OCGH unitholders' interest in OCGH units but instead will be adjusted toaccount for the disproportionate sharing of historical incentive income.Equity GrantsOur board of directors and the general partner of OCGH adopted the 2007 Plan as part of the May 2007 Restructuring (please see“—2007 Plan” below). Before the adoption of the 2011 Plan (please see “—2011 Equity Incentive Plan” below), all grants of equity-basedawards made to our NEOs were made under the 2007 Plan, and since the adoption of the 2011 Plan all grants of equity-based awards to bemade to our NEOs are being made182pursuant to the terms and conditions of the 2011 Plan. For approximately the last six years, Mr. Frank has made all final recommendationsregarding grants of equity-based awards to our NEOs (other than to himself), based on his subjective assessment of such factors as hedeems appropriate, such as the NEO's individual contribution, importance to our business and the performance of the group that the NEOdirects. In making his assessments, he solicits the advice and input of Messrs. Marks and Karsh. Messrs. Marks and Karsh determine intheir discretion the amount of equity-based awards, if any, to be granted to Mr. Frank, based upon their subjective assessment of Mr. Frank'spast and anticipated contribution to the success of our business, the scope and complexity of his responsibilities, his current equityownership, his existing overall compensation and such other factors as they deem appropriate. All equity-based awards were formallygranted either by our board of directors or by a committee composed of Messrs. Marks, Karsh and Frank. For all equity-based incentiveawards granted to our executive officers since our initial public offering, Mr. Frank recommended such grants to the board, subject to the inputand advice of Messrs. Marks and Karsh, and our entire board served as the Committee under the 2011 Plan for purposes of making suchgrants. We intend to continue this practice with respect to all such grants in the future. None of our NEOs was granted OCGH units in 2013,but Mr. Graves received an equity award of 256,234 OCGH units in January of 2014. This award reflected Mr. Graves’s transition ofresponsibilities and is intended to further align Mr. Graves’s financial interests with our unitholders and to substitute on a going-forward basisfor compensation Mr. Graves formerly received as a member of the Distressed Debt group.In assessing equity grants to our personnel, including our NEOs, Mr. Frank does not employ any formulaic approach or utilizecompensation consultants. Instead, Mr. Frank subjectively assesses factors such as the scope and impact of the person's role, his or herhistoric and anticipated future contribution to our company's long term success, the person's historic compensation (including equity grants)and overall level of compensation relative to other personnel, and the vesting periods associated with the equity grants. Mr. Frank does notweigh these factors in any particular way; rather, he uses his subjective judgment to determine the size of the OCGH unit grant.Components of Other CompensationAs described above, our NEOs' compensation arrangements are designed as long-term arrangements that are structured to align ourNEOs' interests with the interests of our company and our clients, motivate and reward long-term performance and reduce the need forrecurring and potentially distracting compensation negotiations. Generally speaking, we pay our NEOs a certain percentage of differentrevenues or profits, generally focused more on our overall profitability in the case of Messrs. Frank and Kirchheimer, and more on particularstrategies we manage in the case of Messrs. Karsh, Kramer and Graves, although in the case of Mr. Frank, a meaningful portion of hiscompensation in a given year may relate to incentive income generated by our distressed debt funds, and in the case of all of our NEOs, theirequity ownership represents a very substantial portion of their participation in the economics of our business. We attached little weight to themix of compensation in any particular year as we focus on the long-term nature of our business and compensation arrangements. Severalyears ago, Messrs. Marks and Karsh set the percentages of profit sharing, incentive income and management fee income for our NEOs.When doing so, they considered a variety of factors, including the projected amount of profit sharing, incentive income and management feeincome each NEO would receive relative to the other applicable compensation components.Profit Sharing ArrangementsEach of Messrs. Frank and Kirchheimer is entitled to receive a quarterly profit-sharing payment based on the annual GAAP netincome of the Oaktree Operating Group with adjustments (a) eliminating the compensation expense relating to equity granted on or beforethe 2007 Private Offering, (b) representing a 50% reduction to the compensation expense relating to all other equity grants and (c) for certainother minor items. For 2013, such adjusted net income amount was approximately $1.2 billion. Profit-sharing payments made in respect ofa particular year are subject to a true-up or true-down after the close of that year to reflect actual profits for the year. This profit-sharingarrangement will terminate upon the termination of the employment of Messrs. Frank and Kirchheimer, respectively, for any reason. WhenMessrs. Frank and Kirchheimer became Principals of our business in 2002, no Principal had ever received a fixed salary and bonus, andMessrs. Marks and Karsh concluded annual discussion of bonuses would be contrary to the nature of the status of Messrs. Frank andKirchheimer as Principals. Instead, they determined an appropriate profit-sharing percentage for Messrs. Frank and Kirchheimer based inpart on the compensation they would have received had they remained employees compensated at the most senior level, taking into accountthat this profit-sharing arrangement was 100% at risk and tied their compensation directly to the overall profitability of our business. Messrs.Kirchheimer and Frank's profit-sharing arrangement dates back to the beginning of 2003, when it was determined that compensating themby reference to our profits would be preferable to continuing to afford them salary and bonus or granting them equity sufficient to generate acomparable cash flow. Their profit-sharing percentages were increased in 2009 to reflect the growth in their responsibilities since 2003. SinceMessrs. Frank and Kirchheimer are responsible for the day-to-day operations of our business183and for managing our overall business, the profit-sharing arrangements motivate them by tying their compensation to the success of ouroverall business. The amounts paid to Messrs. Frank and Kirchheimer as annual profits participation interests are set forth under “All OtherCompensation” in the Summary Compensation Table below.Carried Interest or Incentive IncomeAs noted above, Messrs. Karsh, Frank, Kramer and Graves (like many of our investment professionals) have the right to receive aportion of the incentive income generated by our funds through their participation interests in the carry pools generated by the generalpartners of these funds. The carry pools are the participation interests in these funds set aside for the general partners of the funds, which inturn grant a portion of such interests to our NEOs and other executives. Each of Messrs. Karsh, Frank and Graves receives a share of theincentive income we receive with respect to certain of our Distressed Debt funds, and Mr. Kramer receives a share of the incentive incomewe receive from our Control Investing funds. We first awarded Mr. Karsh an interest relating to the incentive income of our Distressed Debtfunds commencing with OCM Opportunities Fund VII, L.P. and have awarded him an interest in each subsequent Distressed Debt fund.The distributions Mr. Karsh receives in respect of his percentage interest in the incentive income of each such Distressed Debt fund arereduced by an amount equal to his indirect pro rata interest in the aggregate amount of such distributions as a result of his limited partnershipinterest in OCGH. The carry pools (and Messrs. Karsh, Frank, Kramer and Graves' participation therein) are referred to as our “CarryPlans.” Under the terms of our closed-end funds, we (and our employees who share in our carried interest) are generally not entitled tocarried interest distributions (other than tax distributions) until the investors in our funds have received a return of all contributed capital plusa preferred return, which is typically 8%. Because the aggregate amount of carried interest payable through our Carry Plans is directly tied tothe realized performance of the funds, we believe this fosters a strong alignment of interests among the investors in those funds and Messrs.Karsh, Frank, Kramer and Graves, and therefore benefits both those investors and our unitholders.Participation in carried interest is a primary means of compensating and motivating many of our investment professionals. Webelieve such participation is one of the most effective ways to align the interests of our investment professionals with our clients andunitholders. Mr. Frank, or Messrs. Marks and Karsh, as applicable, determine the amount of incentive income to grant in respect of a givenfund based on our historical arrangements with the NEO and our estimation of the NEO's current and projected role in the investmentactivities of the particular fund. In making these determinations, we consider a multitude of factors, including the NEO's role in raising theparticular fund, sourcing and evaluating potential investment opportunities for the fund, managing and monitoring existing investmentswithin the fund, running the larger investment strategy and managing the investment and other professionals involved in the fund'sactivities. None of these factors is assigned a particular weighting when determining the amount of carried interest to grant to a particularNEO. We expect to continue to use participation in carried interest as a cornerstone of compensation for our investment professionals whomanage closed-end funds. Grants of participation interests in incentive income for our closed-end funds are made in each specific fund andare subject to vesting, which typically runs over five years, subject to acceleration for death, disability or termination without cause. Vestingserves as an employment retention mechanism and thereby enhances the alignment of interests between a participant and us. We believethat vesting of participation in incentive income motivates participants to remain in our employ over the long term. For purposes of ourfinancial statements, we treat the income allocated to all of our personnel who have participation interests in the incentive income generatedby our funds as compensation, and the allocations of incentive income earned by Messrs. Karsh, Frank, Graves, and Kramer in respect of2013 are accordingly set forth under “All Other Compensation” in the Summary Compensation Table below, even though they may nothave received such amounts in cash.Asset-based Management FeesWhile all of our NEOs share indirectly in our management fees through their ownership of OCGH units, Mr. Kramer also historicallyreceived a direct share of the management fees paid by the Control Investing funds for which he serves as portfolio manager. During theirinvestment periods, these funds pay a management fee based on a percentage of limited partners' capital commitments. Thereafter, themanagement fee is based on the lesser of a percentage of the portion of limited partners' capital contributions that has been invested and notreturned to such limited partners and the cost basis of the assets remaining in the fund. The amount paid to Mr. Kramer as distributions ofasset-based management fees is set forth under “All Other Compensation” in the Summary Compensation Table and is determined byreference to sharing percentages we negotiated with Mr. Kramer some years ago, taking into account Mr. Kramer’s roles in fundraising,sourcing and evaluating potential investment opportunities, managing and monitoring existing investments and managing the strategy andits investment and other professionals, with none of these factors having any particular weighting.184Starting in 2012, we began moving away from these formulaic arrangements for our executive officers in favor of a program of fixedpayments that are determined annually. We have transitioned away from formulaic compensation arrangements based on a fund’s assetsunder management because we believe that we can better tailor incentives, and thus align the interests of our investment professionals withour clients and, by extension, our unitholders, by setting compensation on a periodic basis. Under a formulaic compensation arrangement,factors outside an individual’s control, such as the environment in which a fund is raised, could result in an increase or decrease in anindividual’s compensation. In addition, such arrangements reduce our ability to adjust compensation for other factors, such as fundperformance or team management. In contrast, by transitioning to fixed payment arrangements, we now have the ability to periodicallyadjust the compensation of our investment professionals to account for each individual’s contribution to our various investment strategiesand funds, the fund’s investment performance and the individual’s contributions to Oaktree’s business as a whole. As a result, we are in abetter position to control our compensation expenses and to tailor our compensation packages to changing facts and circumstances, which webelieve allows us to better align incentives between our investment professionals and our clients and unitholders. For 2013, other than thesalary paid to Mr. Graves, we did not make fixed payments to any of our NEOs.Other BenefitsWe provide an annual cost of living adjustment to Mr. Kramer to compensate him for the additional costs he incurs by being stationedin London with his family. We also cover the cost of travel for Mr. Kramer and his family from the United Kingdom to the United States. Weagreed to provide this personal benefit in order to encourage Mr. Kramer to relocate to London and believe that it has contributed to thesuccess of that arrangement. We provide minimal other perquisites to our executives and such perquisites form an insignificant element ofour total compensation structure.Determination of Executive CompensationExcept in the case of the grants of OCGH units to Mr. Frank as discussed above under “—Equity Grants,” the compensation of oursenior professionals is determined by the relevant portfolio manager or department head and by Mr. Frank, our Managing Principal. Mr.Frank, with the input of Messrs. Marks and Karsh, makes the final decisions in his discretion, based on his subjective assessment of whatwill best advance the interests of our company, but our compensation process is a collaborative and iterative effort. Our process is intended toappropriately reward and incentivize our executives so as to secure their loyalty and motivate them to devote their best efforts to the interestsof our clients and unitholders. Our process is not formulaic. Rather, we seek to take into account a range of largely subjective factors relatingto the individual's historic and projected contribution to the success of our business. The particular factors deemed most relevant to anyparticular compensation decision vary widely depending upon individual circumstance, but typically include consideration of the individual'swork ethic, expertise, judgment, reputation, seniority, willingness and ability to work as part of a team and overall effectiveness. None ofthese factors is assigned any particular weight in making any compensation decisions.Risk Analysis of Our Compensation ProgramsWe strive to invest in a risk-controlled fashion and seek to ensure that our compensation policies are consistent with that approach anddiscourage the incurrence of undue risk. Thus, we emphasize both the grant of equity and – for senior investment professionals in ourclosed-end funds – carried interest subject to multi-year vesting as key forms of compensation, particularly as employees become moresenior in the organization and assume more leadership. We believe this policy encourages long-term thinking, fosters a collaborative cultureand reduces any incentive to accept excessive risk in a search for short-term gain. With respect to participation in our incentive income, ourclosed-end funds generally distribute incentive income only after we have returned all capital plus a preferred return to our investors,meaning that in analyzing investments and making investment decisions, our investment professionals are motivated to take a long-termview of their investments, given that short-term results typically do not affect their compensation. Importantly, the amount of incentiveincome paid to these investment professionals is determined by the performance of the fund as a whole, rather than specific investments,meaning that they have a material interest in every investment. This approach discourages excessive risk taking, given that even a hugelysuccessful investment will result in incentive compensation payments only if the overall performance of the fund exceeds the requisitehurdle.Tax and Accounting ConsiderationsBeginning on May 25, 2007, we began accounting for share-based payments (i.e., OCGH units issued at the time of the May 2007Restructuring and equity-based awards granted under our 2007 Plan and our 2011 Plan) in accordance with Accounting StandardsCodification Topic 718.185Summary Compensation Table for 2013The following table provides summary information concerning the compensation of our current principal executive officer, our chieffinancial officer and each of our three other most highly compensated employees who served as executive officers as of December 31, 2013,for services rendered to us during 2013, 2012 and 2011.The distributions our NEOs receive in respect of their indirect ownership of the Oaktree Operating Group are based on their respectiveholdings of OCGH units and are not reflected as cash compensation in the table below:Name and Principal Position Year Salary ($) (1) Bonus ($) Stock Awards ($)(2) Non-EquityIncentive PlanCompensation ($) All OtherCompensation ($)(3),(4) Total ($)Bruce A. Karsh,President and Chief Investment Officer 2013 $— $— $— $— $43,510,002 $43,510,002 2012 $— $— $— $— $12,195,475 $12,195,475 2011 $— $— $— $— $4,125,747 $4,125,747John B. Frank,Managing Principal 2013 $— $— $— $— $34,096,814 $34,096,814 2012 $— $— $3,300,000 $— $13,549,896 $16,849,896 2011 $— $— $2,485,000 $— $10,955,587 $13,440,587David M. Kirchheimer, Chief FinancialOfficer and Chief AdministrativeOfficer 2013 $— $— $— $— $11,514,606 $11,514,606 2012 $— $— $825,000 $— $6,546,440 $7,371,440 2011 $— $— $621,250 $— $4,798,723 $5,419,973Caleb S. Kramer,Managing Director 2013 $— $— $— $— $21,678,691 $21,678,691 2012 $— $— $9,134,466 $— $22,031,711 $31,166,177 2011 $— $— $2,182,725 $— $16,780,115 $18,962,840Scott L Graves,Managing Director 2013 $130,000 $2,151,900 $— $— $44,745,507 $47,027,407 (1)We do not make fixed payments to any of our NEOs, other than to Mr. Graves.(2)The reference to “stock” in this table refers to units in OCGH and phantom units of OCGH. The grant date fair value of the unitsreceived by our NEOs during the years ended December 31, 2012 and 2011 is reflected in the “Stock Awards” column in theSummary Compensation Table because we must account for such units as compensation expense for financial statement reportingpurposes. We recognize expense for financial statement reporting purposes in respect of the unvested units in OCGH received by ourNEOs on the basis of the value of those units at the time of the grant pursuant to Financial Accounting Standards Board AccountingCodification (ASC) Topic 718 or “ASC Topic 718,” Accounting for Stock Compensation. Please see notes 2 and 10 to ourconsolidated financial statements included elsewhere in this annual report for further information concerning the assumptionsunderlying such expense.(3)Amounts included for 2013, 2012 and 2011 reflect the total amount payable with respect to such NEO's right to receive an allocation ofthe annual profits of the Oaktree Operating Group in respect of the years ended December 31, 2013, 2012 and 2011, respectively(please see “—Compensation Elements for Named Executive Officers—Profit Sharing Arrangements”).(4)Please see the “All Other Compensation Supplemental Table” below.186All Other Compensation Supplemental TableThe following table provides additional information regarding each component of the All Other Compensation column in theSummary Compensation Table: Name Year Payments in Respectof Carried Interest (1) Asset BasedManagement Fees(2) ProfitsParticipation (3) Cost of LivingAllowance (4) Travel Allowance(5) TotalBruce A. Karsh 2013 $43,510,002 $— $— $— $— $43,510,002 2012 $12,195,475 $— $— $— $— $12,195,475 2011 $4,125,747 $— $— $— $— $4,125,747John B. Frank 2013 $18,435,266 $— $15,661,548 $— $— $34,096,814 2012 $4,997,285 $— $8,552,611 $— $— $13,549,896 2011 $4,719,965 $— $6,235,622 $— $— $10,955,587David M. Kirchheimer 2013 $— $— $11,514,606 $— $— $11,514,606 2012 $— $— $6,546,440 $— $— $6,546,440 2011 $— $— $4,798,723 $— $— $4,798,723Caleb S. Kramer 2013 $7,147,358 $14,166,390 $— $325,000 $39,943 $21,678,691 2012 $6,190,783 $15,458,919 $— $325,000 $57,009 $22,031,711 2011 $3,624,617 $12,718,973 $— $325,000 $111,525 $16,780,115Scott L. Graves 2013 $44,745,507 $— $— $— $— $44,745,507 (1)Amounts included for 2013, 2012 and 2011 represent amounts earned on an accrual basis in respect of participation interests inincentive income generated by our funds with respect to the years ended December 31, 2013, 2012 and 2011, respectively. To theextent that timing differences may exist between when amounts are earned on an accrual basis and paid in cash, these amounts donot reflect actual cash carried interest distributions to the NEOs during such periods. Timing differences typically arise when cash isdistributed in the quarter immediately following the one in which the related income was earned.(2)Amounts included for 2013, 2012 and 2011 represent management fees earned on an accrual basis in a given year in respect of fundsin which the NEO serves as a portfolio manager.(3)Amounts included for 2013, 2012 and 2011 represent the amounts earned on an accrual basis in a given year in respect of the NEO'sannual profits participation interest.(4)Amounts intended to compensate Mr. Kramer for the additional expenses incurred by being located in the United Kingdom.(5)Amounts needed to cover the actual cost of travel between the United States and the United Kingdom for Mr. Kramer and his family.Non-competition, Non-solicitation and Confidentiality RestrictionsPursuant to the terms of OCGH's partnership agreement, our executive officers (including our NEOs) are subject to customaryprovisions regarding non-solicitation of our clients and employees and confidentiality, intellectual property and nondisparagement obligations.In addition, during the term of employment and for the one-year period immediately following the resignation or termination of employment(other than a termination by us without cause), our executive officers may not, directly or indirectly:•engage in any business activity in which we operate, including any Competitive Business (as defined below);•render any services to any Competitive Business; or•acquire a financial interest in or become actively involved with any Competitive Business (other than as a passive investor holdinga minimal percentage of the stock of a public company).187“Competitive Business” means any business which is competitive with the business of any member of the Oaktree OperatingGroup or any of its affiliates (including raising, organizing, managing or advising any fund having an investment strategy in any waycompetitive with any of the funds managed by any member of the Oaktree Operating Group or any of its affiliates) anywhere in the UnitedStates or any other country where a member of the Oaktree Operating Group or any of its affiliates conducts business. Additionally, duringthe term of employment and for the two-year period immediately following the resignation or termination of employment, our executiveofficers may not solicit our customers or clients for a Competitive Business, induce any employee to leave our employ or hire or otherwiseenter into any business affiliation with any person who was our employee during the twelve-month period preceding such executive officer'stermination of employment.Incentive IncomeParticipation in incentive income generated by our funds is typically subject to a five-year vesting schedule, under which a participatingNEO's interest will vest in increments of 22% on each of the first through fourth anniversaries of the closing date of the applicable fund, withthe remaining 12% of the interest vesting on or after the fifth anniversary of such closing date, subject to certain limitations as set forth in theapplicable governing documents. Under the terms of the applicable governing documents, NEOs are subject to various covenants addressingconfidentiality, intellectual property, non-solicitation, non-competition and non-disparagement. Pursuant to the applicable fund agreements, aparticipating NEO's incentive income interest is subject to clawback in the event that the general partner of the applicable fund is required toreturn any distributions (other than tax distributions) received in respect of such NEO's interest in the applicable fund.2007 Equity Incentive PlanOur board of directors and the general partner of OCGH adopted the 2007 Plan as part of the May 2007 Restructuring. As explained inmore detail below, the 2007 Plan was a source of equity-based awards, permitting us to grant to our investment professionals, otheremployees, directors and consultants options, unit appreciation rights, restricted units, phantom restricted units and other awards based onthe units of OCGH, each of which represent an indirect interest in one Oaktree Operating Group unit. No more awards are being grantedunder the 2007 Plan.Administration. The 2007 Plan is administered by our board of directors with the general partner of OCGH. Our board of directorsand the general partner of OCGH has delegated the authority to administer the 2007 Plan to the Administrator, which is a committeeconsisting of Messrs. Marks, Karsh and Frank. For each OCGH unit granted pursuant to an award under the 2007 Plan (the “Award Units”)we issue one Class B unit and one Oaktree Operating Group unit to OCGH. For each OCGH unit granted under the 2007 Plan that issubsequently forfeited by the employee, the 2007 Plan also provides for the automatic corresponding cancellation of one Class B unit andone Oaktree Operating Group unit held by OCGH.Units Subject to the 2007 Plan. As of February 25, 2014, 4,954,976 OCGH units have been issued under our 2007 Plan. As withthe other OCGH units, pursuant to the exchange agreement and the terms of the OCGH partnership agreement, vested Award Units maybe exchanged for, at the option of our board of directors, our Class A units, an equivalent amount of cash based on then-prevailing marketprices, other consideration of equal value or any combination of the foregoing, subject to approval of our board of directors.2011 Equity Incentive PlanIn December 2011, we adopted the 2011 Plan. The purpose of the 2011 Plan is to provide a means for us and our Affiliates (as definedin the 2011 Plan) to attract and retain key personnel and a means for current and prospective principals, directors, officers, employees,consultants and advisors of us and our Affiliates to acquire and maintain an equity interest in us and/or one or more of our Affiliates, therebystrengthening their commitment to the welfare of us and our Affiliates and aligning their interests with those of our unitholders and clients.Administration. A committee (the "Committee") established by our board of directors administers the 2011 Plan. The currentmembers of the Committee are Messrs. Marks, Karsh and Frank. The Committee has broad authority to designate participants of the 2011Plan, determine the type of awards and terms and conditions of awards granted under the 2011 Plan and adopt, alter and repeal rules,guidelines and practices relating to the 2011 Plan.Eligibility. Employees, partners, directors, consultants, advisors and other individuals providing services to us or our Affiliates areeligible to participate in the 2011 Plan. Participation in the 2011 Plan is limited to persons188who have entered into an award agreement or who have received written notification from the Committee (or its designee) that they havebeen selected to participate in the 2011 Plan.Awards. The Committee has the discretion to grant awards in respect of Oaktree Operating Group units, Class A units, OCGHunits, any type of unit or interest of any member of the Oaktree Operating Group or any class or series of units or other ownership interestsissued by us or one of our Affiliates (collectively, “Units”). The Committee may grant options, unit appreciation rights (“UARs”), restrictedUnit awards, Unit bonus awards and/or phantom equity awards to eligible persons.Number of Units Authorized. The 2011 Plan provides that the maximum number of Units that may be delivered pursuant to awardsunder the 2011 Plan is 22,300,000, as increased on January 1 of each year beginning in 2012 by a number of Units equal to the excess of (a)15% of the number of outstanding Oaktree Operating Group units on December 31 of the immediately preceding year over (b) the number ofOaktree Operating Group units that have been issued or are issuable under the 2011 Plan as of such date, except that our board of directorsmay, in its discretion, increase the number of Units covered by the 2011 Plan by a lesser amount. The issuance of Units or the payment ofcash upon the exercise of an award or in consideration of the cancellation or termination of an award will reduce the total number of Unitsavailable under the 2011 Plan, as applicable. Units underlying awards under the 2011 Plan that are forfeited, cancelled, expire unexercised orare settled in cash will be available again to be used as awards under the 2011 Plan. However, Units used to pay the required exercise priceor tax obligations, or Units not issued in connection with the settlement of an award or that are used or withheld to satisfy tax obligations of aparticipant, will not be available again for other awards under the 2011 Plan. Units delivered in settlement of awards may be authorized andunissued Units, treasury Units, Units purchased on the open market or by private purchase by us or one of our Affiliates, as applicable, or acombination of the foregoing. As of February 25, 2014, 4,925,569 Units have been issued or are issuable under the 2011 Plan, and theCommittee may issue 17,732,939 additional Units under the 2011 Plan.Options. The Committee may grant options to purchase Units under the 2011 Plan. Options will be granted subject to such terms andconditions, including the option's exercise price and the conditions and timing of exercise, as determined by the Committee and specified inthe applicable award agreement. Unless otherwise provided in an award agreement, an option will vest with respect to 20% of the Unitssubject to the option on each of the first five anniversaries of the grant date. The maximum term of an option granted under the 2011 Plan is10 years from the date of grant.Unless otherwise provided in an award agreement, the unvested portion of an option will expire upon termination of employment orservice of the participant, and the vested portion of such option will remain exercisable for one year following termination of employment orservice by reason of such participant's death or disability (as determined by the Committee), but not later than the expiration of the option, or90 days following termination of employment or service for any reason other than death or disability or Cause (as defined in the 2011 Plan),but not later than the expiration of the option. Both the unvested and vested portion of an option will expire upon the termination of aparticipant's employment or service by us or our Affiliates for Cause.Unit Appreciation Rights. The Committee may grant UARs under the 2011 Plan. UARs will be subject to the terms and conditionsestablished by the Committee and set forth in the award agreement. Any UAR granted under the 2011 Plan will expire no later than 10 yearsfollowing the date of grant. Unless otherwise provided in an award agreement, the UAR will vest with respect to 20% of the Units subject tothe UAR on each of the first five anniversaries of the date of grant. Any option granted under the 2011 Plan may include tandem UARs. AUAR granted in connection with an option will become exercisable and will expire according to the same vesting schedule and expirationprovisions as the corresponding option. Unless otherwise provided in an award agreement, upon termination of employment or service of theparticipant, the vested and unvested portion of a UAR will expire upon similar terms as an option (as described above).Restricted Units. The Committee may grant Restricted Units (as defined in the 2011 Plan) under the 2011 Plan. Restricted Units willbe subject to the terms and conditions established by the Committee and set forth in the award agreement. A Restricted Unit is a Unit thatgenerally is non-transferable and is subject to other restrictions determined by the Committee for a specified period. Unless otherwiseprovided in an award agreement, the restricted period will lapse with respect to 20% of the Restricted Units on each of the first fiveanniversaries of the date of grant and the unvested portion of the Restricted Units will terminate and be forfeited upon termination ofemployment or service. Starting with grants issued in 2014, however, any unvested portion of the Restricted Units will generally vest in fullupon termination of employment without cause if such participant delivers a release for our189benefit. Subject to the restrictions set forth in the 2011 Plan and the applicable award agreement, a participant generally will have the rightsand privileges of a unitholder as to such Restricted Units.Unit Bonus Awards. The Committee may grant unrestricted Units, or other awards denominated in Units, under the 2011 Plan toeligible persons, either alone or in tandem with other awards, in such amounts as the Committee determines. The terms and conditions ofeach Unit bonus award granted under the 2011 Plan will be set forth in an award agreement.Phantom Equity Awards. The Committee may grant a phantom equity award to eligible persons under the 2011 Plan. A phantomequity award provides a participant with the right to receive cash payments in respect of the award. The terms and conditions of eachphantom equity award will be set forth in the applicable award agreement, and such agreement will specify the Affiliate obligated to makepayments in respect of the award, the number and type of Units in respect of which the value and properties of the award are to bedetermined, the vesting and the terms of any distributions to be made in respect of such award.Outstanding Equity at 2013 Year EndThe following table provides information regarding outstanding unvested equity held by our NEOs as of December 31, 2013: Stock Awards (1)Name Number of Units ThatHave Not Vested Market Value of UnitsThat Have Not Vested (2)Bruce A. Karsh— $—John B. Frank220,000 $9,708,600David M. Kirchheimer52,500 $2,316,825Caleb S. Kramer197,302 $8,706,937Scott L. Graves298,000 $13,150,740 (1)The references to Stock Awards or units in this table refer to OCGH units.(2)The fair market value of $44.13 per unit is based on the closing price for our Class A units on December 31, 2013, less a discountapplied as detailed in notes 2 and 10 to our consolidated financial statements.Stock Vested in 2013The following table provides information regarding the number of outstanding equity units held by our NEOs that vested during theyear ended December 31, 2013: Stock Awards (1)Name Number of UnitsAcquired on Vesting Market Value of UnitsVesting (2)Bruce A. Karsh— $—John B. Frank50,000 $1,624,500David M. Kirchheimer10,000 $326,525Caleb S. Kramer43,500 $1,674,840Scott L. Graves73,500 $2,372,740 (1)The references to Stock Awards or units in this table refer to OCGH units.(2)The fair market value of $31.84, $35.09 or $39.89 per unit is based on the trading price for our Class A units on applicable vestingdates of January 1, 2013, March 1, 2013 and November 11, 2013, respectively, less a discount applied as detailed in notes 2 and 10 toour consolidated financial statements.Potential Payments Upon Termination of Employment or Change in Control at 2013 Year EndWe do not have any formal severance or change of control plans or agreements in place for any of our NEOs. None of the OCGHunits held by any of our executive officers at year end 2013 is subject to accelerated190vesting in connection with a change in control or a termination of employment for any reason, except if termination is due to death ordisability, in which case all unvested units automatically accelerate in full.In all cases, none of Messrs. Karsh, Frank, Kramer and Graves is entitled to any additional vesting of their participation rights in theincentive income generated by our funds as a result of a change in control of us or any of our affiliates. The impact of a termination ofemployment on the incentive income participation rights held by each of Messrs. Karsh, Frank, Kramer and Graves is described below.Generally, upon the earliest to occur of a participating NEO's death, “disability” (as defined in the applicable governing documents)termination without “cause” (as defined in the applicable governing documents) or resignation (each, a “termination event”), such NEO'sincentive income interest will be converted into the right to receive a residual percentage (which cannot exceed the NEO's interest prior tosuch termination event) of the distributions the NEO otherwise would have received absent such termination event, as described below.In the case of a termination event other than resignation, the residual percentage generally will equal the product of:•the participating NEO's interest prior to such event; and•if the fund is in its investment period, a percentage equal to the applicable fund's aggregate committed capital that had beencontributed as of the date of the termination event.In the event that a participating NEO resigns, the residual percentage generally will equal the product of:•the participating NEO's interest prior to such resignation;•the participating NEO's vested percentage as of the resignation date (as discussed above under “—Summary Compensation Tablefor 2013-Incentive Income”); and•if the fund is in its investment period, a percentage equal to the applicable fund's aggregate committed capital that had beencontributed as of the resignation date.If a participating NEO resigns and engages in competitive activity within two years following his resignation, the NEO's residualpercentage will be reduced further (by as much as 50%). However, with respect to certain funds, Mr. Kramer may resign for “good reason”(as defined in the applicable governing documents) and his residual interest in these funds will not be subject to any further reduction.In the event that a participating NEO is terminated for cause, he immediately forfeits all rights to further distributions of incentiveincome.Accelerated Vesting of OCGH Units and Incentive Income Interests Upon Termination of EmploymentThe following table sets forth the estimated value of (a) the acceleration of all unvested OCGH units held by each NEO, assuming atermination of employment due to death or disability on December 31, 2013 and (b) the estimated incentive income distributions that wouldbe made in respect of the NEO's unvested incentive income interests under the Carry Plans, assuming those interests became fully vestedon December 31, 2013 upon a termination of employment without cause or for good reason (as applicable) or termination due to death,disability or resignation. No amount is payable or accelerated in respect of an interest in the incentive income upon an individual'stermination, regardless of the reason for the termination. Rather, an individual who is terminated will receive amounts payable as and whenwe receive the associated incentive income (which is expected to occur over a number of years) in accordance with the same paymentschedule as would have been in effect in the absence of termination.The values disclosed below in respect of the rights of participating NEOs to continue to participate in distributions of incentive income,whether at the same level as before termination or at a reduced level as described above under “—Potential Payments Upon Termination ofEmployment or Change in Control at 2013 Year End,” have been determined assuming that each of the funds in respect of which the NEOswould have a right to incentive income had been liquidated on December 31, 2013 and all of the funds' assets distributed in accordance withtheir respective distribution provisions at a value equal to their book value as of December 31, 2013. We have calculated the amounts setforth below using these assumptions because distributions made on a liquidation basis would yield the maximum amounts potentiallypayable to each of the NEOs, had a termination of employment actually occurred on December 31, 2013. We note, however, that the valuesset forth below were computed based on assumptions that may not be accurate or applicable to a given circumstance of termination. Theactual amounts191to be paid upon a particular termination of employment cannot be directly determined since such payments would be based on severalfactors, including when termination of employment occurs, the circumstances of termination, the time period for fund liquidation, theinvestment performance of the fund and the value at which such liquidations actually occur, when Oaktree determines to make distributionsfrom such funds, when income is realized from such funds and the actual amounts so realized.Acceleration of Unvested OCGH Units OCGH Units (1)Name Number of Units ofStock Subject to VestingAcceleration Market Value ofAccelerated Vesting ofUnits (2)Bruce A. Karsh— $—John B. Frank220,000 $9,708,600David M. Kirchheimer52,500 $2,316,825Caleb S. Kramer197,302 $8,706,937Scott L. Graves298,000 $13,150,740 (1)The references to Stock Awards or units in this table refer to OCGH units.(2)The fair market value of $44.13 per unit is based on the closing price for our Class A units on December 31, 2013, less a discountapplied as detailed in notes 2 and 10 to our consolidated financial statements.Estimated Distributions in Respect of Acceleration of Unvested Incentive Income Interests Incentive IncomeInterestsName Liquidation Value ofInterests Subject toVesting AccelerationBruce A. Karsh$64,841,930John B. Frank$31,900,965David M. Kirchheimer$—Caleb S. Kramer$26,511,275Scott L. Graves$71,022,522Director Compensation Table for 2013During 2013, we compensated our outside directors through an annual cash retainer and, for four of our outside directors, the grant ofour Class A units. Directors who are also Principals do not receive any additional compensation for serving on our board of directors.However, all members of our board of directors are reimbursed for their reasonable out-of-pocket expenses incurred in attending boardmeetings.192The following table sets forth the cash and equity compensation paid to our non-employee directors for the year ended December 31,2013 and the number of unvested Class A units held by them at December 31, 2013:NameFees Earned orPaid in Cash (1) Unit Awards (2) All OtherCompensation Total Number ofUnvested UnitsRobert E. Denham$75,000 $99,990 $— $174,990 7,245D. Richard Masson$115,000 $106,924 $— $221,924 2,127Wayne G. Pierson$— $— $— $— —Marna C. Whittington$100,000 $99,990 $— $199,990 3,265Jay S. Wintrob$100,000 $99,990 $— $199,990 3,945 (1)Annual cash retainer and fees for supervision of audit-related activities. Mr. Pierson did not receive any fees for his service as amember of our board of directors in 2013 because he serves as President of Acorn Investors, LLC, which indirectly holds a minorityinterest in the Oaktree Operating Group units through OCGH.(2)On January 24, 2013, we granted 2,127 Class A Units to each of Ms. Whittington and Messrs. Denham and Wintrob, which will vestratably over five years beginning on March 1, 2014, in consideration of their service as members of our board of directors in 2013.Additionally, on March 7, 2013 we granted 2,127 Class A units to Mr. Masson, which will vest ratably over five years beginning onMarch 1, 2014, in consideration of his service as a member of our board of directors in 2013.We provide compensation to certain of our directors who are not Principals for their services pursuant to the following policy. For 2014,each of Messrs. Denham, Masson and Wintrob and Ms. Whittington will receive an annual cash retainer of $75,000. Members of the auditcommittee will receive an additional annual retainer of $25,000. The chair of the audit committee will receive an additional annual retainer of$15,000. In addition, for 2014 each of Messrs. Denham, Masson and Wintrob and Ms. Whittington will receive an annual grant of Class Aunits under the 2011 Plan, subject to four-year vesting. The number of Class A units granted will typically be based on the number of Class Aunits with a value equal to $100,000 or as otherwise determined by our board of directors. On January 24, 2014, we granted 1,791 Class Aunits to each of Messrs. Denham, Masson and Wintrob and Ms. Whittington. These grants will vest ratably over four years beginning onMarch 1, 2015, in consideration of their service as members of our board of directors in 2014.Compensation Committee Interlocks and Insider ParticipationAs described under “Directors, Executive Officers and Corporate Governance—Board Structure and Governance—ControlledCompany Exemption,” we are a “controlled company” within the meaning of the NYSE corporate governance standards and do not have acompensation committee. Messrs. Marks, Karsh and Frank make all final determinations regarding executive officer compensation. For adescription of certain transactions involving us and our directors and executive officers, please see “Certain Relationships and RelatedTransactions, and Director Independence.”Compensation Committee ReportAs described above, our board of directors does not have a compensation committee. The executive committee of the board of directorsidentified below has reviewed and discussed with management the foregoing Compensation Discussion and Analysis and, based on suchreview and discussion, has determined that the Compensation Discussion and Analysis should be included in this annual report.Howard S. MarksBruce A. KarshJohn B. Frank193Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersThe following table sets forth information regarding the current beneficial ownership of our Class A units and Class B units and theOCGH units by:•each person known to us to beneficially own more than 5% of any class of the outstanding voting securities of Oaktree CapitalGroup, LLC;•each of our directors;•each of our named executive officers; and•all directors and executive officers as a group.The applicable percentage ownership with respect to the Class A units and the Class B units beneficially owned is based on38,479,670 Class A units outstanding and 114,226,521 Class B units outstanding as of February 25, 2014. The applicable percentageownership with respect to the OCGH units beneficially owned represents the applicable unitholder's aggregate holdings of OCGH units andClass A units as a percentage of the 152,706,191 Oaktree Operating Group units outstanding as of February 25, 2014. This percentagerepresents the applicable unitholder's aggregate economic interest in the Oaktree Operating Group. Although holders of OCGH units areentitled, subject to vesting requirements and transfer restrictions, to exchange their OCGH units for, at the option of our board of directors,our Class A units on a one-for-one basis, an equivalent amount of cash based on then-prevailing market prices, other consideration of equalvalue or any combination of the foregoing, such exchanges require board approval and thus holders of OCGH units are not deemed tobeneficially own the equivalent number of Class A units.Beneficial ownership is determined in accordance with the rules of the SEC. Under these rules, more than one person may bedeemed a beneficial owner of the same securities, and a person may be deemed a beneficial owner of securities as to which he has noeconomic interest. To our knowledge, each person named in the table below has sole voting and investment power with respect to all of theinterests shown as beneficially owned by such person, except as otherwise set forth in the notes to the table and pursuant to applicablecommunity property laws. Unless otherwise specified, the address of each person named in the table is c/o Oaktree Capital Group, LLC,333 South Grand Avenue, 28th Floor, Los Angeles, CA 90071.194 Class A Units Beneficially Owned Class B Units Beneficially Owned OCGH Units Beneficially Owned (1)Executive Officers and DirectorsNumber Percent Number Percent Number PercentHoward S. Marks1,826 * —(2) — 20,030,937 13.1%Bruce A. Karsh1,826 * —(2) — 20,030,937 13.1John B. Frank185 * — — 2,327,490 1.5David M. Kirchheimer136 * — — 1,646,716 1.1Caleb S. Kramer79 * — — 1,124,281 *Scott L. Graves72 * — — 1,405,705 *Kevin L. Clayton275 * — — 2,920,867 1.9Stephen A. Kaplan181 * — — 2,006,436 1.3Larry W. Keele322 * — — 4,160,135 2.7Sheldon M. Stone1,009 * — — 11,299,743 7.4Robert E. Denham18,191 * — — — —D. Richard Masson4,431 * — — 3,250,000 2.1Wayne G. Pierson (3)— — — — — —Marna C. Whittington8,341 * — — — —Jay S. Wintrob6,191 * — — — —All executive officers anddirectors as a group(18 persons)43,196 * — — 71,793,533 47.05% Unitholders FMR LLC (4)4,971,088 12.9% — — — —Epoch Investment Partners,Inc. (5)2,511,242 6.5 — — — —Hawkins InvestmentPartnership L.P. (6)2,500,000 6.5 — — — —Acorn Investors, LLC— — — — 8,634,087 5.7Oaktree Capital Group Holdings,L.P. 13,000 * 114,226,521 100% — — *Represents less than 1%.(1)Subject to certain restrictions, each OCGH unitholder has the right to exchange his or her vested units following the expiration of anyapplicable lock-up period pursuant to the terms of an exchange agreement. Pursuant to the exchange agreement and the terms of theOCGH partnership agreement, the OCGH units will be exchanged for, at the option of our board of directors, our Class A units on aone-for-one basis, an equivalent amount of cash based on then-prevailing market prices, other consideration of equal value or anycombination of the foregoing, and we will cancel a corresponding number of Class B units.(2)Excludes 13,000 Class A units and 114,226,521 Class B units held by OCGH. The general partner of OCGH is Oaktree CapitalGroup Holdings GP, LLC. In their capacities as members of the executive committee of Oaktree Capital Group Holdings GP, LLCholding more than 50% of the aggregate number of OCGH units held by all of the members of the executive committee as a group,Mr. Marks and Mr. Karsh may be deemed to be beneficial owners of the securities held by OCGH. Each of Mr. Marks and Mr. Karshdisclaims beneficial ownership of such securities.(3)Excludes 8,634,087 OCGH units held by Acorn Investors, LLC and 20 Class A units and 199,778 OCGH units held by MeyerMemorial Trust, which Mr. Pierson may be deemed to beneficially own. Mr. Pierson is the President of Acorn Investors, LLC and theChief Financial and Investment Officer of Meyer Memorial Trust and disclaims beneficial ownership of the Class A units and OCGHunits held by each entity.(4)Reflects Class A units beneficially owned as of December 31, 2013 by FMR LLC based on a Schedule 13G filed by FMR LLC onFebruary 14, 2014. The Schedule 13G includes 4,577,488 Class A units beneficially owned by Edward C. Johnson 3d and familymembers and Fidelity Management & Research Company (together with FMR LLC and Edward C. Johnson 3d, “Fidelity”), a whollyowned subsidiary of FMR LLC, in its195capacity as investment adviser to various registered investment companies (the “Fidelity funds”). The Schedule 13G also includes381,700 Class A units beneficially owned by Mr. Johnson and family members and Fidelity SelectCo, LLC (“SelectCo"), a whollyowned subsidiary of FMR LLC, in its capacity as investment adviser to various Fidelity funds. Mr. Johnson is Chairman of FMR LLC.The Schedule 13G states that Mr. Johnson and various family members, through their ownership of FMR LLC voting common stockand the execution of a shareholders’ voting agreement, may be deemed a controlling group with respect to FMR LLC. The Schedule13G also states that neither FMR LLC nor Mr. Johnson has the sole power to vote or direct the voting of the shares owned directly bythe Fidelity funds, which power resides with the Fidelity funds’ boards of trustees pursuant to established guidelines. Additionally,Pyramis Global Advisors Trust Company “PGATC”), an indirect wholly owned subsidiary of FMR LLC, is the beneficial owner of11,900 Class A units. Edward C. Johnson 3d and FMR LLC, through its control of PGATC, each has sole dispositive power and solepower to vote or to direct the voting of the Class A units held by PGATC. The address of Fidelity is 245 Summer Street, Boston,Massachusetts 02210, the address of SelectCo is 1225 17th Street, Suite 1100, Denver, Colorado 80202, and the address of PGATCis 900 Salem Street, Smithfield, Rhode Island 02917.(5)Reflects Class A units beneficially owned as of December 31, 2013 by Epoch Investment Partners, Inc. (“Epoch”), a wholly-ownedsubsidiary of TD Bank Financial Group, based on a Schedule 13G filed by Epoch on February 13, 2014. The address of Epoch is 399Park Avenue, New York, New York 10022.(6)Reflects Class A units beneficially owned as of December 31, 2013 by Hawkins Capital L.P., the general partner and manager ofHawkins Investment Partnership L.P. (“HIP”), and Russell B. Hawkins, the sole portfolio manager of HIP, each of whom may bedeemed to share voting and dispositive power with respect to the Class A units held by HIP, based on a Schedule 13G filed with theSEC by Hawkins Capital L.P. on February 5, 2014. The address of HIP, Hawkins Capital L.P. and Mr. Hawkins is 600 Travis Street,Suite 6650, Houston, TX 77002.Equity Compensation Plan InformationThe following table sets forth information concerning the awards that may be issued under the 2011 Plan as of December 31, 2013.Plan CategoryNumber of Securitiesto be Issued UponExercise ofOutstanding Options,Warrants and Rights(1) Weighted-AverageExercise Price ofOutstanding Options,Warrants and Rights Number of SecuritiesRemaining Availablefor Future IssuanceUnder EquityCompensation Plans(excluding securitiesreflected in column(a)) (2) (a) (b) (c)Equity compensation plans approved by security holders3,206,379 — 19,360,886Equity compensation plans not approved by security holders— — —Total (3)3,206,379 — 19,360,886 (1)Reflects the aggregate number of OCGH units granted under the 2011 Plan as of December 31, 2013.(2)The 2011 Plan provides that the maximum number of Units that may be delivered pursuant to awards under the 2011 Plan is22,300,000, as increased on January 1 of each year beginning in 2012 by a number of Units equal to the excess of (a) 15% of thenumber of outstanding Oaktree Operating Group units on December 31 of the immediately preceding year over (b) the number ofOaktree Operating Group units that have been issued or are issuable under the 2011 Plan as of such date, except that our board ofdirectors may, in its discretion, increase the number of Units covered by the 2011 Plan by a lesser amount. The issuance of Units or thepayment of cash upon the exercise of an award or in consideration of the cancellation or termination of an award will reduce the totalnumber of Units available under the 2011 Plan, as applicable. Units underlying awards under the 2011 Plan that are forfeited,cancelled, expire unexercised or are settled in cash will be available again to be used as awards under the 2011 Plan. However, Unitsused to pay the required exercise price or tax obligations, or Units not issued in connection with the settlement of an award or that areused or196withheld to satisfy tax obligations of a participant, will not be available again for other awards under the 2011 Plan.(3)As of December 31, 2013, 4,954,976 OCGH units have been granted under the 2007 Plan. However, such amounts are not reflectedin this table because our board of directors has resolved that the administrator of the 2007 Plan will no longer grant awards under the2007 Plan. Please see note 10 to our consolidated financial statements included elsewhere in this annual report for additionalinformation.Item 13. Certain Relationships and Related Transactions, and Director IndependenceExchange AgreementUnder the terms of the OCGH limited partnership agreement, its general partner may elect in its discretion to declare an open periodduring which an OCGH unitholder may exchange its unrestricted vested OCGH units for, at the option of our board of directors, Class Aunits, an equivalent amount of cash based on then-prevailing market prices, other consideration of equal value or any combination of theforegoing. The general partner determines the number of units eligible for exchange within a given open period and, if the OCGHunitholders request to exchange a number of units in excess of the amount eligible for exchange, which units to exchange taking intoaccount such factors as the general partner determines appropriate. Upon approval of our board of directors, OCGH units that are selected forexchange in accordance with the foregoing will be exchanged, at the option of our board of directors, into Class A units, an equivalent amountof cash based on then-prevailing market prices, other consideration of equal value or any combination of the foregoing pursuant to the termsof the exchange agreement. The exchange agreement provides that:•such OCGH units will be acquired by the Intermediate Holding Companies in exchange for, at the option of our board of directors,Class A units, an equivalent amount of cash based on then-prevailing market prices, other consideration of equal value or anycombination of the foregoing;•the OCGH units acquired by the Intermediate Holding Companies may then be redeemed by OCGH in exchange for OaktreeOperating Group units;•the Intermediate Holding Companies may exchange Oaktree Operating Group units with each other such that, immediately aftersuch exchange, each Intermediate Holding Company holds Oaktree Operating Group units only in the Oaktree Operating Groupentity for which such Intermediate Holding Company serves as the general partner; and•we will cancel a corresponding number of Class B units.Tax Receivable AgreementAs described above, subject to certain restrictions, each OCGH unitholder has the right to exchange his or her vested OCGH unitsfor, at the option of our board of directors, Class A units, an equivalent amount of cash based on then-prevailing market prices, otherconsideration of equal value or any combination of the foregoing. Our Intermediate Holding Companies will deliver, at the option of our boardof directors, Class A units on a one-for-one basis, an equivalent amount of cash based on then-prevailing market prices, other considerationof equal value or any combination of the foregoing in exchange for the applicable OCGH unitholder's OCGH units pursuant to the exchangeagreement. These exchanges, including our purchase of Oaktree Operating Group units in connection with the 2007 Private Offering and inconnection with our initial public offering in April 2012 and a follow-on offering in May 2013, resulted in, and are expected to result in,increases in the tax basis of the tangible and intangible assets of the Oaktree Operating Group. These increases in tax basis have increasedand will increase (for tax purposes) depreciation and amortization deductions and reduce gain on sales of assets, and therefore reduce thetaxes of two of our Intermediate Holding Companies, Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc.Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc. entered into a tax receivable agreement with the OCGH unitholders thatprovides for the payment by Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc. to the OCGH unitholders of 85% of the amount of cashsavings, if any, in U.S. federal, state and local income tax that Oaktree Holdings, Inc. or Oaktree AIF Holdings, Inc. actually realizes (or isdeemed to realize in the case of an early termination payment by Oaktree Holdings, Inc. or Oaktree AIF Holdings, Inc. or a change of control,as discussed below) as a result of these increases in tax basis and of certain other tax benefits related to our entering into the tax receivableagreement, including tax benefits attributable to payments under the tax receivable agreement. These payment obligations are obligations ofOaktree Holdings, Inc. and Oaktree AIF Holdings, Inc. and not of the Oaktree Operating Group.197Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc. expect to benefit from the remaining 15% of cash savings, if any, in income taxthat they realize. For purposes of the tax receivable agreement, cash savings in income tax will be computed by comparing the actual incometax liability of Oaktree Holdings, Inc. or Oaktree AIF Holdings, Inc. to the amount of such taxes that Oaktree Holdings, Inc. or Oaktree AIFHoldings, Inc. would have been required to pay had there been no increase to the tax basis of the tangible and intangible assets of theOaktree Operating Group as a result of the exchanges and had Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc. not entered into the taxreceivable agreement. An OCGH unitholder may also elect to make a charitable contribution of units. In such a case, the contribution will notresult in an increase in the tax basis of the assets of the Oaktree Operating Group, and no payments will be made under the tax receivableagreement.The term of the tax receivable agreement commenced upon the consummation of the 2007 Private Offering and continues until allsuch tax benefits have been utilized or expired, unless Oaktree Holdings, Inc. or Oaktree AIF Holdings, Inc. exercises its right to terminatethe tax receivable agreement for an amount based on the agreed payments remaining to be made under the agreement. Estimating theamount of payments that may be made under the tax receivable agreement is by its nature imprecise, as the calculation of amounts payabledepends on a variety of factors. The actual increase in tax basis, as well as the amount and timing of any payments under the tax receivableagreement, will vary depending upon a number of factors, including:•the timing of the exchanges - for instance, the increase in any tax deductions will vary depending on the fair market value, whichmay fluctuate over time, of the depreciable or amortizable assets of the Oaktree Operating Group at the time of the transaction;•the price of our Class A units at the time of the exchanges - the increase in any tax deductions, as well as the tax basis increase inother assets, of the Oaktree Operating Group, is directly proportional to the market value of our Class A units at the time of theexchange;•the extent to which an exchange of OCGH units is taxable - if an exchange is not taxable for any reason (for instance, in connectionwith a charitable contribution), increased deductions will not be available;•the amount and timing of our income - Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc. will be required to pay 85% of the taxsavings as and when realized, if any; and•the corporate income tax rates (both U.S. federal and state and local) in effect at the time the tax deductions are utilized to offsettaxable income - since an increase in tax rates will generally result in higher payments, and a decrease in tax rates will generallyresult in lower payments.If Oaktree Holdings, Inc. or Oaktree AIF Holdings, Inc. do not have taxable income, they are not required to make payments under thetax receivable agreement for that taxable year because no tax savings will have been actually realized. We expect that as a result of the size ofthe increases in the tax basis of the tangible and intangible assets of the Oaktree Operating Group, the payments that we may make underthe tax receivable agreement will be substantial. Assuming no material changes in the relevant tax law and that we earn sufficient taxableincome to realize the full tax benefit of the increased amortization of our assets, we expect that remaining payments under the tax receivableagreement (“TRA payments”) in connection with the 2007 Private Offering, our initial public offering in 2012 and our follow-on offering inMay 2013 will aggregate to $43.8 million over the period ending approximately in 2029, $82.9 million over the period ending approximatelyin 2034 and $114.2 million over the period ending in approximately 2035, respectively. We have begun to make payments in respect of the2007 Private Offering and our initial public offering. During the year ended December 31, 2013, we made TRA payments in respect of theyear ended December 31, 2012 of $1,320,832, $1,321,285, $572,930, $297,150, $187,315 and $596,203 to Howard Marks, ourChairman, a Principal and a director; Bruce Karsh, our President and Chief Investment Officer, a Principal and a director; Sheldon Stone, aPrincipal and a director; D. Richard Masson, a director; Kevin Clayton, a Principal and a director; and Acorn Investors, LLC, respectively. Wehave not yet begun to make TRA payments in respect of the May 2013 follow-on offering. In addition, we expect that future TRA payments inconnection with the 2007 Private Offering, our initial public offering and the May 2013 follow-on offering to Messrs. Marks, Karsh, Stone,Clayton and Masson; John Frank, our Managing Principal and a director; Stephen Kaplan, a Principal and a director; Larry Keele, a Principaland a director; David Kirchheimer, our Chief Financial Officer and Chief Administrative Officer, a Principal and a director; B. James Ford, aManaging Director; Caleb Kramer, a Managing Director; Scott Graves, Head of Credit Strategies and a Managing Director; Todd Molz, ourGeneral Counsel and a Managing Director; and Acorn Investors, LLC will be approximately $52.9 million, $51.4 million, $25.3 million,$4.8 million, $8.9 million, $4.5 million, $4.2 million, $1.5 million, $2.6 million, $3.4 million, $2.3 million, $1.9 million, $0.3 million and$21.8 million, respectively. Future payments under the tax receivable agreement in respect of subsequent exchanges of OCGH units wouldbe in addition to these amounts and are198expected to be substantial. The payments under the tax receivable agreement are not conditioned upon OCGH unitholders' continuedownership of interests in OCGH.In addition, the tax receivable agreement provides that, upon certain mergers, asset sales, other forms of business combinations orother changes of control, the obligations of Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc. (or their successors) with respect topurchased interests would be based on certain assumptions, including that Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc. wouldhave sufficient taxable income to fully utilize the deductions arising from the increased tax deductions and tax basis and other benefits relatedto entering into the tax receivable agreement.Decisions we make in the course of running our business, such as with respect to the realization of an investment by one of ourfunds, may influence the timing and amount of payments made under the tax receivable agreement. For example, if one of our fundsdisposes of assets, the disposition may accelerate payments under the tax receivable agreement and increase the present value of suchpayments.Although we are not aware of any issue that would cause the IRS to challenge a tax basis increase, Oaktree Holdings, Inc. andOaktree AIF Holdings, Inc. will not be reimbursed for any payments previously made under the tax receivable agreement. As a result, incertain circumstances, payments could be made under the tax receivable agreement in excess of Oaktree Holdings, Inc.'s and Oaktree AIFHoldings, Inc.'s cash tax savings. However, the value of such excess payments may be recouped through reduced future payments ofamounts otherwise payable by Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc. pursuant to the tax receivable agreement.Oaktree Operating Group Partnership AgreementsEach of the Oaktree Operating Group partnerships either has as its sole general partner one of the Intermediate Holding Companiesor is indirectly controlled by the Intermediate Holding Companies. Accordingly, Oaktree Capital Group, LLC operates and controls all of thebusiness and affairs of the Oaktree Operating Group and conducts our business through the Oaktree Operating Group and its subsidiaries.Pursuant to the partnership agreements of the Oaktree Operating Group partnerships, the Intermediate Holding Companies that arethe general partners of those partnerships (or entities controlled by the Intermediate Holding Companies) have the right to determine whendistributions will be made to the holders of Oaktree Operating Group units and the amounts of any such distributions. If a distribution isauthorized, the distribution will be made to the holders of Oaktree Operating Group units pro rata in accordance with the percentages of theirrespective interests.Each of the Oaktree Operating Group partnerships has an identical number of units outstanding, and we use the term “OaktreeOperating Group unit” to refer, collectively, to a unit in each of the Oaktree Operating Group partnerships. As of February 25, 2014, therewere 152,706,191 Oaktree Operating Group units outstanding. The holders of Oaktree Operating Group units, including the IntermediateHolding Companies, will incur U.S. federal, state and local income taxes on their proportionate share of any net taxable income of theOaktree Operating Group. Net profits and net losses of Oaktree Operating Group units generally are allocated to the holders of such units(including the Intermediate Holding Companies) pro rata in accordance with the percentages of their respective interests. The partnershipagreement of each Oaktree Operating Group partnership provides for cash distributions, which we refer to as “tax distributions,” to thepartners of such partnership if we determine that the allocation of the partnership's income will give rise to taxable income for its partners.Generally, these tax distributions are computed based on our estimate of the net taxable income of the relevant entity allocable to a partnermultiplied by an assumed tax rate equal to the highest effective marginal combined U.S. federal, state and local income tax rate prescribed foran individual or corporate resident in Los Angeles, California or New York, New York (taking into account the nondeductibility of certainexpenses and the character of our income). Tax distributions are made only to the extent that all distributions from the Oaktree OperatingGroup for the relevant year were insufficient to cover such tax liabilities.The partnership agreements of the Oaktree Operating Group partnerships also provide that substantially all of our expenses will beborne by the Oaktree Operating Group (excluding, for example, obligations incurred under the tax receivable agreement by the IntermediateHolding Companies, income tax expenses of the Intermediate Holding Companies and payments on indebtedness incurred by theIntermediate Holding Companies).Oaktree Capital Group Holdings, L.P. UnitsOCGH unitholders hold OCGH units. OCGH, in turn, holds an equivalent number of Oaktree Operating Group units. The units inOCGH held by the OCGH unitholders as of February 25, 2014 have vesting provisions.199Upon expiration of the vesting period, OCGH unitholders may sell their OCGH units or exchange their OCGH units into, at the option ofour board of directors, Class A units, an equivalent amount of cash based on then-prevailing market prices, other consideration of equalvalue or any combination of the foregoing and, subsequently, sell any such Class A units received. OCGH and our board of directors maylimit the number of OCGH units that may be exchanged after expiration of the relevant vesting period, based on such factors as they deemappropriate, including the market's ability to absorb sales of the exchanged Class A units. As of the date of this annual report, sales ofClass A units by our employees may only be effected during “open periods” authorized by us. The amount of OCGH units vesting will varyyear to year, sometimes materially, but as of February 25, 2014, OCGH units due to vest after 2014 represented approximately 3% of thetotal outstanding number of Oaktree Operating Group units.OCGH unitholders that are employees will generally forfeit all unvested units in OCGH upon termination of their employment forany reason unless the termination is due to death or disability or if the forfeiture requirement is waived. Starting with unit grants issued in2014, any unvested OCGH units held by employees will generally vest in full upon termination of their employment by us without cause ifsuch employee delivers to us a release for our benefit. Any of the OCGH units that were outstanding at the time of the 2007 Private Offeringthat are forfeited will be reallocated among the remaining OCGH unitholders at the time of such offering. Any of the OCGH units issuedafter the date of the 2007 Private Offering that are forfeited will result in a corresponding forfeiture of Oaktree Operating Group units held byOCGH.Our ManagerOur operating agreement provides that so long as the Oaktree control condition is satisfied, our manager will control the membershipof our board of directors. Our board of directors will manage all of our operations and activities and will have discretion over significantcorporate actions, such as the issuance of securities, payment of distributions, sales of assets, making certain amendments to our operatingagreement and other matters.Holders of our Class A units and Class B units have no right to elect our manager, which is controlled by our Principals.Aircraft UseIn January 2010, we exercised a buyout provision in our then aircraft lease agreement and thereafter sold the acquired plane toMr. Karsh for an aggregate purchase price of $11,080,000. We and Mr. Karsh agreed that we would have the option of leasing this plane fromhim for business-related purposes on a non-exclusive basis pursuant to a lease agreement. During the year ended December 31, 2013, wepaid Mr. Karsh $842,547 in connection with our use of his plane under this lease agreement. In addition, during the year ended December31, 2013, Mr. Marks paid us $427,982 in reimbursement for operating costs of our corporate plane that we had incurred on his behalf inconnection with his personal use of such plane.Investments in FundsOur directors and executive officers are permitted to invest their own capital (or the capital of family trusts or other estate planningvehicles they control) in our funds. These investment opportunities are available to all of our professionals who we have determined have astatus that reasonably permits us to offer them these types of investments in compliance with applicable laws and regulations. Theseinvestment opportunities are available on the same terms and conditions as those applicable to third-party investors in our funds and beartheir share of management fees, except that they are not subject to incentive fees. During the year ended December 31, 2013, the followingdirectors and executive officers invested their own capital (or the capital of family trusts or other estate planning vehicles they control) in ourfunds and are expected to continue to invest such capital in our funds from time to time: Mr. Clayton invested an aggregate of $1,067,108; Mr.Denham invested an aggregate of $187,750; Mr. Frank invested an aggregate of $3,544,779; Mr. Kaplan invested an aggregate of $194,648;Mr. Karsh and an organization affiliated with Mr. Karsh invested an aggregate of $5,972,121; Mr. Keele invested an aggregate of $1,298,211;Mr. Kirchheimer invested an aggregate of $3,916,068; Mr. Kramer invested an aggregate of $1,000,000; Mr. Marks invested an aggregate of$26,985,000; Mr. Masson invested an aggregate of $6,233,923; and Mr. Stone invested an aggregate of $8,165,193, respectively. Duringthe year ended December 31, 2013, the following directors and executive officers (or family trusts or other estate planning vehicles theycontrol) received net distributions from our funds as a result of their invested capital: Mr. Clayton received $983,670; Mr. Frank received$1,107,075; Mr. Karsh and an organization affiliated with Mr. Karsh received an aggregate of $16,907,225; Mr. Keele received $4,065,931;Mr. Kirchheimer received $1,934,166; Mr. Kramer received $427,918; Mr. Marks received $14,832,117; Mr. Masson received $6,242,147;and Mr. Stone received $8,081,024 from our funds, respectively.200Transactions with Meyer Memorial TrustMr. Pierson, one of our directors, is the Chief Financial and Investment Officer of Meyer Memorial Trust. During the year endedDecember 31, 2013, Meyer Memorial Trust contributed in the aggregate $4,900,000 in capital to our funds on substantially the same termsas the other investors in those funds.Transactions with Kevin ClaytonStarting in 2011, we paid, and intend to continue to pay, Mr. Clayton, a director and one of our Principals, a salary and participationprofits that we expect to total approximately $5,000,000 per year in which he remains actively employed by Oaktree.Offsets to Distributions in Respect of OCGH UnitsPursuant to an agreement between Mr. Marks, one of our directors and executive officers, and Oaktree Capital Management (UK)LLP, a subsidiary of ours in the United Kingdom, we provide £150,000 ($247,320 based on the average exchange rate for the 24-hour periodending December 31, 2013 as reported by www.oanda.com) per year to Mr. Marks, which is offset by distributions in respect of OCGH unitsto which Mr. Marks is entitled. In accordance with ASC Topic 718, the payment of future distributions in respect of OCGH units is factoredinto the grant date fair value of the OCGH units (which value is used for determining the compensation expense for such units under ASCTopic 718) and any distributions made with respect to such units are therefore not treated as an additional compensation expense by suchsubsidiary in the year in which such distributions are paid.Limitations on Liability; Indemnification of Directors, Officers and ManagerOur operating agreement provides that our directors and officers will be liable to us or our unitholders for an act or omission only ifsuch act or omission constitutes a breach of the duties owed to us or our unitholders, as applicable, by any such director or officer and suchbreach is the result of (a) willful malfeasance, gross negligence, the commission of a felony or a material violation of law, in each case, thathas or could reasonably be expected to have a material adverse effect on us or (b) fraud and that our manager will not be liable to us or ourunitholders for its actions.Moreover, in our operating agreement we have agreed to indemnify our directors, officers and manager, to the fullest extent permittedby law, against all expenses and liabilities (including judgments, fines, penalties, interest, amounts paid in settlement with our approval andcounsel fees and disbursements) arising from the performance of any of their obligations or duties in connection with their service to us,including in connection with any civil, criminal, administrative, investigative or other action, suit or proceeding to which any such personmay hereafter be made a party by reason of being or having been one of our directors or officers or our manager, except for any expenses orliabilities that have been finally judicially determined to have arisen primarily from acts or omissions that violated the standard set forth in thepreceding paragraph.The indemnification rights that we provide to our directors and officers are more expansive than those provided to the directors andofficers of a Delaware corporation.In addition to the indemnity that exists in our operating agreement, our subsidiary Oaktree Capital Management, L.P. has entered intoseparate indemnification agreements with each of our directors and our executive officers, that indemnify them, to the fullest extent permittedby applicable law, against all expenses and liabilities (including judgments, fines, penalties, interest and amounts paid in settlement)incurred by them in connection with any proceeding in which any of them are made a party to or any claim, issue or matter, except to theextent that it shall have been determined in a final non-appealable judgment by a court of competent jurisdiction that such expenses andliabilities arose primarily from acts or omissions that constituted a breach of their duties and such breach was the result of (a) willfulmalfeasance, gross negligence, the commission of a felony or a material violation of applicable law (including any federal or state securitieslaw), in each case, that resulted in, or could reasonably be expected to result in, a material adverse effect on us or our affiliates or (b) fraud.Such indemnification agreements will continue until and terminate upon the later of (a) 10 years after the indemnitee has ceased to occupyany positions or have any relationships with us or any of our affiliates, (b) the final termination of all proceedings pending or threatenedduring such period to which any indemnitee may be subject and (c) the expiration of the applicable statute of limitations for any possible claimor threatened, pending or completed action, suit or proceeding.Statement of Policy Regarding Transactions with Related PersonsOur board of directors has adopted a written statement of policy for our company regarding transactions with related persons. Ourrelated person policy covers any “related person transaction” including, but not limited to, any201transaction, arrangement or relationship (including any indebtedness or guarantee of indebtedness) or series of similar transactions,arrangements or relationships that is reportable by us under Item 404(a) of Regulation S-K in which we were or are to be a participant and theamount involved exceeds $120,000 and in which any “related person” (as defined in Item 404(a) of Regulation S-K) had or will have a director indirect material interest. With certain limited exceptions, our related person policy requires that each related person transaction, and anymaterial amendment or modification to a related person transaction, be reviewed and approved or ratified by a committee or subcommittee ofour board of directors composed solely of disinterested directors, by a majority of the disinterested members of our board of directors, by amajority of disinterested members of the executive committee of our board of directors or as otherwise approved in accordance with ouroperating agreement.Director IndependenceBecause our Principals represent more than 50% of our voting power, we are a “controlled company” as defined in the NYSEcorporate governance standards. Accordingly, we have elected not to comply with certain NYSE corporate governance standards, includingthe requirements that a majority of our board of directors consist of independent directors and that we have a compensation committee and anominating/corporate governance committee with written charters addressing the committee's purpose and responsibilities that arecomposed entirely of independent directors.At such time that we are no longer deemed a controlled company, the board of directors will become comprised of a majority ofindependent directors in accordance with the applicable standards set forth by the SEC and NYSE for determining director independence.Presently, in applying such SEC and NYSE independence standards and the independence standards described in our corporate governanceguidelines, the board of directors has determined that three of its members, namely Messrs. Masson and Wintrob and Ms. Whittington, areeach independent. Please see “Directors, Executive Officers and Corporate Governance—Board Structure and Governance” and“—Corporate Governance Guidelines.”202Item 14. Principal Accounting Fees and ServicesThe following table sets forth the aggregate fees for professional services provided by our independent registered public accountingfirm, PricewaterhouseCoopers LLP, for the years ended December 31, 2013 and 2012: For the Year Ended December 31, 2013 2012 Oaktree CapitalGroup, LLC Oaktree Funds Oaktree CapitalGroup, LLC Oaktree Funds (in thousands)Audit fees (1)$4,268 $4,500 $2,881 $3,558Audit-related fees (2)239 1,660 774 920Tax fees (3)3,489 12,877 1,611 4,277All other fees (4)— — 34 — (1)Audit fees consist of fees for services related to the annual audit of our consolidated financial statements, reviews of our interimconsolidated financial statements on Form 10-Q, SEC registration statements, accounting consultations and services that arenormally provided in connection with statutory and regulatory filings and engagements.(2)Audit-related fees consist of fees related to financial due diligence services in connection with acquisitions of portfolio companies forinvestment by funds managed by Oaktree in its capacity as general partner, internal controls readiness assessment as well asattestation services and agreed-upon procedures related to PPIP under the U.S. Treasury program.(3)Tax fees consist of fees related to tax compliance and tax advisory services. Fees in 2013 include $0.6 million and $2.3 million forservices rendered in 2012 to Oaktree Capital Group, LLC and Oaktree funds, respectively.(4)All other fees consist of advisory services related to regulatory matters.In accordance with our audit committee charter, the audit committee is required to approve, in advance, all audit and non-auditservices to be provided by our independent registered public accounting firm, PricewaterhouseCoopers LLP. All services reported in the Audit,Audit-related, Tax and All other categories above were approved by the audit committee. Our audit committee charter is available on ourwebsite at www.oaktreecapital.com under the “Unitholders” section.PART IV.Item 15. Exhibits, Financial Statement Schedules(a) The following documents are filed as part of this report:(1)Financial statements: Please see Item 8 above.(2)Financial statement schedules: Schedules for which provision is made in the applicable accounting regulations of the SECare not required under the related instructions or are not applicable and therefore have been omitted.(3)Exhibits: For a list of exhibits filed with this report, please refer to the Exhibits Index on the page immediately preceding theexhibits, which Exhibit Index is incorporated herein by reference.203SIGNATURESPursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to besigned on its behalf by the undersigned, thereunto duly authorized.Date: February 28, 2014 Oaktree Capital Group, LLC By:/s/ David M. Kirchheimer Name:David M. Kirchheimer Title:Principal, Chief Financial Officer andChief Administrative Officer and Authorized SignatoryPursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons onbehalf of the registrant in the capacities indicated on this 28th day of February 2014: Signature Title /s/ Howard S. Marks Howard S. Marks Director, Chairman and Principal/s/ Bruce A. Karsh Bruce A. Karsh Director, President, Chief Investment Officer and Principal/s/ John B. Frank John B. Frank Director and Managing Principal(Principal Executive Officer)/s/ David M. Kirchheimer David M. Kirchheimer Director, Chief Financial Officer, Chief Administrative Officer and Principal(Principal Financial Officer)/s/ Susan Gentile Susan Gentile Chief Accounting Officer and Managing Director(Principal Accounting Officer)/s/ Kevin L. Clayton Kevin L. Clayton Director and Principal/s/ Stephen A. Kaplan Stephen A. Kaplan Director and Principal/s/ Larry W. Keele Larry W. Keele Director and Principal/s/ Sheldon M. Stone Sheldon M. Stone Director and Principal/s/ Robert E. Denham Robert E. Denham Director/s/ D. Richard Masson D. Richard Masson Director/s/ Wayne G. Pierson Wayne G. Pierson Director/s/ Marna C. Whittington Marna C. Whittington Director/s/ Jay S. Wintrob Jay S. Wintrob Director204EXHIBITS INDEX Exhibit No.Description of Exhibit 3.1Restated Certificate of Formation of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant's RegistrationStatement on Form S-1, filed with the SEC on June 17, 2011). 3.2Third Amended and Restated Operating Agreement of the Registrant dated as of August 31, 2011 (incorporated by referenceto Exhibit 3.2 to the Registrant's Registration Statement on Form S-1, filed with the SEC on September 2, 2011). 3.3Amendment to Third Amended and Restated Operating Agreement of the Registrant dated as of March 29, 2012(incorporated by reference to Exhibit 3.3 to the Registrant's Registration Statement on Form S-1, filed with the SEC onMarch 30, 2012). 4.1Specimen Certificate evidencing the Registrant's Class A units (incorporated by reference to Exhibit 4.1 to the Registrant'sRegistration Statement on Form S-1, filed with the SEC on September 2, 2011). 4.2Note Purchase Agreement, by and among Oaktree Capital Management, LLC and the purchasers named therein, dated asof June 14, 2004, for $75,000,000 in aggregate principal amount of 5.03% Senior Notes due June 14, 2014 (incorporatedby reference to Exhibit 4.2 to the Registrant's Registration Statement on Form S-1, filed with the SEC on August 1, 2011). 4.3Amendment No. 1 to the June 14, 2004 Note Purchase Agreement, by and among Oaktree Capital Management, LLC andthe other parties thereto, dated as of March 15, 2006 (incorporated by reference to Exhibit 4.3 to the Registrant'sRegistration Statement on Form S-1, filed with the SEC on August 1, 2011). 4.4Amendment No. 2 and Waiver to the June 14, 2004 Note Purchase Agreement, by and among Oaktree CapitalManagement, LLC and the other parties thereto, dated as of June 6, 2006 (incorporated by reference to Exhibit 4.4 to theRegistrant's Registration Statement on Form S-1, filed with the SEC on August 1, 2011). 4.5Form of 5.03% Senior Note due June 14, 2014 (incorporated by reference to Exhibit 4.5 to the Registrant's RegistrationStatement on Form S-1, filed with the SEC on August 1, 2011). 4.6Assumption and Guaranty Agreement, by Oaktree Capital I, L.P., Oaktree Capital II, L.P. and Oaktree Media Investments,L.P. in favor of the holders of the 5.03% Senior Notes due June 14, 2014 (incorporated by reference to Exhibit 4.6 to theRegistrant's Registration Statement on Form S-1, filed with the SEC on August 1, 2011). 4.7Note Purchase Agreement, by and among Oaktree Capital Management, LLC and the purchasers named therein, dated asof June 6, 2006, for $50,000,000 in aggregate principal amount of 6.09% Senior Notes due June 6, 2016 (incorporated byreference to Exhibit 4.7 to the Registrant's Registration Statement on Form S-1, filed with the SEC on August 1, 2011). 4.8Form of 6.09% Senior Note due June 6, 2016 (incorporated by reference to Exhibit 4.8 to the Registrant's RegistrationStatement on Form S-1, filed with the SEC on August 1, 2011). 4.9Assumption and Guaranty Agreement, by Oaktree Capital I, L.P., Oaktree Capital II, L.P. and Oaktree Media Investments,L.P. in favor of the holders of the 6.09% Senior Notes due June 6, 2016 (incorporated by reference to Exhibit 4.9 to theRegistrant's Registration Statement on Form S-1, filed with the SEC on August 1, 2011). 4.10Note Purchase Agreement, by and among Oaktree Capital Management, LLC and the purchasers named therein, dated asof November 8, 2006, for $50,000,000 in aggregate principal amount of 5.82% Senior Notes due November 8, 2016(incorporated by reference to Exhibit 4.10 to the Registrant's Registration Statement on Form S-1, filed with the SEC onAugust 1, 2011). 4.11Form of 5.82% Senior Note due November 8, 2016 (incorporated by reference to Exhibit 4.11 to the Registrant'sRegistration Statement on Form S-1, filed with the SEC on September 2, 2011). 4.12Assumption and Guaranty Agreement, by Oaktree Capital I, L.P., Oaktree Capital II, L.P. and Oaktree Media Investments,L.P. in favor of the holders of the 5.82% Senior Notes due November 8, 2016 (incorporated by reference to Exhibit 4.12 tothe Registrant's Registration Statement on Form S-1, filed with the SEC on August 1, 2011).205 4.13Amendment and Waiver to the June 25, 2001 Note Purchase Agreement, the June 14, 2004 Note Purchase Agreement,the June 6, 2006 Note Purchase Agreement and the November 8, 2006 Note Purchase Agreement, by and amongOaktree Capital Management, LLC and the other parties thereto, dated as of May 16, 2007 (incorporated by reference toExhibit 4.13 to the Registrant's Registration Statement on Form S-1, filed with the SEC on August 1, 2011). 4.14Second Amendment and Waiver to the June 25, 2001 Note Purchase Agreement, the June 14, 2004 Note PurchaseAgreement, the June 6, 2006 Note Purchase Agreement and the November 8, 2006 Note Purchase Agreement, by andamong Oaktree Capital Management, L.P., Oaktree Capital I, L.P., Oaktree Capital II, L.P., Oaktree AIF Investments, L.P.and the other parties thereto, dated as of July 6, 2010 (incorporated by reference to Exhibit 4.14 to the Registrant'sRegistration Statement on Form S-1, filed with the SEC on August 1, 2011). 4.15Indenture, dated as of November 24, 2009, by and among Oaktree Capital Management, L.P., as Issuer, Oaktree CapitalGroup, LLC, Oaktree Capital Group Holdings, L.P., Oaktree Capital II, L.P. and Oaktree AIF Investments, L.P., each anInitial Guarantor, and Wells Fargo Bank, National Association, as Trustee, with respect to 6.75% Senior Notes Due 2019(incorporated by reference to Exhibit 4.15 to the Registrant's Registration Statement on Form S-1, filed with the SEC onAugust 1, 2011). 10.1Amended and Restated Limited Partnership Agreement of Oaktree Capital I, L.P., dated as of May 25, 2007 (incorporatedby reference to Exhibit 10.1 to the Registrant's Registration Statement on Form S-1, filed with the SEC on August 1, 2011). 10.2Amended and Restated Limited Partnership Agreement of Oaktree Capital II, L.P., dated as of May 25, 2007 (incorporatedby reference to Exhibit 10.2 to the Registrant's Registration Statement on Form S-1, filed with the SEC on August 1, 2011). 10.3Limited Partnership Agreement of Oaktree Capital Management, L.P., dated as of May 25, 2007 (incorporated by referenceto Exhibit 10.3 to the Registrant's Registration Statement on Form S-1, filed with the SEC on August 1, 2011). 10.4Amended and Restated Limited Partnership Agreement of Oaktree Capital Management (Cayman), L.P., dated as ofMay 25, 2007 (incorporated by reference to Exhibit 10.4 to the Registrant's Registration Statement on Form S-1, filed withthe SEC on August 1, 2011). 10.5Second Amended and Restated Limited Partnership Agreement of Oaktree Investment Holdings, L.P., dated as of May 25,2011 (incorporated by reference to Exhibit 10.5 to the Registrant's Registration Statement on Form S-1, filed with the SECon August 1, 2011). 10.6Second Amended and Restated Limited Partnership Agreement of Oaktree AIF Investments, L.P., dated as of October 29,2008 (incorporated by reference to Exhibit 10.6 to the Registrant's Registration Statement on Form S-1, filed with the SECon August 1, 2011). 10.7Second Amended and Restated Tax Receivable Agreement, dated as of March 29, 2012, by and among Oaktree Holdings,Inc., Oaktree AIF Holdings, Inc., Oaktree Capital II, L.P., Oaktree Capital Management, L.P., Oaktree Investment Holdings,L.P., Oaktree AIF Investments, L.P. and the other parties from time to time party thereto (incorporated by reference toExhibit 10.7 to the Registrant's Registration Statement on Form S-1, filed with the SEC on March 30, 2012). 10.8Second Amended and Restated Exchange Agreement, dated as of March 29, 2012, by and among Oaktree Capital Group,LLC, OCM Holdings I, LLC, Oaktree Holdings, Inc., Oaktree AIF Holdings, Inc., Oaktree Holdings, Ltd., Oaktree CapitalGroup Holdings, L.P. and the other parties from time to time party thereto (incorporated by reference to Exhibit 10.8 to theRegistrant's Registration Statement on Form S-1, filed with the SEC on March 30, 2012). 10.9Credit Agreement, dated as of December 21, 2012, by and among Oaktree Capital Management, L.P., Oaktree Capital II,L.P., Oaktree AIF Investments, L.P., Oaktree Capital I, L.P., the Lenders party thereto, Wells Fargo Bank, NationalAssociation, as Administrative Agent, L/C Issuer and Swing Line Lender, and Wells Fargo Securities, LLC, as Sole LeadArranger and Sole Lead Bookrunner (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form8-K, filed with the SEC on December 27, 2012). 10.10Form of Indemnification Agreement by and between Oaktree Capital Management, L.P. and the director or officer namedtherein (incorporated by reference to Exhibit 10.11 to the Registrant's Registration Statement on Form S-1, filed with theSEC on October 20, 2011). 20610.11*2007 Oaktree Capital Group Equity Incentive Plan and forms of award agreements thereunder (incorporated by reference toExhibit 10.12 to the Registrant's Registration Statement on Form S-1, filed with the SEC on August 1, 2011). 10.12*Summary Employment Agreement by and among Oaktree Capital Management Limited and Howard Marks, dated as ofSeptember 26, 2006 (incorporated by reference to Exhibit 10.14 to the Registrant's Registration Statement on Form S-1,filed with the SEC on August 1, 2011). 10.13*Summary Employment Agreement by and among Oaktree Capital Management, L.P. and Kevin Clayton, dated as ofApril 26, 2011 (incorporated by reference to Exhibit 10.15 to the Registrant's Registration Statement on Form S-1, filed withthe SEC on August 1, 2011). 10.14*Form of Management Fee Sharing Letter Agreement (incorporated by reference to Exhibit 10.16 to the Registrant'sRegistration Statement on Form S-1, filed with the SEC on March 30, 2012). 10.15*Form of Profit Sharing Letter Agreement (incorporated by reference to Exhibit 10.17 to the Registrant's RegistrationStatement on Form S-1, filed with the SEC on March 30, 2012). 10.16*Fifth Amended and Restated Limited Partnership Agreement of Oaktree Fund GP I, L.P., dated as of July 28, 2011(incorporated by reference to Exhibit 10.18 to the Registrant's Registration Statement on Form S-1, filed with the SEC onAugust 1, 2011). 10.17*Fifth Amended and Restated Limited Partnership Agreement of Oaktree Fund GP II, L.P., dated as of July 28, 2011(incorporated by reference to Exhibit 10.19 to the Registrant's Registration Statement on Form S-1, filed with the SEC onAugust 1, 2011). 10.18*Third Amended and Restated Limited Partnership Agreement of Oaktree Fund GP III, L.P., dated as of July 28, 2011(incorporated by reference to Exhibit 10.20 to the Registrant's Registration Statement on Form S-1, filed with the SEC onAugust 1, 2011). 10.19*Form of Oaktree Capital Group, LLC 2011 Equity Incentive Plan (incorporated by reference to Exhibit 10.24 to theRegistrant's Registration Statement on Form S-1, filed with the SEC on October 3, 2011). 10.20*Form of Grant Agreement under the Oaktree Capital Group, LLC 2011 Equity Incentive Plan (incorporated by reference toExhibit 10.27 to the Registrant's Registration Statement on Form S-1, filed with the SEC on February 24, 2012). 21.1Subsidiaries of the Registrant. 23.1Consent of PricewaterhouseCoopers LLP. 31.1Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as adopted,pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as adopted,pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 ofthe Sarbanes-Oxley Act of 2002 (furnished herewith). 32.2Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of theSarbanes-Oxley Act of 2002 (furnished herewith). 101.INS†XBRL Instance Document. 101.SCH†XBRL Taxonomy Extension Schema Document. 101.CAL†XBRL Taxonomy Extension Calculation Linkbase Document. 101.LAB†XBRL Taxonomy Extension Label Linkbase Document. 101.PRE†XBRL Taxonomy Extension Presentation Linkbase Document. 101.DEF†XBRL Taxonomy Extension Definition Linkbase Document.207 *Management contract or compensatory plan or arrangement.†In accordance with Rule 406T of Regulation S-T, the information in these exhibits is furnished and deemed not filed for purposes ofSection 18 of the Exchange Act and otherwise is not subject to liability under such section.208Exhibit 21.1List of SubsidiariesNameJurisdiction ofIncorporation orOrganizationArbour CLO LimitedIrelandOaktree AIF (Cayman) GP, Ltd.Cayman IslandsOaktree AIF Holdings, Inc.DelawareOaktree AIF Investments, L.P.DelawareOaktree Asia Special Situations Fund GP Ltd.Cayman IslandsOaktree Asia Special Situations Fund GP, L.P.Cayman IslandsOaktree Asia Special Situations Fund, L.P.Cayman IslandsOaktree BAA Emerging Market Opportunities Fund (Feeder), L.P.Cayman IslandsOaktree BAA Emerging Market Opportunities Fund, L.P.Cayman IslandsOaktree Capital (Beijing) Ltd.ChinaOaktree Capital (Hong Kong) LimitedHong KongOaktree Capital (Seoul) LimitedSouth KoreaOaktree Capital (Shanghai) Ltd.ChinaOaktree Capital Group Holdings GP, LLCDelawareOaktree Capital Group Holdings, L.P.DelawareOaktree Capital Group, LLCDelawareOaktree Capital I, L.P.DelawareOaktree Capital II, L.P.DelawareOaktree Capital Management (Cayman), L.P.Cayman IslandsOaktree Capital Management (Dubai) LimitedUnited Arab EmiratesOaktree Capital Management (UK) LLPUnited KingdomOaktree Capital Management Fund (Europe)LuxembourgOaktree Capital Management Pte. Ltd.SingaporeOaktree Capital Management, L.P.DelawareOaktree Capital UK LimitedUnited KingdomOaktree Desert Sky Investments GP, L.P.DelawareOaktree Desert Sky Investments, L.P.DelawareOaktree Emerging Market Debt Fund GP, L.P.Cayman IslandsOaktree Emerging Market Debt Fund GP, Ltd.Cayman IslandsOaktree Emerging Market Debt Fund, L.P.Cayman IslandsOaktree Emerging Market Opportunities Fund (Feeder) GP, L.P.Cayman IslandsOaktree Emerging Market Opportunities Fund (Feeder), L.P.Cayman IslandsOaktree Emerging Market Opportunities Fund GP Ltd.Cayman IslandsOaktree Emerging Market Opportunities Fund GP, L.P.Cayman IslandsOaktree Emerging Market Opportunities Fund, L.P.Cayman IslandsOaktree Emerging Markets Absolute Return (Cayman) Fund, Ltd.Cayman IslandsOaktree Emerging Markets Absolute Return Feeder Fund, L.P.DelawareOaktree Emerging Markets Absolute Return Fund, L.P.DelawareOaktree Emerging Markets Equity Fund (Cayman), L.P.Cayman IslandsOaktree Emerging Markets Equity Fund (Delaware), L.P.Cayman IslandsOaktree Emerging Markets Equity Fund (Feeder) GP, L.P.Cayman IslandsNameJurisdiction ofIncorporation orOrganizationOaktree Emerging Markets Equity Fund GP L.P.Cayman IslandsOaktree Emerging Markets Equity Fund GP Ltd.Cayman IslandsOaktree Emerging Markets Equity Fund, L.P.Cayman IslandsOaktree Employee Investment Fund (Cayman), L.P.Cayman IslandsOaktree Employee Investment Fund, L.P.DelawareOaktree Enhanced Income Fund (Cayman), L.P.Cayman IslandsOaktree Enhanced Income Fund (Parallel) Feeder, L.P.Cayman IslandsOaktree Enhanced Income Fund (Parallel), L.P.DelawareOaktree Enhanced Income Fund GP, L.P.DelawareOaktree Enhanced Income Fund GP, Ltd.Cayman IslandsOaktree Enhanced Income Fund II (Cayman), L.P.Cayman IslandsOaktree Enhanced Income Fund II (Parallel) Feeder, L.P.Cayman IslandsOaktree Enhanced Income Fund II (Parallel), L.P.DelawareOaktree Enhanced Income Fund II GP Ltd.Cayman IslandsOaktree Enhanced Income Fund II, L.P.DelawareOaktree Enhanced Income Fund, L.P.DelawareOaktree Europe GP LimitedUnited KingdomOaktree European Credit Opportunities Fund (Cayman) Ltd.Cayman IslandsOaktree European Credit Opportunities Fund, L.P.United KingdomOaktree European Credit Opportunities Holdings, Ltd.Cayman IslandsOaktree European Credit Opportunities USD Fund (Cayman) Ltd.Cayman IslandsOaktree European Dislocation Fund (U.S.), L.P.Cayman IslandsOaktree European Dislocation Fund GP Ltd.Cayman IslandsOaktree European Dislocation Fund GP, L.P.Cayman IslandsOaktree European Dislocation Fund, L.P.Cayman IslandsOaktree European High Yield Fund, L.P.DelawareOaktree European Holdings, LLCDelawareOaktree European Principal Fund III (Cayman), L.P.Cayman IslandsOaktree European Principal Fund III (Feeder) GP, L.P.Cayman IslandsOaktree European Principal Fund III (Parallel) Feeder, L.P.Cayman IslandsOaktree European Principal Fund III (Parallel), L.P.Cayman IslandsOaktree European Principal Fund III (U.S.), L.P.Cayman IslandsOaktree European Principal Fund III GP, L.P.Cayman IslandsOaktree European Principal Fund III GP, Ltd.Cayman IslandsOaktree European Principal Fund III Ltd.Cayman IslandsOaktree European Principal Fund III, L.P.Cayman IslandsOaktree European Senior Loan S.à.r.l.LuxembourgOaktree Expanded High Yield Fund, L.P.DelawareOaktree FF Investment Fund AIF (Delaware), L.P.DelawareOaktree FF Investment Fund GP Ltd.Cayman IslandsOaktree FF Investment Fund GP, L.P.Cayman IslandsOaktree FF Investment Fund, L.P.Cayman IslandsOaktree Finance, LLCDelawareOaktree France S.A.S.FranceNameJurisdiction ofIncorporation orOrganizationOaktree Fund AIF Series (Cayman), L.P.Cayman IslandsOaktree Fund AIF Series, L.P.DelawareOaktree Fund GP AIF, LLCDelawareOaktree Fund GP I, L.P.DelawareOaktree Fund GP II, L.P.DelawareOaktree Fund GP IIA, LLCDelawareOaktree Fund GP III, L.P.DelawareOaktree Fund GP IIIA, LLCDelawareOaktree Fund GP Ltd.Cayman IslandsOaktree Fund GP, LLCDelawareOaktree Glacier Holdings GP, Ltd.Cayman IslandsOaktree Glacier Holdings, L.P.Cayman IslandsOaktree Glacier Investment Fund (Feeder), L.P.Cayman IslandsOaktree Glacier Investment Fund, L.P.Cayman IslandsOaktree Global High Yield Fund, L.P.DelawareOaktree GmbHGermanyOaktree High Income Convertible Fund II, L.P.DelawareOaktree High Income Convertible Fund, L.P.DelawareOaktree High Yield Fund II, L.P.DelawareOaktree High Yield Fund, L.P.CaliforniaOaktree High Yield Plus (Cayman) Fund, Ltd.Cayman IslandsOaktree High Yield Plus Feeder Fund, L.P.DelawareOaktree High Yield Plus Fund, L.P.DelawareOaktree Holdings, Inc.DelawareOaktree Holdings, LLCDelawareOaktree Holdings, Ltd.Cayman IslandsOaktree HSF, L.P.DelawareOaktree Huntington Investment Fund AIF (Delaware), L.P.DelawareOaktree Huntington Investment Fund GP Ltd.Cayman IslandsOaktree Huntington Investment Fund GP, L.P.Cayman IslandsOaktree Huntington Investment Fund, L.P.Cayman IslandsOaktree International Holdings, LLCDelawareOaktree Investment Holdings, L.P.DelawareOaktree Japan Absolute Return Fund GP, L.P.DelawareOaktree Japan Absolute Return Fund, L.P.DelawareOaktree Japan GP, L.P.Cayman IslandsOaktree Japan Opportunities Value Fund, L.P.DelawareOaktree Japan, GKJapanOaktree Loan Fund 2x (Cayman) Ltd.Cayman IslandsOaktree Loan Fund 2x, L.P.DelawareOaktree Loan Fund GP, L.P.DelawareOaktree (Lux) FundsLuxembourgOaktree Mezzanine Fund III (Cayman) Ltd.Cayman IslandsOaktree Mezzanine Fund III GP, L.P.DelawareNameJurisdiction ofIncorporation orOrganizationOaktree Mezzanine Fund III, L.P.DelawareOaktree Mezzanine Fund IV (Cayman) GP Ltd.Cayman IslandsOaktree Mezzanine Fund IV (Cayman), L.P.Cayman IslandsOaktree Mezzanine Fund IV GP, L.P.DelawareOaktree Mezzanine Fund IV, L.P.DelawareOaktree MM CLO Holdings, L.P.DelawareOaktree Non-U.S. Convertible Fund, L.P.CaliforniaOaktree Opportunities Fund IX (Cayman), L.P.Cayman IslandsOaktree Opportunities Fund IX (Feeder) GP, L.P.Cayman IslandsOaktree Opportunities Fund IX (Parallel 2) AIF (Cayman), L.P.Cayman IslandsOaktree Opportunities Fund IX (Parallel 2), L.P.Cayman IslandsOaktree Opportunities Fund IX (Parallel) AIF (Cayman), L.P.Cayman IslandsOaktree Opportunities Fund IX (Parallel), L.P.Cayman IslandsOaktree Opportunities Fund IX AIF (Cayman), L.P.Cayman IslandsOaktree Opportunities Fund IX GP, L.P.Cayman IslandsOaktree Opportunities Fund IX GP, Ltd.Cayman IslandsOaktree Opportunities Fund IX, L.P.Cayman IslandsOaktree Opportunities Fund VIII (Cayman) Ltd.Cayman IslandsOaktree Opportunities Fund VIII (Parallel 2) AIF (Delaware), L.P.DelawareOaktree Opportunities Fund VIII (Parallel 2), L.P.Cayman IslandsOaktree Opportunities Fund VIII (Parallel) AIF (Cayman), L.P.Cayman IslandsOaktree Opportunities Fund VIII (Parallel) AIF (Delaware), L.P.DelawareOaktree Opportunities Fund VIII (Parallel), L.P.Cayman IslandsOaktree Opportunities Fund VIII AIF (Cayman), L.P.Cayman IslandsOaktree Opportunities Fund VIII AIF (Delaware), L.P.DelawareOaktree Opportunities Fund VIII Delaware, L.P.DelawareOaktree Opportunities Fund VIII GP Ltd.Cayman IslandsOaktree Opportunities Fund VIII GP, L.P.Cayman IslandsOaktree Opportunities Fund VIII, L.P.Cayman IslandsOaktree Opportunities Fund VIIIb (Cayman) Ltd.Cayman IslandsOaktree Opportunities Fund VIIIb (Parallel) AIF (Cayman), L.P.Cayman IslandsOaktree Opportunities Fund VIIIb (Parallel) AIF (Delaware), L.P.DelawareOaktree Opportunities Fund VIIIb (Parallel), L.P.Cayman IslandsOaktree Opportunities Fund VIIIb AIF (Cayman), L.P.Cayman IslandsOaktree Opportunities Fund VIIIb AIF (Delaware), L.P.DelawareOaktree Opportunities Fund VIIIb Delaware, L.P.DelawareOaktree Opportunities Fund VIIIb GP Ltd.Cayman IslandsOaktree Opportunities Fund VIIIb GP, L.P.Cayman IslandsOaktree Opportunities Fund VIIIb, L.P.Cayman IslandsOaktree Overseas Investment Fund Management (Shanghai) Co., Ltd.ChinaOaktree Power Infrastructure Warehouse Holdings, LLCDelawareOaktree Power Opportunities Fund III (Cayman) GP Ltd.Cayman IslandsOaktree Power Opportunities Fund III (Cayman), L.P.Cayman IslandsOaktree Power Opportunities Fund III (Parallel), L.P.DelawareNameJurisdiction ofIncorporation orOrganizationOaktree Power Opportunities Fund III AIF (Delaware), L.P.DelawareOaktree Power Opportunities Fund III Delaware, L.P.DelawareOaktree Power Opportunities Fund III GP, L.P.DelawareOaktree Power Opportunities Fund III, L.P.DelawareOaktree Principal Advisors (Europe) LimitedUnited KingdomOaktree Principal Fund V (Cayman) Ltd.Cayman IslandsOaktree Principal Fund V (Delaware), L.P.DelawareOaktree Principal Fund V (Parallel) AIF (Cayman), L.P.Cayman IslandsOaktree Principal Fund V (Parallel) AIF (Delaware), L.P.DelawareOaktree Principal Fund V (Parallel), L.P.Cayman IslandsOaktree Principal Fund V AIF (Cayman), L.P.Cayman IslandsOaktree Principal Fund V AIF (Delaware), L.P.DelawareOaktree Principal Fund V GP Ltd.Cayman IslandsOaktree Principal Fund V GP, L.P.Cayman IslandsOaktree Principal Fund V, L.P.Cayman IslandsOaktree Principal Fund VI (Cayman), L.P.Cayman IslandsOaktree Principal Fund VI (Feeder) GP, L.P.Cayman IslandsOaktree Principal Fund VI (Parallel), L.P.Cayman IslandsOaktree Principal Fund VI GP Ltd.Cayman IslandsOaktree Principal Fund VI GP, L.P.Cayman IslandsOaktree Principal Fund VI, L.P.Cayman IslandsOaktree Private Investment Fund 2009 GP, L.P.DelawareOaktree Private Investment Fund 2009, L.P.DelawareOaktree Private Investment Fund 2010 GP, L.P.DelawareOaktree Private Investment Fund 2010, L.P.DelawareOaktree Private Investment Fund 2012 GP, L.P.DelawareOaktree Private Investment Fund 2012, L.P.DelawareOaktree Real Estate Debt Fund (Cayman) GP Ltd.Cayman IslandsOaktree Real Estate Debt Fund (Cayman) L.P.Cayman IslandsOaktree Real Estate Debt Fund (Parallel), L.P.DelawareOaktree Real Estate Debt Fund GP, L.P.DelawareOaktree Real Estate Debt Fund, L.P.DelawareOaktree Real Estate Opportunities Fund IV Delaware GP Inc.DelawareOaktree Real Estate Opportunities Fund IV Delaware, L.P.DelawareOaktree Real Estate Opportunities Fund IV GP Ltd.Cayman IslandsOaktree Real Estate Opportunities Fund IV GP, L.P.Cayman IslandsOaktree Real Estate Opportunities Fund IV, L.P.Cayman IslandsOaktree Real Estate Opportunities Fund V (Cayman) GP Ltd.Cayman IslandsOaktree Real Estate Opportunities Fund V (Cayman) L.P.Cayman IslandsOaktree Real Estate Opportunities Fund V GP, L.P.DelawareOaktree Real Estate Opportunities Fund V, L.P.DelawareOaktree Real Estate Opportunities Fund VI (Cayman) GP Ltd.Cayman IslandsOaktree Real Estate Opportunities Fund VI (Cayman), L.P.Cayman IslandsOaktree Real Estate Opportunities Fund VI (Parallel 2), L.P.DelawareNameJurisdiction ofIncorporation orOrganizationOaktree Real Estate Opportunities Fund VI (Parallel), L.P.DelawareOaktree Real Estate Opportunities Fund VI AIF (Cayman) L.P.Cayman IslandsOaktree Real Estate Opportunities Fund VI GP, L.P.DelawareOaktree Real Estate Opportunities Fund VI, L.P.DelawareOaktree Remington Investment Fund GP, L.P.DelawareOaktree Remington Investment Fund, L.P.DelawareOaktree Senior Loan Fund (Cayman) Ltd.Cayman IslandsOaktree Senior Loan Fund GP, L.P.DelawareOaktree Senior Loan Fund, L.P.DelawareOaktree TT Multi-Strategy Fund GP, L.P.DelawareOaktree TT Multi-Strategy Fund, L.P.DelawareOaktree TX Emerging Market Opportunities Fund, L.P.Cayman IslandsOaktree Value Equity Fund (Cayman), L.P.Cayman IslandsOaktree Value Equity Fund (Feeder) GP, L.P.Cayman IslandsOaktree Value Equity Fund GP Ltd.Cayman IslandsOaktree Value Equity Fund GP, L.P.Cayman IslandsOaktree Value Equity Fund GP-SP, L.P.DelawareOaktree Value Equity Fund, L.P.Cayman IslandsOaktree Value Equity Fund-SP, L.P.DelawareOaktree Value Opportunities (Cayman) Fund, Ltd.Cayman IslandsOaktree Value Opportunities Feeder Fund, L.P.DelawareOaktree Value Opportunities Fund AIF (Cayman), L.P.Cayman IslandsOaktree Value Opportunities Fund AIF (Delaware), L.P.DelawareOaktree Value Opportunities Fund GP Ltd.Cayman IslandsOaktree Value Opportunities Fund GP, L.P.Cayman IslandsOaktree Value Opportunities Fund, L.P.Cayman IslandsOaktree/Arctic Slope PPIP Fund GP, L.P.DelawareOaktree/Arctic Slope PPIP Private Fund GP, L.P.DelawareOCM Asia Principal Opportunities Fund GP Ltd.Cayman IslandsOCM Asia Principal Opportunities Fund GP, L.P.Cayman IslandsOCM Asia Principal Opportunities Fund, L.P.Cayman IslandsOCM Bunker Hill Re, LLCDelawareOCM China Holdings, L.P.DelawareOCM China Investor, L.P.DelawareOCM Convertible TrustMassachusettsOCM Disbursement Services, L.L.C.DelawareOCM European Principal Opportunities Fund GP, L.P.Cayman IslandsOCM European Principal Opportunities Fund GP, Ltd.Cayman IslandsOCM European Principal Opportunities Fund II (Delaware), L.P.DelawareOCM European Principal Opportunities Fund II (U.S.), L.P.Cayman IslandsOCM European Principal Opportunities Fund II AIF (Cayman), L.P.Cayman IslandsOCM European Principal Opportunities Fund II GP Ltd.Cayman IslandsOCM European Principal Opportunities Fund II GP, L.P.Cayman IslandsOCM European Principal Opportunities Fund II, L.P.Cayman IslandsNameJurisdiction ofIncorporation orOrganizationOCM European Principal Opportunities Fund, L.P.Cayman IslandsOCM FIE, LLCDelawareOCM Group TrustMassachusettsOCM High Yield Plus Fund GP, L.P.DelawareOCM High Yield TrustMassachusettsOCM Holdings I, LLCDelawareOCM Holdings II, LLCDelawareOCM Holdings III, LLCDelawareOCM Investments, LLCDelawareOCM Mezzanine Fund II (Cayman), Ltd.Cayman IslandsOCM Mezzanine Fund II GP, L.P.DelawareOCM Mezzanine Fund II, L.P.DelawareOCM Mezzanine Fund, L.P.DelawareOCM Opportunities Fund II, L.P.DelawareOCM Opportunities Fund III, L.P.DelawareOCM Opportunities Fund IV, L.P.DelawareOCM Opportunities Fund IVb (Cayman), Ltd.Cayman IslandsOCM Opportunities Fund V (Cayman) Ltd.Cayman IslandsOCM Opportunities Fund V Feeder, L.P.DelawareOCM Opportunities Fund V GP, L.P.DelawareOCM Opportunities Fund V, L.P.DelawareOCM Opportunities Fund VI (Cayman) Ltd.Cayman IslandsOCM Opportunities Fund VI AIF (Cayman), L.P.Cayman IslandsOCM Opportunities Fund VI AIF (Delaware), L.P.DelawareOCM Opportunities Fund VI GP, L.P.DelawareOCM Opportunities Fund VI, L.P.DelawareOCM Opportunities Fund VII (Cayman) Ltd.Cayman IslandsOCM Opportunities Fund VII AIF (Delaware), L.P.DelawareOCM Opportunities Fund VII Delaware GP Inc.DelawareOCM Opportunities Fund VII Delaware, L.P.DelawareOCM Opportunities Fund VII GP Ltd.Cayman IslandsOCM Opportunities Fund VII GP, L.P.Cayman IslandsOCM Opportunities Fund VII, L.P.Cayman IslandsOCM Opportunities Fund VIIb (Cayman) Ltd.Cayman IslandsOCM Opportunities Fund VIIb (Parallel) AIF (Cayman), L.P.Cayman IslandsOCM Opportunities Fund VIIb (Parallel) AIF (Delaware), L.P.DelawareOCM Opportunities Fund VIIb (Parallel), L.P.Cayman IslandsOCM Opportunities Fund VIIb AIF (Cayman), L.P.Cayman IslandsOCM Opportunities Fund VIIb AIF (Delaware), L.P.DelawareOCM Opportunities Fund VIIb Delaware, L.P.DelawareOCM Opportunities Fund VIIb GP Ltd.Cayman IslandsOCM Opportunities Fund VIIb GP, L.P.Cayman IslandsOCM Opportunities Fund VIIb, L.P.Cayman IslandsOCM Power Opportunities Fund II GP (Cayman) Ltd.Cayman IslandsNameJurisdiction ofIncorporation orOrganizationOCM Power Opportunities Fund II GP, L.P.DelawareOCM Principal Opportunities Fund II, L.P.DelawareOCM Principal Opportunities Fund III (Cayman) Ltd.Cayman IslandsOCM Principal Opportunities Fund III Feeder L.P.DelawareOCM Principal Opportunities Fund III GP, L.P.DelawareOCM Principal Opportunities Fund III, L.P.DelawareOCM Principal Opportunities Fund IIIA, L.P.DelawareOCM Principal Opportunities Fund IV (Cayman) Ltd.Cayman IslandsOCM Principal Opportunities Fund IV AIF (Delaware) GP, L.P.DelawareOCM Principal Opportunities Fund IV AIF (Delaware), L.P.DelawareOCM Principal Opportunities Fund IV Delaware GP Inc.DelawareOCM Principal Opportunities Fund IV Delaware, L.P.DelawareOCM Principal Opportunities Fund IV GP, L.P.Cayman IslandsOCM Principal Opportunities Fund IV GP, Ltd.Cayman IslandsOCM Principal Opportunities Fund IV, L.P.Cayman IslandsOCM Real Estate Opportunities Fund A, L.P.DelawareOCM Real Estate Opportunities Fund B, L.P.DelawareOCM Real Estate Opportunities Fund II, L.P.DelawareOCM Real Estate Opportunities Fund III GP, L.P.DelawareOCM Real Estate Opportunities Fund III, L.P.DelawareOCM Real Estate Opportunities Fund IIIA, L.P.DelawareOCM SSG Holdings GP, LLCDelawareOCM SSG Holdings, L.P.DelawareOCM/GFI Power Opportunities Fund II (Cayman), L.P.Cayman IslandsOCM/GFI Power Opportunities Fund II Feeder, L.P.DelawareOCM/GFI Power Opportunities Fund II, L.P.DelawareOHIL (Sweden) ABSwedenPangaea Capital Management, L.P.Cayman IslandsPangaea Holdings Ltd.Cayman IslandsRBO GP Holdings, L.P.DelawareRBO LP Holdings, L.P.DelawareSabal Financial Europe LimitedUnited KingdomSabal Financial Europe, LLCDelawareSabal Financial Group GP, LLCDelawareSabal Financial Group, L.P.DelawareSouth Grand MM CLO I LLCDelawareExhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (File No. 333-188596) of Oaktree CapitalGroup, LLC of our report dated February 28, 2014 relating to the financial statements and the effectiveness of internal control over financialreporting, which appears in this Form 10-K./s/ PricewaterhouseCoopers LLPPricewaterhouseCoopers LLPLos Angeles, CaliforniaFebruary 28, 2014Exhibit 31.1CERTIFICATIONI, John B. Frank, certify that:1.I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2013 of Oaktree Capital Group, LLC;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary tomake the statements made, in light of the circumstances under which such statements were made, not misleading with respect to theperiod covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (asdefined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules13a-15(f) and 15d-15(f)) for the registrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made knownto us by others within those entities, particularly during the period in which this report is being prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designedunder our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusionsabout the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on suchevaluation; and(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant'smost recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or isreasonably likely to materially affect, the registrant's internal control over financial reporting; and5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalentfunctions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant'sinternal control over financial reporting.Date: February 28, 2014 /s/ John B. FrankJohn B. FrankManaging Principal(Principal Executive Officer)Exhibit 31.2CERTIFICATIONI, David M. Kirchheimer, certify that:1.I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2013 of Oaktree Capital Group, LLC;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary tomake the statements made, in light of the circumstances under which such statements were made, not misleading with respect to theperiod covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (asdefined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules13a-15(f) and 15d-15(f)) for the registrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made knownto us by others within those entities, particularly during the period in which this report is being prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designedunder our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusionsabout the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on suchevaluation; and(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant'smost recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or isreasonably likely to materially affect, the registrant's internal control over financial reporting; and5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalentfunctions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant'sinternal control over financial reporting.Date: February 28, 2014 /s/ David M. KirchheimerDavid M. KirchheimerChief Financial Officer, Chief Administrative Officer andPrincipal(Principal Financial Officer)Exhibit 32.1Certification Pursuant to 18 U.S.C. Section 1350,As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002In connection with the Annual Report on Form 10-K of Oaktree Capital Group, LLC (the “Company”) for the year ended December31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John B. Frank, certify, pursuant to 18U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany at the dates and for the periods presented.Date: February 28, 2014 /s/ John B. FrankJohn B. FrankManaging Principal(Principal Executive Officer)A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by theCompany and furnished to the Securities and Exchange Commission or its staff upon request.This Certification is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by referenceinto any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whethermade before or after the date of the Report), irrespective of any general incorporation language contained in such filing.Exhibit 32.2Certification Pursuant to 18 U.S.C. Section 1350,As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002In connection with the Annual Report on Form 10-K of Oaktree Capital Group, LLC (the “Company”) for the year ended December31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David M. Kirchheimer, certify, pursuantto 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany at the dates and for the periods presented.Date: February 28, 2014 /s/ David M. KirchheimerDavid M. KirchheimerChief Financial Officer, Chief Administrative Officer andPrincipal(Principal Financial Officer)A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by theCompany and furnished to the Securities and Exchange Commission or its staff upon request.This Certification is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by referenceinto any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whethermade before or after the date of the Report), irrespective of any general incorporation language contained in such filing.

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