S-1 1 file1.htm

As filed with the Securities and Exchange Commission on November 8, 2006

Registration No. 333-

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM S-1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

FORTRESS INVESTMENT GROUP LLC

(Exact name of registrant as specified in its charter)

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices)

Alan Chesick, Esq.
General Counsel
Fortress Investment Group LLC
1345 Avenue of the Americas
46^th Floor
New York, New York 10105
(212) 798-6100

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service)

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of earlier effective registration statement for the same offering.

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.

CALCULATION OF REGISTRATION FEE


Title Of Each Class Of Securities To Be Registered	Proposed Maximum Aggregate Offering Price⁽¹⁾⁽²⁾			Amount Of Registration Fee⁽¹⁾
Class A shares		$	750,000,000		$	80,250


(1)	Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended.


(2)	Includes offering price of Class A shares that the underwriters have the option to purchase to cover over-allotments, if any.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and we are not soliciting offers to buy these securities, in any state or other jurisdiction where the offer or sale is not permitted.

Subject to completion, dated November 8, 2006.

PROSPECTUS

Fortress Investment Group LLC

Class A Shares
Representing Class A Limited Liability Company Interests

This is the initial public offering of our Class A shares representing Class A limited liability company interests. We are selling all of the Class A shares in this offering. None of our five principals will be selling any shares in this offering.

Prior to this offering there has been no public market for our Class A shares. It is currently estimated that the public offering price per Class A share will be between $ and $ . We intend to list our Class A shares on the New York Stock Exchange under the symbol ‘‘FIG’’.

Our five principals will own all of our outstanding Class B shares representing Class B limited liability company interests upon completion of this offering. Holders of our Class B shares will vote together with holders of our Class A shares on all matters to be voted on by our shareholders generally. All shareholders will be entitled to one vote per share. Accordingly, following this offering, our principals will hold approximately 90% of the total voting power of our outstanding shares and will be able to exercise control over all matters requiring shareholder approval. In addition, holders of Class B shares will have certain approval rights with respect to several extraordinary matters. See ‘‘Description of Shares’’ beginning on page 140.

We have granted the underwriters a 30-day option to purchase up to an aggregate of additional Class A shares at the initial public offering price less the underwriting discount for the purpose of covering over-allotments, if any.

Investing in our Class A shares involves a high degree of risk. See ‘‘Risk Factors’’ beginning on page 20.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the Class A shares against payment in New York, New York on , 2007.

Goldman, Sachs & Co.

Banc of America Securities LLC

Citigroup

Deutsche Bank Securities

Lehman Brothers

, 2007

As used in this prospectus, unless the context otherwise requires:

‘‘Assets Under Management’’, or ‘‘AUM,’’ refers to the assets we manage, including capital we have the right to call from our investors pursuant to their capital commitments to various funds. Our AUM equals the sum of:


	(i)	the net asset value, or ‘‘NAV’’, of our private equity funds plus the capital that we are entitled to call from investors in the private equity funds pursuant to the terms of their capital commitments to those funds;


	(ii)	the NAV of our hedge funds; and


	(iii)	the market capitalization of the common stock of each of our publicly traded alternative investment vehicles, which we refer to as our Castles.

We earn management fees pursuant to management agreements on a basis which varies from Fortress Fund to Fortress Fund (e.g. any of ‘‘net asset value’’, ‘‘capital commitments’’, ‘‘invested equity’’ or ‘‘gross equity’’, each as defined in the applicable management agreement, may form the basis for a management fee calculation). Our calculation of AUM may differ from the calculations of other asset managers and, as a result, this measure may not be comparable to similar measures presented by other asset managers. Our AUM measure includes, for instance, a limited amount of assets under management for which we charge either no or nominal fees, generally related to our principal investments in funds as well as investments in funds by our principals and employees.

We use distributable earnings as a measure of our operating performance. Distributable earnings is not a measure of cash generated by operations which is available for distribution. Distributable earnings should not be considered in isolation or as an alternative to cash flow or net income and is not necessarily indicative of liquidity or cash available to fund operations. We believe distributable earnings is useful to Class A shareholders in evaluating our operating performance because:


	•	growing distributable earnings is a key component to our business strategy;


	•	it is the primary measure used by our management to evaluate the economic profitability of each of our businesses and our total operations; and


	•	it helps to evaluate the results of our operations by taking into account the receipt of incentive income from our funds, which is expected to be fully realized by us notwithstanding any contingent repayment obligations, and after eliminating share and unit-based compensation expenses.

Our management uses distributable earnings:


	•	for the reasons set forth above;


	•	for planning purposes, including the preparation of our annual operating budget; and


	•	as a valuation measure in strategic analyses in connection with the performance of our funds and the performance of our employees.

For any period, generally, historical distributable earnings is equal to net income, with adjustments made to, among other things:


	(i)	take into account on a current basis the receipt of incentive income from our private equity funds, which in accordance with GAAP is not recorded until all contingent repayment obligations have been resolved;


	(ii)	reverse share and unit-based compensation charges; and


	(iii)	reverse earnings on our principal investments and options in our subsidiaries (other than our hedge funds) that we record in accordance with GAAP on the equity method and, where applicable, to add dividends received from such subsidiaries.

For distributable earnings on a pro forma basis, we further adjust to treat the Fortress Operating Group units as converted to Class A shares and to reflect a corporate tax expense. For a more

detailed reconciliation of distributable earnings to GAAP net income, see ‘‘Summary Historical and Unaudited Pro Forma Financial and Operating Information.’’

‘‘Fortress’’, ‘‘we’’, ‘‘us’’, ‘‘our’’, and the ‘‘company’’ refer, (i) following the consummation of this offering and related transactions, collectively, to Fortress Investment Group LLC and its subsidiaries, including the Fortress Operating Group and all of its subsidiaries, and, (ii) prior to the completion of this offering and related transactions, to the Fortress Operating Group and all of its subsidiaries, in each case not including funds that, prior to the consummation of this offering, were consolidated funds.

‘‘Fortress Funds’’ and ‘‘our funds’’ refers to the private investment funds and alternative asset companies which are managed by the Fortress Operating Group.

‘‘Fortress Operating Group’’ refers to the combined entities currently wholly-owned by our principals in each of which Fortress Investment Group LLC will acquire an indirect controlling interest upon completion of this offering.

‘‘principals’’ refers to Peter Briger, Wesley Edens, Robert Kauffman, Randal Nardone and Michael Novogratz, collectively, who prior to the completion of this offering directly own 100% of the Fortress Operating Group units and following completion of this offering will own approximately 90% of the Fortress Operating Group units and all of the Class B shares, representing approximately 90% of the total voting power of all of our outstanding shares.

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PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. This summary sets forth the material terms of this offering, but does not contain all of the information that you should consider before investing in our Class A shares. You should read the entire prospectus carefully, including the section entitled ‘‘Risk Factors’’ and our financial statements and the related notes included elsewhere in this prospectus, before making an investment decision to purchase our Class A shares. Unless otherwise indicated, the information contained in this prospectus assumes that the underwriters' option to purchase additional shares to cover any over-allotments is not exercised, assumes that the Class A shares to be sold in this offering are sold at $ per share, the mid-point of the range set forth on the cover page of this prospectus and excludes restricted Class A shares and restricted Fortress Operating Group units (and the corresponding Class B shares) that will be issued to certain employees in connection with this offering.

Our Company

Fortress is a leading global alternative asset manager with approximately $26 billion in assets under management as of September 30, 2006. We raise, invest and manage private equity funds, hedge funds and publicly traded alternative investment vehicles. We earn management fees based on the size of our funds, incentive income based on the performance of our funds, and investment income from our principal investments in those funds. Our funds have produced consistently superior investment returns. We intend to grow our existing businesses, while continuing to create innovative products to meet the increasing demand of sophisticated investors for superior risk-adjusted investment returns.

Fortress was founded in 1998 as an asset-based investment management firm with a fundamental philosophy premised on alignment of interests with the investors in our funds. Our managed funds primarily employ absolute return strategies. Investment performance is our cornerstone – as an investment manager, we earn more if our investors earn more. In keeping with our fundamental philosophy, we invest substantial capital in each of the investment funds we manage. As of June 30, 2006, the net asset value of Fortress's principal investments in, and the amount of our unfunded commitments to, our funds was approximately $500 million in the aggregate.

Fortress will be the first global alternative asset manager listed on the New York Stock Exchange (NYSE: FIG). Fortress Operating Group will continue to own all of the businesses created by Fortress since 1998. We believe this offering is a unique opportunity to become aligned with our principals: Wesley Edens, Peter Briger, Robert Kauffman, Randal Nardone and Michael Novogratz. Our principals' investing success has enabled us to grow rapidly while diversifying our management fee and incentive income streams. Our historical pre-tax distributable earnings have grown significantly, from $54.8 million for 2003 to $240.1 million for 2005, a 109% compounded annual growth rate. Distributable earnings is a measure of the value created (income earned) during each period which we use to measure our segment performance and will use in the determination of any periodic dividends to our equity holders. Upon completion of this offering, our principals will own in the aggregate approximately 90% of the Fortress Operating Group units and the remainder will be owned indirectly by public shareholders.

We are an intellectual capital business. The management of alternative assets is a highly specialized undertaking that demands talent, skill and experience. Our success depends on our more than 250 investment professionals. With headquarters in New York and affiliate offices in Dallas, San Diego, Toronto, London, Rome, Frankfurt and Sydney, we are well positioned to capitalize on the growing demand for alternative asset management services on a global basis.

We have grown our assets under management significantly, from approximately $1.2 billion as of December 31, 2001 to approximately $26 billion as of September 30, 2006, or a 91% compounded

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annual growth rate. We will continue to strategically grow our assets under management and to seek to generate superior risk-adjusted investment returns in our funds, solidifying our status as a best-of-class global alternative asset management enterprise. We are guided by the following key objectives and values:


•	generating top-tier risk-adjusted investment returns;


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


•	maintaining our disciplined investment process and intensive asset management;


•	being a thought leader in the alternative asset management industry; and


•	adhering to the highest standards of professionalism and integrity.

Why We Are Going Public

In order to maintain and expand our position as a leading global alternative asset manager, we need people, permanence, capital and currency. As a public company we will be best positioned to meet each of these goals:


•	People — to increase our ability to provide financial incentives to our existing and future employees through the issuance of publicly-traded equity securities that represent the value and performance of the company as a whole. In a highly competitive market for investment professional talent, publicly-traded equity securities provide us with a valuable additional compensation tool;


•	Permanence — to solidify our institutional presence as an ‘‘investor.’’ Being a public alternative asset manager will benefit us as institutions and individuals increase the portion of the capital they allocate to us;


•	Capital — to more efficiently access capital that we can use to grow our businesses and create new investment products; and


•	Currency — to provide us with a publicly-traded equity security that we can use to finance future strategic acquisitions.

Our Current Businesses

As of September 30, 2006, we managed approximately $26 billion of alternative assets in three core businesses:

Private Equity Funds — a business that manages approximately $13.6 billion of AUM that primarily makes significant, control-oriented investments in North America and Western Europe, with a focus on acquiring and building asset-based businesses with significant cash flows. We also manage a family of ‘‘long dated value’’ funds focused on investing in undervalued assets with limited current cash flows and long investment horizons;

Hedge Funds — a business that manages approximately $9.4 billion of AUM comprised of two business segments: (i) hybrid hedge funds – which make highly diversified investments globally in undervalued and distressed assets, including loans, assets and corporate securities; and (ii) liquid hedge funds – which invest globally in fixed income, currency, equity and commodity markets and related derivatives to capitalize on imbalances in the financial markets; and

Publicly Traded Alternative Investment Vehicles, which we refer to as ‘‘Castles’’ — approximately $3.0 billion of aggregate market capitalization in two publicly traded companies managed by us. The Castles currently invest primarily in real estate and real estate debt instruments.

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Our Growth Strategy

Our focus is to create long term value for our shareholders by generating growth in distributable earnings per share. We will raise capital (and correspondingly increase our assets under management) only when we believe appropriate investment opportunities are available. Accordingly, we intend to pursue the following initiatives:

Continue to Generate Strong Investment Performance in our Existing Managed Funds. We believe the most effective strategy for continuing the growth of our businesses is to align our economic interests with those of our investors and to deliver solid investment performance. Crucial to this strategy is our ability to devote time, attention, energy, resources and expertise to effectively manage our assets under management. In particular, we believe that our highly disciplined investment process, intensive credit analysis and fundamental research, and our ‘‘hands-on’’ approach to asset management and risk management will enable us to continue to create value in and maintain the solid performance of the Fortress Funds.

Selectively Expand our Investment Products. We intend to raise additional funds within our existing businesses and to selectively diversify our business into new alternative asset strategies. We have a broad base of institutional and high net worth individual investors who have traditionally supported our new business initiatives. We believe opportunities exist to raise capital for infrastructure funds, real estate funds, structured debt products and funds focused on industry or geographic sectors within our investment expertise. In addition, we believe that we are well positioned to explore a number of traditional asset management strategies, such as long-only equity funds, that capitalize on the strengths of our investment professionals.

In addition, we expect that we will be able to selectively and opportunistically pursue acquisitions that will add to our investment team's expertise and product offerings. We believe a number of smaller, successful alternative asset managers will seek the infrastructure, resources and investor relationships available within a larger, more established and independent alternative asset manager.

Competitive Strengths

By taking advantage of the following competitive strengths, we expect to continue to grow our asset management business and consistently deliver superior returns for our investors:

•

Distinguished Investment Track Record. Our funds are consistently among the highest performing funds within their strategies, and have earned Fortress a reputation as a top-tier firm that is able to deliver strong and consistent performance across industries, geographic regions and economic cycles. A defining feature of our investing approach has been our ability to deliver these returns while also minimizing the risk of investment loss.

•

Alignment with Our Investors. In keeping with our fundamental philosophy premised on an alignment of interest with our investors, we invest substantial capital in each of the investment funds we manage. As of June 30, 2006, the net asset value of Fortress's investments in, and the amount of our unfunded commitments to, our funds was approximately $500 million. In addition, a significant portion of the compensation of our senior investment professionals is based on the performance of our investment funds.

•

People. We have assembled a team of more than 250 investment professionals to deliver focused idea generation and execution across our businesses. The team is led by our five principals, who have participated in investment activities together in various capacities for many years. The success and dynamism of the company, and our investment-oriented culture, helps us attract and retain the highest quality, result-driven people.


•	Global Platform. We invest broadly in multiple geographic markets. We believe that our ability to successfully translate our investment strategies into various geographic markets allows us to take advantage of a diverse range of opportunities and provides us with additional opportunities to deploy capital on behalf of our funds.

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•

Dividend Policy. Unlike many publicly-traded asset managers, we intend to pay out a significant portion, approximately %, of our annual distributable earnings in the form of quarterly dividends on our fully diluted Class A shares. We believe that this dividend policy will provide transparency to our Class A shareholders and will impose upon us an investment discipline with respect to new products, businesses and strategies.

•

Strong Investor Base with Efficient Distribution. The entities and individuals that invest in our funds, which we refer to as ‘‘our investors,’’ include many of the largest pension funds, university endowments, and financial institutions, as well as individuals. We manage capital for approximately 650 investors in our private equity funds and hedge funds. Many of our investors are invested in multiple Fortress Funds, and have invested in new products at launch. We believe that our deep investor relationships, founded on our consistent performance, disciplined and prudent management of our investors' capital and emphasis on clear, responsive investor communication, make it easier for us to grow our existing businesses and launch new businesses. In addition, the strong performance of the companies whose initial public offerings we have sponsored, including our Castles and certain portfolio companies of our private equity funds, has earned us brand recognition as a financial sponsor and support among institutional public equity investors, which should positively affect our ongoing ability to capitalize new businesses in the public markets.

•

Long-Standing Relationships. We manage diverse and highly transactional businesses, and therefore we are continuously active in the capital markets on behalf of our funds as both an issuer and investor. We have close relationships with key financing sources and capital market intermediaries that have augmented our ability to execute transactions in various businesses. We have long-standing relationships with business and financial leaders that are also crucial to the success of our transactional businesses.

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Structure and Formation of our Company

The diagram below depicts our organizational structure immediately after the consummation of this offering and related transactions. See ‘‘Our Structure — The Transactions.’’


(1)	The Class A shareholders hold 100% of the Class A shares, which represent approximately 10% of the voting power of Fortress Investment Group LLC.


(2)	The principals hold 100% of the Class B shares, which represent approximately 90% of the voting power of Fortress Investment Group LLC. The Class B shares have no economic interest in Fortress Investment Group LLC.


(3)	Represents a 100% general partner interest in the Operating Entities and in Principal Holdings.


(4)	Represents approximately 10% of the voting limited partner interests in each of the Operating Entities and in Principal Holdings.


(5)	Represents approximately 90% of the non-voting limited partner interests in each of the Operating Entities and in Principal Holdings.


(6)	Excludes effect of equity interests to be granted under our equity incentive plan to employees and directors in connection with this offering.

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Fortress Operating Group is comprised of the limited partnerships through which the principals currently operate our business, which we refer to as the ‘‘Operating Entities,’’ and a limited partnership newly formed for the purpose of, among other activities, holding certain of our principal investments, which we refer to as ‘‘Principal Holdings.’’ Each of these entities is a limited partnership with an equal number of limited partner interests, or LP interests, the number of which in turn is equal to the number of our aggregate outstanding Class A shares and Class B shares. Each Fortress Operating Group unit represents one LP interest in each Operating Entity and in Principal Holdings. A Fortress Operating Group unit is not a legal interest but is the term we use to refer to the aggregate of these LP interests. Following the transactions described below, Fortress Investment Group LLC and the principals will hold, respectively, approximately 10% and approximately 90% of the Fortress Operating Group units. The Fortress Operating Group units owned by Fortress Investment Group LLC will be held through our two newly created wholly-owned subsidiaries which we refer to as the ‘‘intermediate holding companies,’’ and the principals will hold their Fortress Operating Group units directly. More specifically, Fortress Investment Group LLC owns 100% of (a) FIG Corp. which in turn will own the sole general partner interest and approximately 10% of the LP interests in the Operating Entities and (b) FIG Asset Co. LLC which in turn will own the sole general partner interest and approximately 10% of the LP interests in Principal Holdings. The general partner interests are the non-economic but controlling interests in each Fortress Operating Group entity by means of which Fortress Investment Group LLC will control the Fortress Operating Group. Accordingly, Fortress Investment Group LLC will, through its wholly-owned subsidiaries, own 100% of the controlling interests and approximately 10% of the Fortress Operating Group units. The principals will retain voting control of Fortress Investment Group LLC following this offering through their ownership of our Class B shares. Future issuances, if any, of Class A shares will result in a corresponding increase in the number of Fortress Operating Group units held by the intermediate holding companies and result in a corresponding dilution of the principals' ownership interest in the Fortress Operating Group.

The Transactions

Our business is presently conducted by the Fortress Operating Group, which consists of entities wholly-owned by our principals. Fortress Investment Group LLC was formed as a Delaware limited liability company for the purpose of completing this offering and the related transactions in order to carry on our business as a publicly-traded entity. As a result of the transactions contemplated by this offering, Fortress Investment Group LLC will acquire control of the Fortress Operating Group, and hold approximately 10% of the Fortress Operating Group units.

In connection with this offering, we will form FIG Corp. as a Delaware corporation and FIG Asset Co. LLC as a Delaware limited liability company, our two wholly-owned intermediate holding companies. In the future, we may add additional intermediate holding companies. Prior to or concurrently with the consummation of this offering, we have completed or will have completed the following transactions:


•	we refinanced our credit agreement in June 2006 and as of June 30, 2006 had borrowed $665 million thereunder;


•	we have distributed and will distribute immediately prior to the consummation of this offering $ to our principals;


•	we will distribute to our principals the net proceeds received relating to our collection of a portion of a receivable relating to previously earned fees from our offshore hedge funds pursuant to certain contractual arrangements;


•	we will liquidate one of the Fortress Funds;


•	we will issue Class A shares in this offering for net proceeds of approximately $ (based on the mid-point of the range set forth on the cover page of this prospectus);

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•

we will contribute $ of the net proceeds from this offering to FIG Corp. which will in turn contribute those net proceeds, together with the proceeds it receives from FIG Asset Co. LLC., as described below, to the Fortress Operating Group in exchange for the general partner interest and an approximately 10% limited partner interest in the Fortress Operating Group (taking into account FIG Asset Co. LLC's limited partner interest in Principal Holdings); and the Fortress Operating Group will use a portion of the net proceeds from this offering to repay $250 million under our credit agreement;

•

we will contribute $of the net proceeds from this offering to FIG Asset Co. LLC, which will (i) loan a portion of these net proceeds to FIG Corp. pursuant to an intercompany demand note and (ii) contribute the remaining portion of these proceeds to Principal Holdings, the Fortress Operating Group entity which, among other things, will hold certain of our principal investments, in exchange for the sole general partner interest and an approximately 10% limited partner interest therein. FIG Asset Co. LLC may demand repayment of all or a portion of the principal of the FIG Corp. demand note in the event it requires funds to make investments;


•	we will grant pursuant to our equity incentive plan, effective upon consummation of this offering, restricted Class A shares and restricted Fortress Operating Group units (and corresponding Class B shares) to certain employees;


•	FIG Corp. and FIG Asset Co. LLC (on behalf of any affiliated corporation) will enter into a tax receivable agreement with our principals, as described below;


•	we will enter into a shareholders agreement with our principals, and our principals will enter into the Principals Agreement, in each case as described below;


•	we will enter into an employment agreement with each of our principals, as described below; and


•	we will effect a deconsolidation of the consolidated Fortress Funds by granting to investors in each fund the right to accelerate the date on which the fund is liquidated, without cause, in accordance with certain procedures.

We refer to the foregoing collectively as the ‘‘Transactions.’’

As a result of the Transactions:


•	Fortress Investment Group LLC will be a holding company, and our principal assets will be our indirect controlling general partner interest and approximately 10% of the Fortress Operating Group units, held through the intermediate holding companies;


•	our principals' percentage ownership of the Fortress Operating Group units will decrease to approximately 90%;


•	FIG Corp. or FIG Asset Co. LLC, as applicable, will become the sole general partner of each of the entities that constitute the Fortress Operating Group. Through our ownership and control of FIG Corp. and FIG Asset Co. LLC, we will operate and control the business of the Fortress Operating Group and its subsidiaries; and

•

net profits, net losses and distributions of the Fortress Operating Group will be allocated and made to its unitholders, on a pro rata basis in accordance with their respective Fortress Operating Group units. Accordingly, net profits and net losses allocable to Fortress Operating Group unitholders will initially be allocated, and distributions will initially be made, approximately 10% indirectly to us and approximately 90% to our principals.

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Operating Group units. As we are a newly formed company, Fortress Operating Group is considered our predecessor for accounting purposes, and its combined financial statements will be our historical financial statements following completion of the Transactions. Also, because the principals control Fortress Operating Group before the Transactions and will control us after the Transactions, the Transactions are accounted for as a reorganization of entities under common control. Accordingly, we will carry forward unchanged the value of assets and liabilities recognized in Fortress Operating Group's combined financial statements into our consolidated financial statements. Following completion of this offering, all of Fortress's expenses (other than income tax expenses of FIG Corp. and obligations incurred under the tax receivable agreement), including all expenses incurred by or attributable solely to Fortress Investment Group LLC, such as expenses incurred in connection with this offering, will be accounted for as expenses of the Fortress Operating Group.

Class A Shares. Immediately following this offering, all of our outstanding Class A shares will be owned by purchasers in this offering. Holders of Class A shares will be entitled to one vote per share on all matters submitted to a vote by our shareholders. Holders of our Class A shares and our Class B shares will vote together as a single class on all matters submitted to a vote of our shareholders, except as otherwise required by applicable law. Class A shares owned by purchasers in this offering will initially represent approximately 10% of the total voting power of our outstanding shares. As a result, our principals will exercise control over all matters requiring shareholder approval and certain other matters described below.

Class B Shares. Immediately following this offering, all of our outstanding Class B shares will be owned by our principals, except for restricted Class B shares related to restricted Fortress Operating Group units granted to certain employees in connection with this offering. Holders of Class B shares will be entitled to one vote per share. Holders of our Class A shares and our Class B shares will vote together as a single class on all matters submitted to a vote of our shareholders, except as otherwise required by applicable law. The Class B shares will have no economic rights, although they will initially represent approximately 90% of the total voting power of our outstanding shares. As a result, our principals will be able to exercise control over all matters requiring shareholder approval. In addition, our principals will have additional approval rights under the shareholders agreement described below.

Exchange of Fortress Operating Group Units. At any time and from time to time, each principal will have the right to exchange one of their Fortress Operating Group units for one of our Class A shares or, at our option, cash equal to the value of one Class A share. To effect an exchange, a principal must simultaneously exchange one Fortress Operating Group unit – being an equal limited partner interest in each Fortress Operating Group entity. In connection with any exchange of Fortress Operating Group units, the principal will receive a right, under a tax receivable agreement, to receive 85% of the value of the applicable tax benefit in cash when FIG Corp. or FIG Asset Co. LLC (on behalf of any affiliated corporation) actually realize certain tax savings. As a principal exchanges his Fortress Operating Group units, our interest in the Fortress Operating Group units will be correspondingly increased and his corresponding Class B shares will be cancelled.

Shareholders Agreement. Prior to the consummation of this offering, we will enter into a shareholders agreement with our principals pursuant to which, so long as our principals and their permitted transferees collectively own more than 40% of the total voting power of our outstanding shares, the principals who are then employed by the Fortress Operating Group will have certain approval rights over the following transactions: (i) any incurrence of indebtedness in excess of 10% of our then existing consolidated indebtedness; (ii) any issuance by us of equity or equity-related securities that would represent, after such issuance or upon conversion, exchange or exercise, as the case may be, at least 10% of the total voting power of our outstanding shares (except in certain circumstances); (iii) any principal investment by us (including any commitment to invest) in an amount greater than $250 million; (iv) any entry by us into a new line of business that does not involve investment management and that requires a principal investment in excess of $100 million; (v)

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the adoption of a shareholder rights plan; (vi) any appointment of a chief executive officer or co-chief executive officer; or (vii) the termination of the employment of a principal with us or any of our subsidiaries without cause.

The agreement also prohibits our principals from, directly or indirectly, voluntarily effecting cumulative transfers of specified amounts of their interests in us and the Fortress Operating Group for a period of five years after this offering. See ‘‘Certain Relationships and Related Party Transactions — Transfer Restrictions.’’ The agreement also provides that so long as our principals and their permitted transferees collectively own more than 50% of the total voting power of all our outstanding shares, our board of directors will nominate individuals designated by the principals such that the principals will have six designees (out of a total possible eleven members) to the board, and if the principals own more than 10% and equal to or less than 50% of the total voting power of our outstanding shares, our board of directors will nominate individuals designated by the principals such that the principals will have between two and five designees to the board, based on their collective ownership of our outstanding shares.

Incentive income from certain of the private equity funds may be distributed to us on a current basis generally subject to the obligation to repay the amounts so distributed in the event certain specified return thresholds are not ultimately achieved by the fund, as described below. See ‘‘Management's Discussion and Analysis of Financial Condition and Results of Operations — Application of Critical Accounting Policies — Revenue Recognition on Incentive Income.’’ The principals have personally guaranteed, subject to certain limitations, this ‘‘clawback’’ obligation. The shareholders agreement contains our agreement to indemnify the principals for all amounts paid pursuant to any of these personal guaranties.

Agreement Among Principals. Prior to the consummation of this offering, the principals will enter into an agreement (the ‘‘Principals Agreement’’) which provides that, in the event a principal voluntarily terminates his employment with us for any reason prior to the fifth anniversary of the consummation of this offering, a portion of the Fortress Operating Group units (and corresponding Class B shares) held by that principal as of the completion of this offering will be forfeited to the principals who are employed by Fortress Operating Group on the date which is six months after such termination of employment. The amount of such forfeiture will scale down over the five-year period.

The Principals Agreement may be amended upon the approval of a majority of the principals who are then employed by the Fortress Operating Group. We, our shareholders and the Fortress Operating Group have no ability to enforce any provision thereof or to prevent the principals from amending the Principals Agreement or waiving any forfeiture obligation.

Employment, Non-Competition and Non-Solicitation Agreements. Prior to the consummation of this offering, we will enter into an employment, non-competition and non-solicitation agreement with each of our principals. Each such agreement will terminate on the fifth anniversary of completion of this offering, subject to automatic renewal for additional one-year terms unless either party terminates the agreement in accordance with the terms of the agreement. The principal's covenants survive any termination or expiration of the employment agreement. Each principal will be entitled to an annual salary that may be increased, but not decreased, at the discretion of our board of directors. The agreement will also require the principal to protect the confidential information of our company both during and after employment and refrain from soliciting employees or interfering with our relationships with our investors both during and for a 24-month period after employment. If we terminate a principal's employment without cause (as defined in the agreement) during the agreement's term, we will pay the principal a separation payment equal to three times his then-current annual salary and his accrued salary through the date of termination of employment. The employment agreement will provide that if a principal terminates his employment voluntarily or we terminate his employment with cause, whether during the agreement's term or thereafter in the event the agreement's term is not renewed, the principal will be paid his accrued salary through the date of termination of employment and will be subject to an eighteen-month post-employment covenant requiring the principal to refrain from competing with us.

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Tax Receivable Agreement. As part of the Transactions, FIG Corp. and FIG Asset Co. LLC (on behalf of any affiliated corporation) (the ‘‘corporate taxpayers’’) will enter into a tax receivable agreement with our principals. Pursuant to the agreement, the corporate taxpayers will be required to make payments to a principal equal to 85% of the tax savings actually realized by the corporate taxpayers resulting from increases in the tax basis of the assets of certain Fortress Operating Group entities upon the occurrence of any exchange by such principal of his Fortress Operating Group units for Class A shares or, at our option, cash equal to the value of the Class A shares. While the actual increase in tax basis and the amount and timing of any payments under this agreement will vary depending upon a number of factors, including the timing of exchanges, the price of our Class A shares at the time of the exchange, the extent to which such exchanges are taxable, and the amount and timing of our income, we expect that the payments that the corporate taxpayers may make to our principals could be material in amount.

Tax Consequences. We intend to be treated, for U.S. federal income tax purposes, as a partnership and not as an association or a publicly traded partnership taxable as a corporation. Accordingly, holders of Class A shares generally will be required to report their allocable share of our income for U.S. federal income tax purposes, regardless of whether any cash or other dividends are made to them.

FIG Corp., our wholly-owned subsidiary and general partner of the Fortress Operating Group entities (other than Principal Holdings), will incur U.S. federal, state, local and foreign income taxes on its proportionate share of any net taxable income of such entities.

FIG Asset Co. LLC, our wholly-owned subsidiary and general partner of Principal Holdings, will be, for U.S. federal income tax purposes, an entity disregarded as an entity separate from its owner, and not as an association taxable as a corporation.

Accordingly, income allocable to holders of Class A shares attributable to FIG Corp. will arise as dividends are paid by FIG Corp. and FIG Asset Co. LLC's items of income will be treated as our income. Holders of Class A shares generally will be required to report their allocable share of such income for U.S. federal income tax purposes, regardless of whether any cash dividends are paid by us.

In accordance with the applicable partnership agreement, we will cause the applicable Fortress Operating Group entities to distribute cash on a pro rata basis to holders of Fortress Operating Group units (that is, our intermediate holding companies and the principals) in an amount at least equal to the maximum tax liabilities arising from the ownership of such units, if any. No such distribution will necessarily be required to be distributed by our intermediate holding companies to us and there can be no assurance that we will pay cash dividends on the Class A shares in an amount sufficient to cover any tax liability arising from the ownership of Class A shares.

Additional Information

Our principal executive offices are located at 1345 Avenue of the Americas, New York, New York 10105. Our telephone number is (212) 798-6100. Our internet address is www.fortressinv.com. Information on our website does not constitute part of this prospectus.

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THE OFFERING


Shares offered by us in this offering		Class A shares


Shares to be outstanding immediately after this offering:


•	Class A shares	Class A shares


•	Class B shares	Class B shares


Shares to be held by our principals immediately after this offering:


•	Class A shares	none


•	Class B shares	Class B shares


Voting


•	Class A shares	one vote per share


•	Class B shares	one vote per share


•	Voting Rights	Holders of our Class A shares and Class B shares will vote together as a single class on all matters submitted to our shareholders for their vote or approval, except as otherwise required by applicable Delaware law. See ‘‘Description of Shares.’’


Approval rights		Our principals will have approval rights with respect to certain extraordinary transactions so long as they and their permitted transferees continue to hold more than 40% of the total voting power of our outstanding shares. See ‘‘Certain Relationships and Related Party Transactions — Shareholders Agreement.’’


Majority independent directors		Immediately preceding the consummation of this offering, a majority of our directors will be ‘‘independent’’ as defined under New York Stock Exchange, or NYSE, rules.


		Our amended and restated operating agreement provides that the authority and function of our board of directors and officers shall be identical to the authority and functions of a board of directors and officers of a corporation organized under Delaware General Corporation Law, except as expressly modified by the terms of our amended and restated operating agreement.


Use of proceeds		We estimate that the net proceeds from the sale of our Class A shares in this offering, after deducting offering expenses and the underwriting discounts, will be approximately $ million. We intend to contribute the net proceeds from this offering to the Fortress Operating

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		Group. Our credit agreement requires that we use $250 million of the net proceeds received by us to prepay a portion of the borrowings outstanding under its term loan facility. We will use the remaining net proceeds for general business purposes of the Fortress Operating Group.


Cash dividend policy		We expect to pay quarterly dividends on our fully diluted Class A shares equal in the aggregate to approximately % of our annual distributable earnings. We will fund such amount by causing our downstream affiliates to make corresponding distributions. More specifically, first, we will cause Fortress Operating Group to make a distribution to all of its unitholders on a pro rata basis and, second, we will cause our intermediate holding companies, FIG Corp. and FIG Asset Co. LLC, to distribute all or a portion of their proceeds of such distributions to us.


		We believe our dividend policy will have several benefits to Class A shareholders since it provides transparency to our shareholders and imposes upon us an investment discipline with respect to new products, businesses and strategies.


		We will be a holding company and, as such, our ability to pay dividends to our Class A shareholders will be subject to the ability of our subsidiaries (including our two wholly owned intermediate holding companies that hold our Fortress Operating Group units) to provide cash to us. The declaration and payment of dividends by us will be at the discretion of our board of directors and will depend on, among other things, cash available for distributions, general economic and business conditions, our strategic plans and prospects, our financial results and condition, contractual, legal and regulatory restrictions on the payment of distributions by us or our subsidiaries, and such other factors as our board of directors considers to be relevant.


Fortress Operating Group units held by us		or approximately 10%


by our principals		or approximately 90%


Principals' exchange rights		At any time and from time to time, each principal will have the right to exchange each of his Fortress Operating Group units for one of our Class A shares or, at our option, cash equal to the value of one Class A share. To effect an exchange, a principal must simultaneously exchange one Fortress Operating Group unit – being an equal limited partner interest in each Fortress Operating Group entity. In connection with any exchange of Fortress Operating Group units, the principal will receive a right, under a tax receivable agreement, to receive 85% of the value of the applicable tax benefit in cash when FIG Corp. or FIG Asset Co. LLC (on behalf of any affiliated

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		corporation) actually realize certain tax savings. As a principal exchanges his Fortress Operating Group units, our interest in the Fortress Operating Group units will be correspondingly increased and his corresponding Class B shares will be cancelled.


Proposed New York Stock Exchange symbol		‘‘FIG’’


Risk factors		Please read the section entitled ‘‘Risk Factors’’ beginning on page 20 for a discussion of some of the factors you should carefully consider before deciding to invest in our Class A shares.

References in this section to the number of our Class A shares and our Class B shares to be outstanding after this offering, and the percent of our voting rights held, exclude:


	•	Class A shares issuable upon exchange of Fortress Operating Group units for Class A shares by our principals;


	•	Class A shares issuable upon exercise of the underwriters' option to purchase additional Class A shares from us to cover over-allotments, if any; and


	•	interests granted under our equity incentive plan, consisting of:


	•	restricted Class A shares to be granted to certain employees upon consummation of this offering;


	•	Class A shares issuable upon exchange of restricted Fortress Operating Group units to be granted to certain employees in connection with this offering, and the Class B shares to be granted together with such Fortress Operating Group units; and


	•	an additional interests reserved for issuance under our equity incentive plan, which may be granted in the form either of Class A shares or of Fortress Operating Group units (and corresponding Class B shares).

In the event the underwriters exercise their option to purchase additional Class A shares to cover over-allotments, if any, the economic interest and voting power of holders of our Class A shares as a group and our interest in the Fortress Operating Group will increase accordingly.

SUMMARY HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL AND
OPERATING INFORMATION

Summary Historical Financial Information

The following table sets forth certain summary financial information on a historical basis.

The summary historical financial information set forth below as of December 31, 2005 and 2004, and for each of the three years ended December 31, 2005, has been derived from our audited combined financial statements. The summary historical financial information set forth below as of June 30, 2006, and for the six month periods ended June 30, 2006 and 2005, has been derived from our unaudited interim combined financial statements. The summary historical financial information set forth below as of December 31, 2003, 2002 and 2001, and for each of the two years ended December 31, 2002, and as of June 30, 2005 has been derived from our unaudited accounting records prepared on a consistent basis with the financial statements described above. The unaudited interim combined financial statements include all adjustments (consisting of normal, recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of our financial position and results of operations for the periods presented. The interim results of operations are not necessarily indicative of operations for a full fiscal year.

The information below should be read in conjunction with ‘‘Management's Discussion and Analysis of Financial Condition and Results of Operations’’ and the combined financial statements and notes thereto included in this prospectus.

Summary Historical Combined Financial Information
(in thousands)


	Six Months Ended June 30,								Year Ended December 31,
	2006				2005				2005				2004				2003				2002				2001
	(Unaudited)				(Unaudited)																(Unaudited)				(Unaudited)
Operating Data
Revenues
Management fees and incentive income from affiliates and other revenues		$	185,814			$	76,168			$	284,313			$	128,671			$	47,557			$	13,720			$	9,092
Interest and dividend income – investment company holdings			691,735				239,583				759,781				222,707				172,759				64,097				87,325
			877,549				315,751				1,044,094				351,378				220,316				77,817				96,417
Expenses			681,050				201,528				685,924				198,403				81,627				33,579				10,829
Other Income
Gains (losses) – investment company holdings			1,417,325				940,462				2,903,978				881,658				123,276				37,624				54,150
Gains (losses) – other investments			54,974				18,685				37,181				20,512				9,120				—				—
Earnings from equity method investees			2,420				7,020				10,465				14,616				4,762				2,334				6,597
			1,474,719				966,167				2,951,624				916,786				137,158				39,958				60,747
Income before deferred incentive income, non-controlling interests in income of consolidated subsidiaries and income taxes
			1,671,218				1,080,390				3,309,794				1,069,761				275,847				84,196				146,335
Deferred incentive income			(225,132	)			(136,333	)			(444,567	)			(104,558	)			(17,487	)			(6,542	)			(12,710	)
Non-controlling interests in income of consolidated subsidiaries			(1,350,811	)			(895,782	)			(2,662,926	)			(847,365	)			(216,594	)			(67,306	)			(118,547	)
Income before income taxes			95,275				48,275				202,301				117,838				41,766				10,348				15,078
Income tax expense			(7,270	)			(2,983	)			(9,625	)			(3,388	)			(1,495	)			(920	)			(446	)
Net income		$	88,005			$	45,292			$	192,676			$	114,450			$	40,271			$	9,428			$	14,632


	As of June 30,							As of December 31,
	2006				2005			2005			2004			2003			2002			2001
Balance Sheet Data	(Unaudited)				(Unaudited)									(Unaudited)			(Unaudited)			(Unaudited)
Investment company holdings, at fair value		$	13,780,066			$	7,201,000		$	10,582,109		$	5,365,309		$	2,036,107		$	1,047,424		$	611,158
Other investments			579,147				84,603			451,489			48,444			52,879			51,556			54,947
Cash, cash equivalents and restricted cash			852,178				462,178			288,363			179,727			41,661			15,907			2,858
Total assets			16,016,572				8,050,682			11,863,938			5,796,733			2,212,564			1,165,075			675,272
Debt obligations payable			3,214,553				1,229,801			2,250,433			928,504			226,205			36,936			36,250
Deferred incentive income			810,996				277,630			585,864			141,277			36,739			19,252			12,710
Total liabilities			4,880,291				1,806,476			3,343,262			1,306,021			339,028			78,804			53,730
Non-controlling interests in consolidated subsidiaries			11,230,028				6,185,267			8,397,167			4,405,835			1,836,163			1,046,896			599,827
Members' equity (deficit) including net accumulated other comprehensive income (loss)			(93,747	)			58,939			123,509			84,877			37,373			39,375			21,715


	Six Months Ended June 30,								Year Ended December 31,
	2006				2005				2005				2004				2003				2002				2001
Other Data	(Unaudited)				(Unaudited)																(Unaudited)				(Unaudited)
Distributable earnings⁽¹⁾
Private equity funds		$	76,578			$	12,469			$	102,014			$	62,922			$	22,837			$	2,982			$	8,855
Liquid hedge funds			77,041				17,605				89,413				31,140				9,871				1,085				—
Hybrid hedge funds			37,572				27,096				57,417				38,576				14,557				1,681				—
Hedge fund subtotal			114,613				44,701				146,830				69,716				24,428				2,766				—
Castles			5,041				2,820				4,440				9,312				8,158				—				—
Unallocated			(28,010	)			(7,200	)			(22,756	)			(8,778	)			(2,098	)			(2,863	)			(3,700	)
Total distributable earnings⁽¹⁾		$	168,222			$	52,790			$	230,528			$	133,172			$	53,325			$	2,885			$	5,155
Reconciliation of Net Income to Distributable Earnings⁽¹⁾
Net income		$	88,005			$	45,292			$	192,676			$	114,450			$	40,271			$	9,428			$	14,632
Adjust incentive income			113,809				8,810				62,496				60,525				20,838				(4,133	)			(2,834	)
Adjust unrealized gains and earnings from equity method investees			(27,001	)			(14,463	)			(23,132	)			(26,746	)			(5,840	)			(2,410	)			(6,643	)
Adjust income from the receipt of options			(18,692	)			(4,323	)			(2,310	)			(2,285	)			(1,424	)			—				—
Adjust compensation expense			—				—				—				5,901				—				—				—
Adjust employee portion of incentive income			12,101				17,474				798				(18,673	)			(520	)			—				—
Distributable earnings⁽¹⁾		$	168,222			$	52,790			$	230,528			$	133,172			$	53,325			$	2,885			$	5,155


(1)	‘‘Distributable earnings’’ for the existing Fortress businesses is equal to net income adjusted as follows:


	o	Incentive Income


	(i)	a. for Fortress Funds which are private equity funds, adding (a) incentive income paid (or declared as a distribution) to us (including incentive income paid to us during the first 15 business days of the following year), less an applicable reserve for potential future clawbacks if the likelihood of a clawback is deemed greater than remote (net of the reversal of any prior such reserves that are no longer deemed necessary), minus (b) incentive income recorded in accordance with U.S. generally accepted accounting principles, or GAAP, based on the accounting method described in ‘‘Management's Discussion and Analysis of Financial Condition and Results of Operations—Application of Critical Accounting Policies–Revenue Recognition on Incentive Income,’’

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


	o	Other Income


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


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


	b.	subtracting gains (or adding losses) on stock options held in certain of the Castles which are treated as derivatives,


	c.	subtracting unrealized gains (or adding unrealized losses) from our consolidated private equity funds,


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


	o	Expenses


	(iv)	adding back compensation expense recorded in connection with the assignment of a portion of these Castle options to our employees, and


	(v)	adding or subtracting, as necessary, the employee profit sharing in (i) above for timing differences related to the 15 business day adjustment thereto.

When calculating distributable earnings on a pro forma basis, as well as for periods after the offering, the following additional adjustments are made to pro forma net income, or net income of Fortress Investment Group, as applicable:


	(i)	adding the income (or subtracting the loss) allocable to the non-controlling interests attributable to Fortress Operating Group units,


	(ii)	adding back compensation expense recorded in connection with the grant of restricted Class A shares and of restricted Fortress Operating Group units to employees,


	(iii)	adding back compensation expense recorded in connection with the forfeiture arrangements entered into among the principals, described in ‘‘Agreement Among Principals’’ below, and


	(iv)	adding back income tax expense and any expense recorded in connection with the tax receivable agreement, and subtracting income tax expense calculated on our pre-tax distributable earnings at the appropriate effective income tax rate.

Summary Unaudited Pro Forma Financial Information

The following table sets forth our summary unaudited pro forma financial information as of June 30, 2006 and for the year ended December 31, 2005 and the six month periods ended June 30, 2006 and 2005, which has been derived from our unaudited pro forma financial information included elsewhere in this prospectus. The summary unaudited pro forma income statement information is presented as if the Transactions had been consummated on January 1, 2005. The summary unaudited pro forma balance sheet information is presented as if the Transactions had been consummated on June 30, 2006.

The pro forma adjustments are based upon available information and assumptions that we believe are reasonable. The summary unaudited pro forma financial information is presented for illustrative and informational purposes only, and is not necessarily indicative of what our actual financial position or results of operations would have been had the Transactions occurred on the dates or during the periods presented, nor does it purport to represent the results of any future periods.

The information below should be read in conjunction with ‘‘Management's Discussion and Analysis of Financial Condition and Results of Operations’’ and the pro forma financial information and notes thereto included elsewhere in this prospectus. For a description of the Transactions, see ‘‘Our Structure — The Transactions’’.

The pro forma weighted average number of Class A shares outstanding used to compute diluted pro forma net income per Class A share assumes that each of our Fortress Operating Group units, including units outstanding not subject to forfeiture, units outstanding subject to forfeiture among principals and unvested restricted units granted to employees, have been exchanged for newly issued Class A shares on a one-for-one basis and includes unvested restricted Class A shares granted to employees, in all cases as if all such shares have been outstanding from the beginning of the respective period.

Summary Unaudited Pro Forma Financial Information
(in thousands, except per share data)


	Six Months Ended June 30,				Year Ended December 31,
	2006		2005		2005
Pro Forma Operating Data
Revenues
Management fees and incentive income from affiliates and other revenues		$		$		$
Expenses
Other Income
Gains (losses) – other investments
Earnings from equity method investees

Income before non-controlling interests in income of consolidated subsidiaries and income taxes
Non-controlling interests in income of consolidated subsidiaries
Income before income taxes
Income tax expense
Pro forma net income		$		$		$
Pro forma net income per Class A share, diluted		$		$		$
Pro forma weighted average number of Class A shares outstanding, diluted
Pro forma distributable earnings⁽¹⁾
Private equity funds		$		$		$
Hedge funds
Liquid hedge funds
Hybrid hedge funds
Subtotal hedge funds
Castles
Unallocated
Total pro forma distributable earnings		$		$		$

Reconciliation of Pro Forma Net Income to Pro Forma Distributable Earnings
Pro forma net income		$		$		$
Adjust incentive income
Adjust unrealized gains and earnings from equity method investees
Adjust income from the receipt of options
Adjust compensation expense
Adjust employee portion of incentive income
Adjust principals' non-controlling interests
Adjust income taxes
Total adjustments
Pro forma distributable earnings⁽¹⁾		$		$		$

As of June 30,
2006

Pro Forma Balance Sheet Data

Cash, cash equivalents and restricted cash

Equity method investments

Other investments

Total assets

Debt obligations payable

Total liabilities

Non-controlling interests in consolidated subsidiaries

Shareholders' equity (deficit)


(1)	See page 17 for a description of distributable earnings.

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RISK FACTORS

Investing in our Class A shares involves a high degree of risk. You should carefully consider the following risk factors, as well as other information contained in this prospectus, before deciding to invest in our Class A shares. The occurrence of any of the following risks could materially and adversely affect our business, prospects, financial condition, results of operations and cash flow, in which case, the trading price of our Class A shares could decline and you could lose all or part of your investment. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, prospects, financial condition, results of operations and cash flow.

Risks Related To Our Business

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

The success of our business depends on the efforts, judgment and personal reputations of our principals, Peter Briger, Wesley Edens, Robert Kauffman, Randal Nardone and Michael Novogratz. Our principals' reputations, expertise in investing, relationships with our investors and relationships with members of the business community on whom our funds depend for investment opportunities and financing, are each critical elements in operating and expanding our businesses. We believe our performance is strongly correlated to the performance of these individuals. Accordingly, the retention of our principals is crucial to our future success. In addition, if any of our principals were to join a competitor or form a competing company, some of our investors could choose to invest with that competitor rather than in our funds. The loss of the services of any of our principals would have a material adverse effect on us, including our ability to retain and attract investors and raise new funds, and the performance of our funds. Furthermore, we do not carry any ‘‘key man’’ insurance that would provide us with proceeds in the event of the death or disability of any of our principals.

Each of our principals has entered into an employment, non-competition and non-solicitation agreement with us. The initial term of the agreement will be the first five years after the completion of this offering with an automatic renewal for additional one-year terms until a notice of intention not to renew is given by either party. If a principal terminates his employment voluntarily or we terminate his employment with cause (as defined in the agreement), the principal will be subject to eighteen-month post-employment covenants requiring the principal to refrain from competing with us. However, if we terminate a principal's employment without cause, the principal will not be subject to the covenants regarding competition.

The principals have also entered into an agreement among principals which provides that, in the event a principal voluntarily terminates his employment with us for any reason prior to the fifth anniversary of the consummation of this offering, the principal may be required to forfeit a portion of his Fortress Operating Group units (and the corresponding Class B shares) to the principals who continue to be employed by the Fortress Operating Group. However, the agreement may be amended and its terms and conditions changed or modified upon the approval by the principals who are then employed by the Fortress Operating Group. We, our shareholders and the Fortress Operating Group have no ability to enforce any provision thereof or to prevent the principals from amending the agreement or waiving any forfeiture obligation.

There is no guarantee that our principals will not resign, join our competitors or form a competing company, or that the non-competition agreements would be upheld if we were to seek to enforce our rights under those agreements. If any of these events were to occur, our business would be materially adversely affected.

Several of our funds have ‘‘key man’’ provisions pursuant to which the failure of one or more of our principals to be actively involved in the business may provide investors with the right to redeem from certain funds or otherwise limit our rights to manage the funds.

Several of our funds have ‘‘key man’’ provisions that may result in materially adverse consequences to us if one or more principals ceases to be actively involved in our business. Investors

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in most of our hedge funds may generally redeem their investment without paying redemption fees otherwise payable upon redemption if the relevant principal ceases to perform his functions with respect, to the fund. In addition, the terms of certain of our hedge funds' financing arrangements contain ‘‘key man’’ provisions which may result, under certain circumstances, in the acceleration of such funds' debt or the inability to continue funding investments if the relevant principal ceases to perform his functions with respect to the fund and a replacement has not been approved. If the relevant principals cease to devote certain minimum portions of their business time to the affairs of certain of our private equity funds, the funds are not permitted to make further investments, and then existing investments may be liquidated if investors vote to do so. Any such events would have a direct material adverse effect on our revenues and earnings, and would likely harm our ability to maintain or grow assets under management in existing funds or raise additional funds in the future.

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

Our success depends on our ability to retain our managing directors and the other members of our investment management team and recruit additional qualified personnel, which we collectively refer to (other than our principals) as our investment professionals. We anticipate that it will be necessary for us to add senior investment professionals as we pursue our growth strategy. However, we may not be successful in our efforts to recruit additional personnel or retain current personnel, as the market for qualified investment professionals is extremely competitive. Our senior investment professionals possess substantial experience and expertise in investing, are responsible for sourcing and executing our funds' investments, have significant relationships with the institutions which are the source of many of our funds' investment opportunities, and in certain cases strong relationships with our investors. Therefore, decisions by our senior investment professionals to join existing competitors or to form competing companies could result in the loss of significant investment opportunities and of the capital of existing investors. As a result, the loss of even a small number of our senior investment professionals could jeopardize the performance of our funds, which would have a material adverse effect on our results of operations. Conversely, efforts to retain or attract investment professionals may result in significant additional expenses, which could adversely affect our profitability on either a short term or long term basis.

We have experienced rapid growth, which may be difficult to sustain and which may place significant demands on our administrative, operational and financial resources.

Our assets under management have grown from approximately $1.2 billion as of December 31, 2001 to $26 billion as of September 30, 2006. Our rapid growth has caused, and if it continues will continue to cause, significant demands on our legal, accounting and operational infrastructure and increased expenses. The complexity of these demands, and the expense required to address them, is a function not simply of the amount by which our assets under management have grown, but of significant differences in the investing strategies employed by our businesses. In addition, we are required to continuously develop our systems and infrastructure in response to the increasing sophistication of the investment management market as well as legal and regulatory developments. Our future growth will depend, among other things, on our ability to maintain an operating platform and management system sufficient to address our growth and will require us to incur significant additional expenses and to commit additional senior management and operational resources. As a result, we face significant challenges in maintaining adequate financial and business controls, implementing new or updated information and financial systems and procedures, and in training, managing and appropriately sizing our work force and other components of our business on a timely and cost-effective basis. There can be no assurance that we will be able to manage our expanding operations effectively or that we will be able to continue to grow, and any failure to do so could adversely affect our ability to generate revenue and control our expenses.

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

We face operational risk arising from errors made in the execution, confirmation or settlement of transactions or from transactions not being properly recorded, evaluated or accounted for in our

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funds. In particular, our liquid and hybrid hedge fund businesses are highly dependent on our ability to process, on a daily basis, transactions across markets and geographies, as well as transactions relating to private investments, such as loans, in an efficient and accurate manner. Consequently, we rely heavily on our financial, accounting and other data processing systems. In addition, new investment products we introduce create (and more recently introduced products created) a significant risk that our existing systems may not be adequate to identify or control the risks attending the investment strategies employed by such new investment products. If any of these systems do not operate properly or are disabled, we could suffer financial loss, a disruption of our businesses, liability to our funds, regulatory intervention or reputational damage.

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

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

Finally, we rely on third party service providers for certain aspects of our business, including certain financial operations of our hedge funds. Any interruption or deterioration in the performance of these third parties could impair the quality of the funds' operations and could impact our reputation and hence adversely affect our business and limit our ability to grow.

The historical and unaudited pro forma financial information included in this prospectus is not necessarily indicative of our future performance.

The historical combined financial information included in this prospectus is not indicative of our future financial results. Our historical combined financial information consolidates a large number of our significant funds, which will not be consolidated after this offering. See ‘‘Unaudited Pro Forma Financial Information.’’ In addition, the historical combined financial information included in this prospectus does not reflect the added costs that we will incur as a public company or the impact of our change in structure. Because we operated through limited liability companies prior to this offering, we paid little or no taxes on profits. In preparing our unaudited pro forma financial information for the years prior to this offering, we adjusted our historical combined financial information for the transactions described in ‘‘Prospectus Summary—The Offering—The Transactions’’ and, as such, this financial information does not purport to represent the results of any future periods. The results of future periods are likely to be materially different as a result of (i) fund performance which differs from the historical performance reflected in our unaudited pro forma financial information, (ii) additional future transactions not reflected in our unaudited pro forma financial information and (iii) the fact that our unaudited pro forma financial information does not reflect certain other historical transactions. In addition, the unaudited pro forma income statement information for historical interim periods does not reflect the results of operations for historical full year periods, in part because incentive income from certain Fortress Funds is recorded when earned in the fourth quarter. The estimates we used in our unaudited pro forma financial information are not intended to be an accurate estimate of our actual experience as a public company or indicative in any way of our future performance.

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

Organizational documents of each of our funds generally provide either the fund's board of directors or the general partner of the fund with the right to terminate our investment management agreement with the fund. For funds formed as limited partnerships, the general partner of the fund is generally the party that must act to terminate the management agreement and, insofar as we are the general partner of these funds, the risk is limited, subject to our fiduciary or contractual duties as general partner. This risk is more significant for our offshore hedge funds for which we do not serve as the general partner. As of September 30, 2006, we had $4.6 billion of assets under management in our offshore hedge funds. In addition, with respect to our private equity funds formed as registered investment companies, each fund's investment management agreement must be approved annually by the independent members of such fund's board of directors and, in certain cases, by its members, as required by law. In addition, investors in each private equity fund will have the ability following consummation of this offering to act, without cause, to accelerate the date on which the fund must be wound down. Our ability to realize incentive income from our private equity funds and hybrid hedge funds therefore would be adversely affected if we cannot act as investment advisor to such funds or if we are required to liquidate fund investments at a time when market conditions result in our obtaining less for investments than could be obtained at later times.

In addition, management agreements of funds registered under the Investment Company Act of 1940 would be terminated in the event we were to experience a change of control, which may be deemed to occur if we do not obtain investor consent in the event our principals exchange enough of their interests in the Fortress Operating Group into our Class A shares such that, in either case, our principals are deemed to no longer own a controlling interest in us. We cannot be certain that consents required to assignments of our investment management agreements will be obtained if such a deemed change of control occurs. Termination of these agreements would affect the fees we earn from such funds, which could have a material adverse effect on our results of operations.

We are subject to third-party litigation risk which could result in significant liabilities and reputational harm which could adversely affect our results of operations.

In general, we will be exposed to risk of litigation by our investors if an action of the management of any fund is alleged to constitute gross negligence or willful misconduct. Further, we may be subject to third-party litigation arising from investor dissatisfaction with the performance of our funds or from allegations that we improperly exercised control or influence over portfolio investments. By way of example, we and those of our subsidiaries that act as investment managers and general partners to our funds, our funds themselves and those of our employees who are such funds' or such subsidiaries' officers and directors, are each exposed to the risks of litigation specific to the funds' investment activities and portfolio companies, such as risks relating to our funds' high-yield lending activities and, in the case where our funds own controlling interests in public companies, to the risk of shareholder litigation by the public companies' other shareholders. In addition, we are exposed to risks of litigation or investigation by investors or regulators relating to our having engaged, or our funds having engaged, in transactions which presented conflicts of interest that were not properly addressed. In connection with such actions, we would be obligated to bear defense, settlement and other costs (which may be in excess of coverage therefor provided by insurance acquired either by us or by our funds for such purposes). In addition, our rights to indemnification from our funds under our investment management agreements or the terms of fund organizational documents, as well as similar indemnification rights of our officers and employees (who are, in turn, entitled to indemnification from us in connection with such matters) may be challenged. If we are required to incur all or a portion of the significant costs arising out of such actions, which include costs of defense, costs of indemnifying our officers and employees, and costs of settlement, as a result of inadequate insurance proceeds or failure to obtain indemnification from our funds, our results of operations, financial condition and liquidity would be materially adversely affected.

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In our liquid hedge funds, we are exposed to the risk of litigation in those situations where we suffer catastrophic losses due to the failure of a particular investment strategy or due to the trading activity of an employee who has violated market rules and regulations. Any litigation arising in such circumstances is likely to be protracted, expensive and surrounded by circumstances which are materially damaging to our reputation and our business. In addition, we face the risk of litigation from investors in our private equity funds and hybrid hedge funds if we violate restrictions in such funds' organizational documents (for example, by failing to seek approval for related party transactions requiring approval or by exceeding the mandate of such funds).

Our liquid hedge funds, our offshore hybrid hedge fund and many of our private equity funds are incorporated or formed under the laws of the Cayman Islands. Cayman Islands laws, particularly with respect to shareholders rights, partner rights and bankruptcy, may differ from the laws of the United States. Cayman Islands laws could change, possibly to the detriment of our funds and investment management subsidiaries.

In addition, with a workforce consisting of many very highly paid investment professionals, we face the risk of lawsuits relating to claims for compensation, which may individually or in the aggregate be significant in amount. The cost of settling such claims could adversely affect our results of operations.

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

Potential regulatory action poses a significant risk to our reputation and thereby to our business. Our business is subject to extensive regulation in the United States and in the other countries in which our investment activities occur. In the United States, we and our funds are subject to significant regulation. The Securities Exchange Commission, or SEC, oversees our activities as a registered investment adviser under the Investment Advisers Act of 1940. In addition, we are subject to regulation under the Investment Company Act of 1940, the Securities Exchange Act, and various other statutes. We are subject to regulation by the Department of Labor under the Employee Retirement Income Security Act of 1974 or ERISA. Our Castles, as public companies, are subject to applicable stock exchange regulations, and in the case of Newcastle, to the Sarbanes-Oxley Act. A number of our investing activities, such as our lending business, are subject to regulation by various U.S. state regulators. In the United Kingdom we are subject to regulation by the U.K. Financial Services Authority. Our other European operations, and our investment activities around the globe, are subject to a variety of regulatory regimes that vary country by country.

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 businesses. A failure to comply with the obligations imposed by the Advisers Act on investment advisers, including record-keeping, advertising and operating requirements, disclosure obligations and prohibitions on fraudulent activities, or by the Investment Company Act of 1940, could result in investigations, sanctions and reputational damage. Our liquid hedge fund business, and, to a lesser degree, our hybrid hedge fund business, are involved regularly in trading activities which implicate a broad number of U.S. and foreign securities law regimes, including laws governing trading on inside information, market manipulation and a broad number of technical trading requirements that implicate fundamental market regulation policies and violation of such laws could result in severe restrictions on our activities and in damage to our reputation.

Some of our private equity funds currently qualify as venture capital operating companies, or VCOC, and therefore are not subject to the fiduciary requirements of ERISA with respect to their assets, however it is possible that the U.S. Department of Labor may amend the relevant regulations. If these funds fails to satisfy the requirements of ERISA including the requirement of investment prudence and diversification, as well as the prohibited transaction rules which could materially interfere with our activities in relation to these funds or expose us to risks related to our failure to comply with such requirements.

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Our failure to comply with applicable laws or regulations could result in fines, censure, suspensions of personnel or other sanctions, including revocation of our registration as an investment adviser. The regulations that our businesses are subject to are designed to protect investors in our funds and other third parties who deal with our funds and us and to ensure the integrity of the financial markets. They are not designed to protect you, our Class A shareholders. Even if a sanction imposed against us or our personnel is small in monetary amount, the adverse publicity arising from the imposition of sanctions against us by regulators could harm our reputation, result in redemptions by investors from our hedge funds and impede our ability to raise additional capital or new funds.

As a result of recent highly-publicized financial scandals, investors have exhibited concerns over the integrity of the U.S. financial markets, and the regulatory environment in which we operate is subject to further regulation in addition to the rules already promulgated. In particular, in recent years, there has been ongoing debate within the U.S. and foreign governments regarding new rules or regulations to be applicable to hedge funds or other alternative investment products. We may be adversely affected as a result of the enactment of new or revised legislation or regulations, or changes in the interpretation or enforcement of rules and regulations, imposed by the SEC, other U.S. or foreign governmental regulatory authorities or self-regulatory organizations that supervise the financial markets. Such changes could place limitations on the type of investor that can invest in alterative asset funds or on the conditions under which such investors may invest. Further, such changes may limit the scope of investing activities that may be undertaken by alternative asset managers. Any such changes could increase our costs of doing business or materially adversely our profitability.

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

As we have expanded the number and scope of our businesses, we increasingly have to address potential conflicts of interest relating to our funds' investment activities. For example, certain of our funds have overlapping investment objectives, including funds which have differing fee structures, and potential conflicts may arise with respect to our decisions as investment manager regarding how to allocate investment opportunities among those funds. Similarly, by way of example, any decision to acquire material non-public information while pursuing an investment opportunity for a particular fund gives rise to a conflict of interest when so doing results in our having to restrict the ability of another fund either to sell investments in its portfolio or to pursue its own investment opportunity. In addition, investors may perceive conflicts of interest regarding particular investment management decisions in respect of funds in which our principals, who have significant personal investments in a variety of Fortress Funds, are personally invested. While we have policies and procedures in place that are intended to ensure that each potential conflict of interest is appropriately addressed, it is possible that potential or perceived conflicts could give rise to investor dissatisfaction or litigation or regulatory enforcement actions. Appropriately dealing with conflicts of interest is complex and difficult and our reputation could be damaged if we fail, or appear to fail, to deal appropriately with one or more potential or actual conflicts of interest. Regulatory scrutiny of, or litigation in connection with, conflicts of interest would have a material adverse effect on our reputation which would materially adversely affect our business in a number of ways, including as a result of redemptions by our investors from our hedge funds, an inability to raise additional funds and a reluctance of counterparties to do business with us.

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

Our reputation is critical to maintaining and developing relationships with the investors in our funds, potential investors and with third-parties with whom we do business. In recent years, there have been a number of highly-publicized cases involving fraud, conflicts of interest or other misconduct by individuals in the financial services industry in general and the hedge fund industry in particular, and there is a risk that our employees could engage in misconduct that adversely affects our business. For example, if our employees were to engage in illegal trading activities, we could be subject to

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regulatory sanctions and suffer serious harm to our reputation, financial position, current investor relationships and ability to attract future investors. It is not always possible to deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in all cases. Misconduct by our employees, or even unsubstantiated allegations, could result in both direct financial harm and harm to our reputation. Harm to our reputation would have a material adverse effect on our business.

The investment management business is intensely competitive.

Over the past several years, the size and number of hedge funds and private equity funds has continued to increase. If this trend continues, it is possible that it will become increasingly difficult for our funds to raise capital. More significantly, the allocation of increasing amounts of capital to alternative investment strategies by institutional and individual investors leads to a reduction in the size and duration of pricing inefficiencies that many alternative investment strategies seek to exploit and, in certain industries, drives prices for investments higher, in either case increasing the difficulty of achieving targeted returns. In addition, if interest rates were to rise or there were to be a prolonged bull market in equities, the attractiveness of our funds relative to investments in other investment products could decrease. Competition is based on a variety of factors, including:


	•	investment performance;


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


	•	quality of service provided to and duration of relationship with investors;


	•	business reputation; and


	•	level of fees and expenses charged for services.

We compete in all aspects of our business with a large number of investment management firms, private equity fund sponsors, hedge fund sponsors and other financial institutions. A number of factors serve to increase our competitive risks:


	•	investors may develop concerns that we will allow a business to grow to the detriment of its performance;


	•	some of our competitors have greater capital, lower targeted returns or greater sector or investment strategy specific expertise than we do, which creates competitive disadvantages with respect to investment opportunities; some of our competitors may perceive risk differently than we do which could allow them either to outbid us for investments in particular sectors or, generally, to consider a wider variety of investments;


	•	there are relatively few barriers to entry impeding new private equity and hedge fund management firms, and the successful efforts of new entrants into our various lines of business, including former 'star' portfolio managers at large diversified financial institutions as well as such institutions themselves, will continue to result in increased competition; and


	•	other industry participants continuously seek to recruit our best and brightest investment professionals away from us.

These and other factors could reduce our earnings and revenues and materially adversely affect our business. In addition, if we are forced to compete with other alternative asset managers on the basis of price, we may not be able to maintain our current management and performance fee structures. We have historically competed primarily on the performance of our funds, and not on the level of our fees relative to those of our competitors. However, there is a risk that fees in the alternative investment management industry will decline, without regard to the historical performance of a manager. Fee reductions on existing or future funds, without corresponding decreases in our cost structure, would adversely effect our revenues and distributable earnings.

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Our internal control over financial reporting does not currently meet all of the standards contemplated by Section 404 of the Sarbanes-Oxley Act of 2002, and failure to achieve and maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and stock price.

Our internal control over financial reporting does not currently meet all of the standards contemplated by Section 404 of the Sarbanes-Oxley Act that we will eventually be required to meet. We are in the process of addressing our internal controls over financial reporting and are establishing formal committees to oversee our policies and processes related to financial reporting and to the identification of key financial reporting risks, assessment of their potential impact and linkage of those risks to specific areas and activities within our organization.

Additionally, we have begun the process of documenting and testing our internal control procedures to satisfy the requirements of Section 404, which requires annual management assessments of the effectiveness of our internal control over financial reporting and a report by our independent registered public accounting firm addressing these assessments. As a public company, we will be required to complete our initial assessment in a timely manner. If we are not able to implement the requirements of Section 404 in a timely manner or with adequate compliance, our independent registered public accounting firm may not be able to certify as to the adequacy of our internal controls over financial reporting. Matters impacting our internal control may cause us to be unable to report our financial information on a timely basis and thereby subject us to adverse regulatory consequences, including sanctions by the SEC, or violations of applicable stock exchange listing rules, and result in a breach of the covenants under our credit agreement. There could also be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements. Confidence in the reliability of our financial statements is also likely to suffer if our independent registered public accounting firm reports a material weakness in our internal controls over financial reporting. This could materially adversely affect us and lead to a decline in our share price. In addition, we will incur incremental costs in order to improve our internal control over financial reporting and comply with Section 404, including increased auditing and legal fees and costs associated with hiring additional accounting and administrative staff.

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

We intend, to the extent that market conditions warrant, to grow our business by increasing assets under management in existing businesses and creating new investment products. Our organizational documents, however, do not limit us to the investment management business. Accordingly, we may pursue growth through strategic investments, acquisitions or joint ventures, which may include entering into new lines of business, such as the insurance, broker-dealer or financial advisory industries. In addition, we expect opportunities will arise to acquire other alternative or traditional asset managers. To the extent we make strategic investments or acquisitions, enter into joint ventures, or enter into a new line of business, we will face numerous risks and uncertainties, including risks associated with (i) the required investment of capital and other resources, (ii) the possibility that we have insufficient expertise to engage in such activities profitably or without incurring inappropriate amounts of risk, and (iii) combining or integrating operational and management systems and controls. Entry into certain lines of business may subject us to laws and regulations to which we are not currently subject, or from which we are currently exempt, and may lead to increased litigation and regulatory risk. If a new business generates insufficient revenues or if we are unable to efficiently manage our expanded operations, our results of operations will be adversely affected. In the case of joint ventures, we are subject to additional risks and uncertainties in that we may be dependent upon, and subject to liability, losses or reputational damage relating to, systems, controls and personnel that are not under our control.

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

We experience significant variations in revenues and profits during the year due to the fact that we are paid incentive income from certain funds only when investments are realized, rather than periodically on the basis of increases in the funds' net asset values. In addition, the investment return profiles of certain funds are volatile. The timing and receipt of incentive income generated by our private equity funds is event driven and thus highly variable, which contributes to the volatility of our revenue. Our ability to realize incentive income from our private equity funds may be limited. We cannot predict when, or if, any realization of investments will occur. If we were to have a realization event in a particular quarter, it may have a significant impact on our revenues and profits for that particular quarter which may not be replicated in subsequent quarters. In addition, our private equity investments are adjusted for accounting purposes to fair value at the end of each quarter resulting in revenue attributable to our principal investments, even though we receive no cash distributions from our private equity funds, which could increase the volatility of our quarterly earnings.

With respect to our hedge funds, our incentive income is paid annually or quarterly if the net asset value of a fund has increased. Certain funds also have ‘‘high water marks’’ whereby we do not earn incentive income during a particular period even though the fund had positive returns in such period as a result of losses in prior periods. If a hedge fund experiences losses, we will not be able to earn incentive returns from that fund until it surpasses the previous high water mark. The amount (if any) of the incentive returns we earn is therefore dependent on the net asset value of the fund, which is subject to market volatility and could fluctuate significantly from quarter to quarter, particularly in the liquid hedge funds, which has historically experienced significant fluctuations in its net asset value from month to month. These quarterly fluctuations in our revenues and profits in any of our businesses could lead to significant volatility in the price of our Class A shares.

Risks Related to Our Funds

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

The historical returns attributable to our funds may not be indicative of the future results of our funds and are not indicative of our future results or an investment in our Class A shares.

We have presented in this prospectus under ‘‘Business–Investment Performance of Our Funds’’ the net annualized returns relating to the historical performance of our private equity funds, hedge funds and Castles. The returns are relevant to us only insofar as they are indicative of incentive income we have earned to date and, in respect of private equity funds, incentive income we may earn in the future from these funds. The historical and potential future returns of the funds we manage do not, however, bear any relationship to potential returns on our Class A shares. Moreover, with respect to the historical returns of our funds:


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


	•	our private equity funds' rates of returns reflect unrealized gains as of the applicable measurement date which may never be realized as a result of changes in market and other conditions not in our control which may adversely affect the ultimate value realized from the funds' investments;


	•	our private equity funds' rates of returns have been positively influenced by a select number of investments that experienced rapid and substantial increases in value following the initial public offerings of the private equity portfolio companies in which those investments were made; and

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

Poor performance of our funds will cause a decline in our revenue and our distributable earnings, may obligate us to repay incentive income previously paid to us, and will adversely affect our ability to raise capital for future funds.

Our revenue from the Fortress Funds is derived principally from three sources: (1) management fees, based on the size of our funds; (2) incentive income, earned based on the performance of our funds; and (3) gains or losses on our investments in the funds, which we refer to as our ‘‘principal investments.’’ In the event that any of our funds perform poorly, our revenues and distributable earnings will decline, and it will likely be more difficult for us to raise new capital. In addition, hedge fund investors may withdraw their investments in our funds, while investors in private equity funds may decline to invest in future funds we raise, as a result of poor performance of the funds in which they are invested. Furthermore, if, as a result of poor performance of later investments in a private equity fund's life, the fund does not achieve investment returns that exceed a specified investment return threshold for the fund, we will be obligated to repay to the fund the amount by which incentive income that was distributed to us exceeds amounts to which we are ultimately entitled. Our investors and potential investors continually assess our funds' performance and our ability to raise capital for existing and future funds, and the avoidance of excessive redemption levels, will be a product of this continuous assessment.

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

Our funds are materially affected by conditions in the global financial markets and economic conditions throughout the world. The global market and economic climate may deteriorate because of many factors beyond our control, including rising interest rates or inflation, terrorism or political uncertainty. In the event of a market downturn, each of our businesses could be affected in different ways. Our private equity funds may be impacted by reduced opportunities to exit and realize value from their investments and by the fact that we may not be able to find suitable investments for the funds to effectively deploy capital. In addition, adverse market or economic conditions as well as a slowdown of activities in a particular sector in which portfolio companies of these funds operate could have an adverse effect on the earnings of those portfolio companies, and therefore, our earnings.

A general market downturn, or a specific market dislocation, may result in lower investment returns for our hedge funds, which would adversely affect our revenues. Difficult market conditions may cause our revenue and income to decline by causing (1) the net asset value of the assets under management to decrease, which would result in lower management fees, (2) lower investment returns, resulting in a reduction of incentive income, and (3) investor redemptions, which would result in lower fees. Furthermore, while difficult market conditions may increase opportunities to make certain distressed asset investments, such conditions also increase the risk of default with respect to investments held by our funds that have significant debt investments, such as the hybrid hedge funds and the Castles. Our liquid hedge funds may also be adversely affected by difficult market conditions if they fail to predict the adverse effect of such conditions on particular investments, resulting in a significant reduction in the value of those investments.

Investors in our hedge funds may redeem their investments in our hedge funds and investors in our private equity funds may elect to dissolve the funds at any time without cause. These events would lead to a decrease in our revenues, which could be substantial.

Investors in our hedge funds may generally redeem their investments on an annual or quarterly basis, subject to the applicable fund's specific redemption provisions (e.g., a redeeming Drawbridge Special Opportunities Fund investor is not entitled to cash at the redemption date but retains instead

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an interest in the investments which the fund holds as of the redemption date and receives monies from the fund only as and when such investments are realized). Investors may decide to reallocate their capital away from us and to other asset managers for any number of reasons in addition to poor investment performance, including changes in prevailing interest rates which make other investments more attractive, changes in investor perception regarding our focus or alignment of interest, unhappiness with changes in or broadening of a fund's investment strategy, changes in our reputation, and departures or changes in responsibilities of key investment professionals. In a declining market, the pace of redemptions and consequent reduction in our assets under management could accelerate. The decrease in revenues that would result from significant redemptions in our hedge fund business would have a material adverse effect on our business.

In addition, the investors in our private equity and domestic hedge funds may, subject to certain conditions, act at any time to accelerate the liquidation date of the fund without cause, resulting in a reduction in management fees we expect to earn from such funds, and a significant reduction in the amounts of total incentive income from those funds. Incentive income could be significantly reduced as a result of our inability to maximize during the liquidation process the value of a fund's investments. Finally, the applicable funds would cease to exist. The occurrence of such an event with respect to any of our funds would, in addition to the significant negative impact on our revenue and earnings, likely result in significant reputational damages as well.

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

Many of our funds invest in securities that are not publicly traded. In many cases, our funds may be prohibited by contract or by applicable securities laws from selling such securities for a period of time. Our funds will generally not be able to sell these securities publicly unless their sale is registered under applicable securities laws, or unless an exemption from such registration requirements is available. Accordingly, our funds may be forced to sell securities at a loss, under certain conditions. The ability of many of our funds, particularly our private equity funds, to dispose of investments is heavily dependent on the public equity markets, inasmuch as the ability to realize any value from an investment may depend upon the ability to complete an initial public offering of the portfolio company in which such investment is held. Furthermore, large holdings even of publicly traded equity securities can often be disposed of only over a substantial length of time, exposing the investment returns to risks of downward movement in market prices during the disposition period.

In addition, many of our funds, particularly our private equity funds, hybrid hedge funds and our Castles, invest in businesses with capital structures that have significant leverage. The leveraged capital structure of such businesses increases the exposure of the investments the funds hold to adverse economic factors such as rising interest rates, downturns in the economy or deteriorations in the condition of the investment or its industry. In the event of defaults under applicable indebtedness, the assets being financed would be at risk of being foreclosed upon and the fund could lose its entire investment.

Our hedge funds are subject to risks due to potential illiquidity of assets.

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

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The hedge funds we manage may operate with a substantial degree of leverage. They may borrow, invest in derivative instruments and engage in margin trading, so that the positions maintained by the funds may in aggregate value be in excess of the net asset values of the funds. This leverage presents the potential for a higher rate of total return but also increases the volatility of a fund, including the risk of a total loss of the amount invested.

The risks identified above will be increased if a fund is required to liquidate positions to meet margin requests, margin calls or other funding requirements on that position or otherwise. Such a lack of liquidity has historically been the cause of substantial losses in the hedge fund industry. The ability of counterparties to take actions following declines in investment values which result in the forced liquidation of highly leveraged positions in declining markets, including as a result of a fund's having insufficient liquidity to meet margin calls, could subject our hedge funds to substantial losses. We may fail to adequately predict the liquidity which our hedge funds require to address counterparty requirements relating to falling values of fund investments being financed by such counterparties, which could result not only in losses related to such investments, but in losses related to the needs to liquidate unrelated investments in order to meet the fund's obligations. Our hedge funds may incur substantial losses in the event significant capital is invested in highly leveraged investments or investment strategies (comprised of a series of related investments). Such losses would result in a decline in assets under management, lead to investor requests to redeem remaining assets under management, and damage our reputation, each of which would materially and adversely impact our earnings.

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

There are no readily-ascertainable market prices for a very large number of illiquid investments in our private equity and hybrid hedge funds' investment portfolios. The value of the investments of each of our funds is determined on a periodic basis by us based on the fair value of such investments. The fair value of each fund's investments is determined using a number of methodologies described in the funds' valuation policies, which in turn are based on a number of factors, including the nature of the invesment, the expected cash flows from the investment, bid or ask prices provided by third parties that deal in the type of investment being valued, the length of time the investment has been held, the trading price of securities (in the case of publicly traded securities), restrictions on transfer and other recognized valuation methodologies. In addition, we determine the fair value of a number of the investments in our funds based on a variety of valuation methodologies. The methodologies we use in valuing individual investments are based on a variety of estimates and assumptions specific to the particular investments, and actual results related to the investment therefore often vary materially as a result of the inaccuracy of such assumptions or estimates. In addition, because many of the illiquid investments held by our funds are in industries or sectors which are unstable, in distress, or undergoing some uncertainty, such investments are subject to rapid changes in value caused by sudden company-specific or industry-wide developments.

Because there is significant uncertainty in the valuation of, or in the stability of the value of illiquid investments, the fair values of such investments as reflected in a fund's net asset value do not necessarily reflect the prices that would actually be obtained by us on behalf of the fund when such investments are realized. Realizations at values significantly lower than the values at which investments have been reflected in prior fund net asset values would result in losses for the applicable fund, a decline in asset management fees and the loss of potential incentive income. Also, a situation where asset values turn out to be materially different than values reflected in prior fund net asset values will cause investors to lose confidence in us which would, in turn, result in redemptions from our hedge funds or difficulties in raising additional private equity funds.

In some cases, the consolidated Fortress Funds realize value from an illiquid portfolio company when the portfolio company is able to sell equity in the public markets through an initial public offering (‘‘IPO’’). An IPO of a portfolio company increases the liquidity of the applicable funds' investment and, more importantly, creates significant value in circumstances where the return

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demanded by public shareholders (reflected in the dividend yield of the post-IPO portfolio company) is less than the return being generated by the portfolio company's net assets, thereby increasing the value of its equity. Because of the significant uncertainties, both market-driven and regulatory, in achieving an IPO, Fortress believes that the theoretical value added to a portfolio company investment by an IPO should not be recorded until the IPO is completed. Therefore, Fortress values these illiquid portfolio companies for which an IPO is being contemplated, or is in the process of being completed, at fair value without regard to the value which may be created by the IPO.

Certain of our funds utilize special situation and distressed debt investment strategies which involve significant risks.

Our private equity and hybrid hedge funds invest in obligors and issuers with weak financial conditions, poor operating results, substantial financial needs, negative net worth, and/or special competitive problems. These funds also invest in obligors and issuers that are involved in bankruptcy or reorganization proceedings. In such situations, it may be difficult to obtain full information as to the exact financial and operating conditions of these obligors and issuers. Additionally, the fair values of such investments are subject to abrupt and erratic market movements and significant price volatility if they are publicly traded securities and are subject to significant uncertainty in general if they are not publicly traded securities. Furthermore, some of our funds' distressed investments may not be widely traded or may have no recognized market. Depending on the specific fund's investment profile, a fund's exposure to such investments may be substantial in relation to the market for those 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 fair value of such investments to ultimately reflect their intrinsic value as perceived by us.

A central feature of our distressed investment strategy is our ability to successfully predict the occurrence of certain corporate events, such as debt and/or equity offerings, restructurings, reorganizations, mergers, takeover offers and other transactions. If the corporate event we predict is delayed, changed or never completed, the market price and value of the applicable fund's investment could decline sharply.

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

In our hedge fund business, we continue to refine our risk management techniques, strategies and assessment methods. However, our risk management techniques and strategies may not be fully effective in mitigating our risk exposure in all economic market environments or against all types of risk, including risks that we might fail to identify or anticipate. Some of our strategies for managing risk are based upon our use of observed historical market behavior. We apply statistical and other tools to these observations to quantify our risk exposure. Any failures in our risk management techniques and strategies to accurately quantify our risk exposure could limit our ability to manage risks or to seek adequate risk-adjusted returns. In addition, any risk management failures could cause our losses to be significantly greater than the historical measures indicate. Further, our quantified modeling does not take all risks into account. Our more qualitative approach to managing those risks could prove insufficient, exposing us to material unanticipated losses. See ‘‘Business — Our Investment Process and Risk Controls’’.

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

Some of our funds invest a portion of their assets in the equity, debt, loans or other securities of issuers located outside the U.S. In addition to business uncertainties, such investments may be affected by changes in exchange values as well as political, social and economic uncertainty affecting a country or region. Many financial markets are not as developed or as efficient as those in the U.S., and as a result, liquidity may be reduced and price volatility may be higher. The legal and regulatory environment may also be different, particularly with respect to bankruptcy and reorganization. Financial accounting standards and practices may differ, and there may be less publicly available information in respect of such companies.

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Our funds may be subject to additional risks, which include exchange controls, possible adverse political and economic developments, possible seizure or nationalization of foreign deposits and possible adoption of governmental restrictions which might adversely affect the prices of securities, exchange rates, and payment of principal and interest to investors located outside the country of the issuer, whether from currency blockage, increased taxes, or otherwise. Furthermore, some securities or foreign exchange transactions may be subject to taxes levied by governments, which have the effect of increasing the cost of such investment and reducing the realized gain or increasing the realized loss on such investment at the time of sale. Income received by our funds from sources within some countries may be reduced by withholding and other taxes imposed by such countries. Any such taxes paid by a fund will reduce their net income or return from such investments. While our funds will take these factors into consideration in making investment decisions, including when hedging positions, no assurance can be given that the funds will be able to fully avoid these risks.

We are subject to risks in using prime brokers and custodians.

The funds in our liquid hedge funds business depend on the services of prime brokers and custodians to carry out certain securities transactions. In the event of the insolvency of a prime broker and/or custodian, the funds might not be able to recover equivalent assets in full as they will rank among the prime broker and custodian's unsecured creditors in relation to assets which the prime broker or custodian borrows, lends or otherwise uses. In addition, the funds' cash held with a prime broker or custodian will not be segregated from the prime broker's or custodian's own cash, and the funds will therefore rank as unsecured creditors in relation thereto.

Risks Related to Our Organization and Structure

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

Upon consummation of this offering, our principals will beneficially own approximately 90% of the Fortress Operating Group units and all of our Class B shares, representing approximately 90% of the combined voting power of all of our outstanding shares. Accordingly, as long as our principals maintain their current ownership in the Class B shares, they will have the ability, if they vote all of their shares for the same individuals, to elect all of the members of our board of directors and thereby to control our management and affairs, including determinations with respect to acquisitions, dispositions, borrowings, issuances of securities, and the declaration and payment of dividends. In addition, they will be able to determine the outcome of all matters requiring approval of shareholders, if they vote all of their shares in a similar manner, and will be able to cause or prevent a change of control of our company or a change in the composition of our board of directors, and could preclude any unsolicited acquisition of our company. The concentration of voting power could deprive Class A shareholders of an opportunity to receive a premium for their Class A shares as part of a sale of our company, and might ultimately affect the market price of the Class A shares.

In addition, the shareholders agreement among us and the principals provides that, so long as the principals and their permitted transferees collectively own shares representing more than 40% of the total voting power of our outstanding shares, our board shall not authorize, approve or ratify any action described below without the prior approval of principals that are employed by the Fortress Operating Group and holding our shares representing greater than 50% of the total voting power of our outstanding shares held by principals who are then employed by us, collectively:


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


	•	any issuance by us, in any transaction or series of related transactions, of equity or equity-related securities which would represent, after such issuance, or upon conversion, exchange or exercise, as the case may be, of at least approximately 10% of the total voting

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		power of our outstanding shares other than (1) pursuant to transactions solely among us and our wholly-owned subsidiaries, or (2) upon conversion of convertible securities or upon exercise of warrants or options, which convertible securities, warrants or options are either outstanding on the date of, or issued in compliance with, the shareholders agreement;


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


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


	•	the adoption of a shareholders rights plan;


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


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

As a result of holding their economic interest through Fortress Operating Group, in certain circumstances, our principals may have conflicting interests with holders of Class A shares. For example, our principals may have different tax positions from us which could influence their decisions regarding whether and when to dispose of assets, and whether and when to incur new or refinance existing indebtedness, especially in light of the existence of the tax receivable agreement. In addition, the structuring of future transactions may take into consideration the principals' tax considerations even where no similar benefit would accrue to us.

We intend to pay regular dividends but our ability to do so may be limited by our holding company structure: we are dependent upon distributions from the Fortress Operating Group to pay dividends, taxes and other expenses. Our ability to pay dividends is also subject to not defaulting on our Credit Agreement.

As a holding company, our ability to pay dividends will be subject to the ability of our subsidiaries to provide cash to us. We expect to distribute as dividends to our Class A shareholders Fortress Investment Group LLC's share of the % of our annual distributable earnings which we expect Fortress Operating Group to distribute. Accordingly, we expect to cause the Fortress Operating Group to make distributions to its unitholders, including our wholly-owned subsidiaries, pro rata in an amount sufficient to enable us to pay such dividends to our Class A shareholders. In addition, Fortress Operating Group is required to make minimum tax distributions to its unitholders. To the extent that Fortress Operating Group has insufficient funds or is restricted from making such distributions under applicable law or regulation, or is otherwise unable to provide such funds, we may have to borrow additional funds or sell assets, and, thus, our liquidity and financial condition could be materially adversely affected. In addition, Fortress Operating Group's earnings may be insufficient to enable it to make required minimum tax distributions to unitholders.

If we are in default under our credit agreement, including being out of compliance with the covenants thereunder, our lenders could attempt to exercise their security interests over substantially all of the assets of the Fortress Operating Group. In addition, Fortress Operating Group is not permitted to make distributions to the extent a default exists under our credit agreement.

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

At any time and from time to time, each principal will have the right to exchange one of their Fortress Operating Group units for one of our Class A shares or, at our option, cash equal to the value of one Class A share. The exchanges may result in increases in the tax basis of the assets of the Fortress Operating Group that otherwise would not have been available. These increases in tax basis

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may reduce the amount of tax that FIG Corp. or FIG Asset Co. LLC (on behalf of any affiliated corporation) (the ‘‘corporate taxpayers’’) would otherwise be required to pay in the future, although the IRS may challenge all or part of that tax basis increase, and a court could sustain such a challenge.

The corporate taxpayers will enter into a tax receivable agreement with our principals that will provide for the payment by the corporate taxpayers to our principals of 85% of the amount of tax savings, if any, in U.S. federal, state and local income tax or franchise tax that the corporate taxpayers actually realize as a result of these increases in tax basis, and certain other tax benefits related to entering into the tax receivable agreement. While the actual increase in tax basis and the amount and timing of any payments under this agreement will vary depending upon a number of factors, including the timing of exchanges, the price of our Class A shares at the time of the exchange, the extent to which such exchanges are taxable, and the amount and timing of our income, we expect that the payments that the corporate taxpayers may make to our principals could be material in amount.

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

See ‘‘Certain Relationships and Related Party Transactions—Tax Receivable Agreement’’ for more information.

If we were deemed an investment company under the Investment Company Act of 1940, applicable restrictions could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business.

We are not an ‘‘investment company’’ under the Investment Company Act of 1940 because none of the Fortress Operating Group units held by our wholly-owned subsidiary, FIG Corp., is an ‘‘investment security’’ as that term is used in the Investment Company Act of 1940, and these assets constitute more than 60% of our total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. If we were to cease operating and controlling the business and affairs of the Fortress Operating Group entities owned by FIG Corp., our interest in those entities could be deemed an ‘‘investment security’’ for purposes of the Investment Company Act of 1940. Generally, a person is an ‘‘investment company’’ if it owns investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. We intend to conduct our operations so that we will not be deemed an investment company. However, if we were to be deemed an investment company, restrictions imposed by the Investment Company Act of 1940, including limitations on our capital structure and our ability to transact with affiliates, could make it impractical for us to continue our business as contemplated and would have a material adverse effect on our business and the price of our Class A shares.

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Risks Related To This Offering

An active market for our Class A shares may not develop.

We intend to submit an application to have our Class A shares listed on the New York Stock Exchange under the symbol ‘‘FIG’’. However, we cannot assure you that our Class A shares will be approved for listing on the New York Stock Exchange or, if approved, that a regular trading market of our Class A shares will develop on that exchange or elsewhere or, if developed, that any market will be sustained. Accordingly, we cannot assure you of the likelihood that an active trading market for our Class A shares will develop or be maintained, the liquidity of any trading market, your ability to sell your Class A shares when desired, or at all, or the prices that you may obtain for your Class A shares.

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

Even if an active trading market develops, the market price of our Class A shares may be highly volatile and could be subject to wide fluctuations. In addition, the trading volume in our Class A shares may fluctuate and cause significant price variations to occur. If the market price of our Class A shares declines significantly, you may be unable to resell your Class A shares at or above your purchase price, if at all. We cannot assure you that the market price of our Class A shares will not fluctuate or decline significantly in the future. Some of the factors that could negatively affect the price of our Class A shares or result in fluctuations in the price or trading volume of our Class A shares include:


	•	variations in our quarterly operating results;


	•	failure to meet our earnings estimates;


	•	publication of research reports about us or the investment management industry or the failure of securities analysts to cover our Class A shares after this offering;


	•	additions or departures of our principals and other key management personnel;


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


	•	actions by shareholders;


	•	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 of these laws and regulations, or announcements relating to these matters;


	•	adverse publicity about the asset management industry generally or individual scandals, specifically; and


	•	general market and economic conditions.

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

The market price of our Class A shares could decline as a result of sales of a large number of our Class A shares or the perception that such sales could occur. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and price that we deem appropriate. After the consummation of this offering, we will have outstanding Class A shares on a fully diluted basis. This number is primarily comprised of our Class A shares we are selling in this offering and Class A shares that the principals' partnership units in the Fortress Operating Group are indirectly convertible into. See ‘‘Shares Eligible for Future Sale’’.

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We have agreed with the underwriters not to sell, otherwise dispose of or hedge any of our Class A shares, subject to specified exceptions, during the period from the date of this prospectus continuing through the date 120 days after the date of this prospectus, except with the prior written consent of . Subject to these agreements, we may issue and sell in the future additional Class A shares.

In addition, our principals will own an aggregate of partnership units in the Fortress Operating Group. At any time and from time to time, each principal will have the right to exchange each of his Fortress Operating Group units for one of our Class A shares or, at our option, cash equal to the value of one of our Class A shares subject to customary conversion rate adjustments for share splits, share or unit distributions and reclassifications. Our principals, executive officers, and employees who are receiving Class A shares and Fortress Operating Group units in connection with this offering, directors and participants in our directed share program, have agreed with the underwriters not to dispose of or hedge any of our Class A shares, or other interests in the Fortress Operating Group, subject to specified exceptions, during the period from the date of this prospectus continuing through the date 120 days after the date of this prospectus, except with the prior written consent of . After the expiration of this 120-day lock-up period, the Class A shares issuable upon exchange of Fortress Operating Group units, will be eligible for resale from time to time, subject to certain contractual restrictions and Securities Act limitations. Under certain circumstances the 120-day lock-up period may be extended. In addition, effective upon consummation of this offering, we will grant to certain employees an aggregate of restricted Class A shares and restricted Fortress Operating Group units to certain employees pursuant to our equity incentive plan.

Our principals are parties to a shareholders agreement with us. Under that agreement, after the expiration of the 120-day lock-up period, the principals will have the ability to cause us to register the Class A shares they acquire upon exchange of securities of their Fortress Operating Group units.

Investors in this offering will suffer immediate and substantial dilution.

The initial public offering price per Class A share will be substantially higher than our pro forma net tangible book value per share immediately after this offering. As a result, you will pay a price per Class A share that substantially exceeds the book value of our assets after subtracting our liabilities. At an offering price of $ (the mid-point of the range set forth on the cover page of this prospectus), you will incur immediate and substantial dilution in an amount of $ per Class A share.

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

Upon consummation of this offering, our principals will beneficially own all of our Class B shares, except for Class B shares related to restricted Fortress Operating Group units granted to certain employees in connection with this offering which will represent approximately 90% of the total voting power of our outstanding shares. As a result, if they vote all of their shares in the same manner, they will be able to exercise control over all matters requiring the approval of shareholders and will be able to prevent a change in control of our company. In addition, provisions in our amended and restated operating agreement may make it more difficult and expensive for a third party to acquire control of us even if a change of control would be beneficial to the interests of our shareholders. For example, our amended and restated operating agreement will provide for a staggered board, will require advance notice for proposals by shareholders and nominations, will place limitations on convening shareholder meetings, and will authorize the issuance of preferred shares that could be issued by our board of directors to thwart a takeover attempt. The market price of our Class A shares could be adversely affected to the extent that our principals' control over us, as well as provisions of our amended and restated operating agreement, discourage potential takeover attempts that our shareholders may favor.

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Risks Related to Taxation

You may be subject to U.S. federal income tax on your share of our taxable income, regardless of whether you receive any cash dividends from us.

We intend to be treated, for U.S. federal income tax purposes, as a partnership and not as an association or a publicly traded partnership taxable as a corporation. You may be subject to U.S. federal, state, local and possibly, in some cases, foreign income taxation on your allocable share of our items of income, gain, loss, deduction and credit (including our allocable share of those items of any entity in which we invest that is treated as a partnership or is otherwise subject to tax on a flow through basis) for each of our taxable years ending with or within your taxable year, regardless of whether or not you receive cash dividends from us. See ‘‘Material U.S. Federal Tax Considerations.’’ You may not receive cash dividends equal to your allocable share of our net taxable income or even the tax liability that results from that income. In addition, certain of our holdings, including holdings, if any, in a Controlled Foreign Corporation (‘‘CFC’’) and a Passive Foreign Investment Company (‘‘PFIC’’), may produce taxable income prior to the receipt of cash relating to such income, and holders of our Class A shares will be required to take such income into account in determining their taxable income.

To the extent we are required or determine to make investments or conduct activities through FIG Corp., any resulting income will be subject to corporate income taxation in the United States.

Although we intend to be treated for U.S. federal income tax purposes as a partnership, a significant portion of our investments and activities may be made or conducted through FIG Corp., which will be taxable as a U.S. corporation. Dividends paid by FIG Corp. from time to time will, as is usual in the case of a U.S. corporation, then be included in our income. Income received as a result of investments made or activities conducted through FIG Asset Co. LLC (but excluding through its taxable corporate affiliates) is anticipated not to be subject to direct corporate income taxation in our structure.

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

Any dividends paid on Class A shares will not take into account your particular tax situation (including the possible application of the alternative minimum tax) and, therefore, because of the foregoing as well as other possible reasons, may not be sufficient to pay your full amount of tax based upon your share of our net taxable income. In addition, the actual amount and timing of dividends will always be subject to the discretion of our board of directors and we cannot assure you that we will in fact pay cash dividends as currently intended. In particular, the amount and timing of dividends will depend upon a number of factors, including, among others, our actual results of operations and financial condition, restrictions imposed by our amended and restated operating agreement or applicable law, restrictions imposed by our credit agreements, reinvestment of our capital, the timing of the investment of our capital, the amount of cash that is generated by our investments or to fund liquidity needs, levels of operating and other expenses, contingent liabilities, or factors that our board of directors deems relevant. Even if we do not distribute cash in an amount that is sufficient to fund your tax liabilities, you will still be required to pay income taxes on your share of our taxable income.

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

We have not requested, and do not plan to request, a ruling from the Internal Revenue Service (‘‘IRS’’) on our treatment as a partnership for U.S. federal income tax purposes, or on any other matter affecting us. Under current law and assuming full compliance with the terms of the amended and restated operating agreement (and other relevant documents) and based upon factual statements and representations that will be made by us, we expect to receive an opinion of Skadden, Arps, Slate, Meagher & Flom LLP that we will be treated as a partnership, and not as an association or a publicly

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traded partnership taxable as a corporation for U.S. federal income tax purposes. However, opinions of counsel are not binding upon the IRS or any court, and the IRS may challenge this conclusion and a court may sustain such a challenge. The factual representations that will be made by us upon which Skadden, Arps, Slate, Meagher & Flom LLP will rely relate to our organization, operation, assets, activities, income, and present and future conduct of our operations. In general, if an entity that would otherwise be classified as a partnership for U.S. federal income tax purposes is a ‘‘publicly traded partnership’’ (as defined in the Internal Revenue Code of 1986, as amended (the ‘‘Code’’)) it will be nonetheless treated as a corporation for U.S. federal income tax purposes, unless an exception applies. A publicly traded partnership will, however, be taxed as a partnership, and not as a corporation for U.S. federal income tax purposes, so long as 90% or more of its gross income for each taxable year constitutes ‘‘qualifying income’’ within the meaning of the Code and it is not required to register as an investment company under the Investment Company Act of 1940. We refer to this exception as the ‘‘qualifying income exception.’’

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

Our structure involves complex provisions of U.S. federal income tax law for which no clear precedent or authority may be available, and which is subject to potential legislative, judicial or administrative change and differing interpretations, possibly on a retroactive basis. Any such change or interpretation could result in adverse consequences to the holders of the Class A shares.

The U.S. federal income tax treatment of holders of the Class A shares depends in some instances on determinations of fact and interpretations of complex provisions of U.S. federal income tax law for which no clear precedent or authority may be available. You should be aware that the U.S. federal income tax rules are constantly under review by persons involved in the legislative process, the IRS, and the U.S. Treasury Department, frequently resulting in revised interpretations of established concepts, statutory changes, revisions to regulations and other modifications and interpretations. The IRS pays close attention to the proper application of tax laws to partnerships. The present U.S. federal income tax treatment of an investment in the Class A shares may be modified by administrative, legislative or judicial interpretation at any time, and any such action may affect investments and commitments previously made. For example, changes to the U.S. federal tax laws and interpretations thereof could make it more difficult or impossible to meet the qualifying income exception for us to be treated as a partnership for U.S. federal income tax purposes that is not taxable as a corporation, affect or cause us to change our investments and commitments, affect the tax considerations of an investment in us and adversely affect an investment in our Class A shares.

We and holders of the Class A shares could be adversely affected by any such change in, or any new, tax law, regulation or interpretation. Our organizational documents and agreements permit the board of directors to modify the amended and restated operating agreement from time to time, without the consent of the holders of Class A shares, in order to address certain changes in U.S. federal income tax regulations, legislation or interpretation. In some circumstances, such revisions could have a material adverse impact on some or all of the holders of our Class A shares. Moreover,

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we will apply certain assumptions and conventions in an attempt to comply with applicable rules and to report income, gain, deduction, loss and credit to holders in a manner that reflects such holders' beneficial ownership of partnership items, taking into account variation in ownership interests during each taxable year because of trading activity. However, these assumptions and conventions may not be in compliance with all aspects of applicable tax requirements. It is possible that the IRS will assert successfully that the conventions and assumptions used by us do not satisfy the technical requirements of the Code and/or Treasury regulations and could require that items of income, gain, deductions, loss or credit, including interest deductions, be adjusted, reallocated, or disallowed, in a manner that adversely affects holders of the Class A shares. Our structure also may impede our ability to engage in certain corporate acquisitive transactions because we generally intend to hold all of our assets through the Fortress Operating Group. To the extent we hold assets other than through the Fortress Operating Group, we will make appropriate adjustments to the Fortress Operating Group agreements so that distributions to principals and us would be the same as if such assets were held at that level.

FIG Asset Co. LLC may not be able to invest in certain assets, other than through a corporation that would be subject to U.S. federal income tax on its operating income and on gain recognized on disposition of such portfolio company.

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

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

In order for us to be treated as a partnership for U.S. federal income tax purposes, and not as an association or publicly traded partnership taxable as a corporation, we must meet the qualifying income exception discussed above on a continuing basis and we must not be required to register as an investment company under the Investment Company Act of 1940. In order to effect such treatment and intention, we (or our subsidiaries) may be required to invest through foreign or domestic corporations, forego attractive business or investment opportunities or enter into borrowings or financings we may not have otherwise entered into. This may adversely affect our ability to operate solely to maximize our cash flow.

There can be no assurance that the IRS will not assert successfully that we are engaged in a U.S. trade or business, with the result that some portion of our income is properly treated as effectively connected income with respect to non-U.S. holders. Moreover, any dividends paid by an investment that we make in a REIT that is attributable to gains from the sale of U.S. real property interests will, and sales of certain investments in the stock of U.S. corporations owning significant U.S. real property may, be treated as effectively connected income with respect to non-U.S. holders.

While we expect that our method of operation will not result in a determination that we are engaged in a U.S. trade or business, there can be no assurance that the IRS will not assert successfully that we are engaged in a U.S. trade or business, with the result that some portion of our income is properly treated as effectively connected income with respect to non-U.S. holders. Moreover, dividends paid by an investment that we make in a REIT that is attributable to gains from the sale of U.S. real property interests will, and sales of certain investments in the stock of U.S. corporations owning significant U.S. real property may, be treated as effectively connected income with respect to non-U.S. holders. To the extent our income is treated as effectively connected income, non-U.S.

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holders generally would be subject to withholding tax on their allocable shares of such income, would be required to file a U.S. federal income tax return for such year reporting their allocable shares of income effectively connected with such trade or business, and would be subject to U.S. federal income tax at regular U.S. tax rates on any such income. Non-U.S. holders may also be subject to a 30% branch profits tax on such income in the hands of non-U.S. holders that are corporations.

While we expect to minimize UBTI to the extent reasonably practicable, an investment in Class A shares may give rise to UBTI to certain tax-exempt holders from time to time.

We expect to manage our activities to avoid a determination that we are engaged in a trade or business, thereby limiting the amount of unrelated business taxable income, or UBTI, that is realized by tax-exempt holders of our Class A shares. However, we do not anticipate making investments through taxable U.S. corporations solely for the purpose of limiting UBTI from ‘‘debt-financed’’ property and, thus, an investment in Class A shares may give rise to UBTI to tax-exempt holders. For example, it is possible that FIG Asset Co. LLC may borrow funds from FIG Corp. or third parties from time to time to make investments. FIG Asset Co. LLC may also invest in entities that are treated as partnerships, or are otherwise subject to tax on a flow-through basis, that may borrow to make investments. These investments may give rise to UBTI from ‘‘debt-financed’’ property. Thus, no assurance can be given that no portion of our income will be treated as UBTI.

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

Certain of our investments may be in foreign corporations or may be acquired through a foreign subsidiary that would be classified as a corporation for U.S. federal income tax purposes. Such an entity may be a PFIC or a CFC for U.S. federal income tax purposes. U.S. holders of Class A shares indirectly owning an interest in a PFIC or a CFC may experience adverse U.S. tax consequences. See ‘‘Material U.S. Federal Tax Considerations — Passive Foreign Investment Companies’’ and ‘‘— Controlled Foreign Corporations.’’

We strongly urge you to review carefully the discussion under ‘‘Material U.S. Federal Tax Considerations’’ and to seek advice based on your particular circumstances from an independent tax advisor.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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MARKET AND INDUSTRY DATA AND FORECASTS

This prospectus includes market and industry data and forecasts that we have developed from independent consultant reports, publicly available information, various industry publications, other published industry sources and our internal data and estimates. Independent consultant reports, industry publications and other published industry sources generally indicate that the information contained therein was obtained from sources believed to be reliable, but do not guarantee the accuracy and completeness of such information. Although we believe that the publications and reports are reliable, neither we nor the underwriters have independently verified the data.

Our internal data, estimates and forecasts are based upon information obtained from our investors, partners, trade and business organizations and other contacts in the markets in which we operate and our management's understanding of industry conditions. Although we believe that such information is reliable, we have not had such information verified by any independent sources.

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OUR STRUCTURE

The diagram below depicts our organizational structure immediately after the consummation of this offering and related transactions. See ‘‘—The Transactions.’’


(1)	The Class A shareholders hold 100% of the Class A shares, which represent approximately 10% of the voting power of Fortress Investment Group LLC.


(2)	The principals hold 100% of the Class B shares, which represent approximately 90% of the voting power of Fortress Investment Group LLC. The Class B shares have no economic interest in Fortress Investment Group LLC.


(3)	Represents a 100% general partner interest in Operating Entities and in Principal Holdings.


(4)	Represents approximately 10% of the voting limited partner interests in each of the Operating Entities and in Principal Holdings.


(5)	Represents approximately 90% of the non-voting limited partner interests in each of the Operating Entities and in Principal Holdings.


(6)	Excludes effect of equity interests to be granted under our equity incentive plan to employees and directors in connection with the offering.

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Fortress Operating Group is comprised of the limited partnerships through which the principals currently operate our business, which we refer to as the ‘‘Operating Entities,’’ and a limited partnership newly formed for the purpose of, among other activities, holding certain of our principal investments, which we refer to as ‘‘Principal Holdings.’’ Each of these entities is a limited partnership with an equal number of limited partner interests, or LP interests, the number of which in turn is equal to the number of our aggregate outstanding Class A shares shares and Class B shares. Each Fortress Operating Group unit represents one LP interest in each Operating Entity and in Principal Holdings. A Fortress Operating Group unit is not a legal interest but is the term we use to refer to the aggregate of these LP interests. Following the transactions described below, Fortress Investment Group LLC and the principals will hold, respectively, approximately 10% and approximately 90% of the Fortress Operating Group units. The Fortress Operating Group units owned by Fortress Investment Group LLC will be held through our two wholly-owned intermediate holding companies, and the principals will hold their Fortress Operating Group units directly. More specifically, Fortress Investment Group LLC owns 100% of (a) FIG Corp. which in turn will own the sole general partner interest and approximately 10% of the LP interests in the Operating Entities and (b) FIG Asset Co. LLC which in turn will own the sole general partner interest and approximately 10% of the LP interests in Principal Holdings. The general partner interests are the non-economic but controlling interests in each Fortress Operating Group entity by means of which Fortress Investment Group LLC controls the Fortress Operating Group. Accordingly, Fortress Investment Group LLC will, through its wholly-owned subsidiaries, own 100% of the controlling interests and approximately 10% of the Fortress Operating Group units. The principals will retain voting control of Fortress Investment Group LLC following this offering through their ownership of our Class B shares. Future issuances, if any, of Class A shares will result in a corresponding increase in the number of Fortress Operating Group units held by the intermediate holdings companies and result in a corresponding dilution of the principals' ownership interest in Fortress Operating Group.

The Transactions

In connection with this offering, we will form FIG Corp. as a Delaware corporation, and FIG Asset Co. LLC as a Delaware limited liability company, our two wholly-owned intermediate holding companies. Prior to or concurrently with the consummation of this offering, we have completed or will have completed the following transactions:


	•	we refinanced our credit agreement in June 2006 and as of June 30, 2006 had borrowed $665 million thereunder;


	•	we have distributed and will distribute immediately prior to the consummation of this offering $ to our principals;


	•	we will distribute to our principals the net proceeds received relating to our collection of a portion of a receivable relating to previously earned fees from our offshore hedge funds pursuant to certain contractual arrangements;


	•	we will liquidate one of the Fortress Funds;


	•	we will issue Class A shares in this offering for net proceeds of approximately $ (based on the mid-point of the range set forth on the cover page of this prospectus);


	•	we will contribute $ of the net proceeds from this offering to FIG Corp. which will in turn contribute those net proceeds, together with the proceeds it receives from FIG Asset Co. LLC, as described below, to the Fortress Operating Group in exchange for the general

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		partner interest and an approximately 10% limited partner interest in the Fortress Operating Group (taking into account FIG Asset Co. LLC's limited partner interest in Principal Holdings); and Fortress Operating Group will use a portion of the net proceeds from this offering to repay $250 million under our credit agreement;


	•	we will contribute $ of the net proceeds from this offering to FIG Asset Co. LLC, which will (i) loan a portion of these net proceeds to FIG Corp. pursuant to an intercompany demand note and (ii) contribute the remaining portion of these proceeds to Principal Holdings, the Fortress Operating Group entity which, among other things, will hold certain of our principal investments, in exchange for the sole general partner interest and an approximately 10% limited partner interest therein. FIG Asset Co. LLC may demand repayment of all or a portion of the principal of the FIG Corp. demand note in the event it requires funds to make investments.


	•	we will grant pursuant to our equity incentive plan, effective upon consummation of this offering, restricted Class A shares and restricted Fortress Operating Group units (and corresponding Class B shares) to certain employees;


	•	FIG Corp. and FIG Asset Co. LLC (on behalf of any affiliated corporation) will enter into the tax receivable agreement with our principals, as described below;


	•	we will enter into a shareholders agreement with our principals, and our principals will enter into the Principals Agreement, in each case as described below;


	•	we will enter into an employment agreement with each of our principals as described below; and


	•	we will effect a deconsolidation of the consolidated Fortress Funds by granting to investors in each fund the right to liquidate the fund without cause in accordance with certain procedures.

We refer to the foregoing as the ‘‘Transactions.’’

As a result of the Transactions:


	•	Fortress Investment Group LLC will be a holding company, and our principal assets will be our indirect controlling general partner interest and approximately 10% of the Fortress Operating Group units, held through the intermediate holding companies;


	•	our principals' percentage ownership of the Fortress Operating Group units will decrease to approximately 90%;


	•	FIG Corp. or FIG Asset Co. LLC, as applicable, will become the sole general partner of each of the entities that comprise the Fortress Operating Group. Through our ownership and control of the intermediate holding companies, we will operate and control the business of the Fortress Operating Group and its subsidiaries; and


	•	net profits, net losses and distributions of the Fortress Operating Group will be allocated and made to its unitholders on a pro rata basis in accordance with their respective Fortress Operating Group units. Accordingly, net profits and net losses allocable to Fortress Operating Group unitholders will initially be allocated, and distributions will initially be made, approximately 10% indirectly to us and approximately 90% to our principals.

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As described above, the Transactions take the legal form of the principals and the public acquiring 100% of our outstanding shares, and our concurrent acquisition, through two intermediate holding companies, of the controlling general partner interest and approximately 10% of the Fortress Operating Group units. As we are a newly formed company, Fortress Operating Group is considered our predecessor for accounting purposes and its combined financial statements will be our historical financial statements following completion of the Transactions. Also, because the principals control Fortress Operating Group before the Transactions and will control us after the Transactions, the Transactions are accounted for as a reorganization of entities under common control. Accordingly, we will carry forward unchanged the value of assets and liabilities recognized in Fortress Operating Group's combined financial statements into our consolidated financial statements. Following completion of this offering, all of Fortress's expenses (other than income tax expenses of FIG Corp. and obligations incurred under the tax receivable agreement), including all expenses incurred by or attributable solely to Fortress Investment Group LLC, such as expenses incurred in connection with this offering, will be accounted for as expenses of the Fortress Operating Group.

We intend to continue the operations of the Fortress business and hold all of our assets through the Fortress Operating Group. Following this offering, our principal investments will be made either through FIG Corp. and its subsidiaries or, for assets that are appropriate, through vehicle, through Principal Holdings. FIG Asset Co. LLC, our direct wholly-owned subsidiary, is the general partner and a limited partner of Principal Holdings. Transfers of funds among subsidiaries, to the extent necessary to fund operations, will be made by various means, including by intercompany notes. In particular, FIG Asset Co. LLC will loan a portion of the proceeds of this offering to FIG Corp. FIG Asset Co. LLC may demand, at any time and from time to time, repayment of all or any portion of the note to satisfy any funding obligations of Principal Holdings. The principals will not be under any obligation, or have any preemptive right, to fund any ongoing operations or investment of Fortress Operating Group; accordingly, any contribution of capital, including the proceeds of this offering, to the Fortress Operating Group will reduce the aggregate percentage ownership of the principals in the Fortress Operating Group.

Class A Shares. Immediately following this offering, all of our outstanding Class A shares will be owned by purchasers in this offering. Holders of Class A shares will be entitled to one vote per share on all matters submitted to a vote by our shareholders. Holders of our Class A shares and our Class B shares will vote together as a single class on all matters submitted to a vote of our shareholders, except as otherwise required by applicable law. Class A shares owned by purchasers in this offering will initially represent only approximately 10% of the total voting power of all our outstanding shares. As a result, our principals will be able to exercise control over all matters requiring shareholder approval and certain other matters described below.

Class B Shares. Immediately following this offering, all of our outstanding Class B shares will be owned by our principals, except for restricted Class B shares related to restricted Fortress Operating Group units granted to certain employees in connection with this offering. Holders of Class B shares will be entitled to one vote per share. Holders of our Class A shares and our Class B shares will vote together as a single class on all matters submitted to a vote of our shareholders, except as otherwise required by applicable law. The Class B shares will have no economic rights, although they will initially represent approximately 90% of the total voting power of all of our outstanding shares. As a result, our principals will be able to exercise control over all matters requiring shareholder approval. In addition, our principals will have additional approval rights under the shareholders agreement described below.

Exchange of Fortress Operating Group Units. At any time and from time to time, each principal will have the right to exchange one of their Fortress Operating Group units for one of our Class A shares or, at our option, cash equal to the value of one Class A share. To effect an exchange, a principal must simultaneously exchange one Fortress Operating Group unit – being an equal limited partner interest in each Fortress Operating Group entity. In connection with any exchange of Fortress Operating Group units, the principal will receive a right, under a tax receivable agreement, to receive 85% of the value of the applicable tax benefit in cash when FIG Corp. or FIG Asset Co. LLC (on behalf of any affiliated corporation)(the ‘‘corporate taxpayers’’) actually realize certain tax savings. As

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a principal exchanges his Fortress Operating Group units, our interest in the Fortress Operating Group units will be correspondingly increased and his corresponding Class B shares will be cancelled. To obtain the maximum step-up in the tax basis of the Fortress Operating Group units exchanged by a principal, such units will be transferred to the corporate taxpayers in a transaction taxable to the exchanging principal.

Shareholders Agreement. Prior to the consummation of this offering, we will enter into a shareholders agreement with our principals pursuant to which, so long as our principals and their permitted transferees collectively own more than 40% of the total voting power of our outstanding shares, the principals who are then employed by the Fortress Operating Group will have certain approval rights over the following transactions: (i) any incurrence of indebtedness in excess of 10% of our then existing consolidated indebtedness; (ii) any issuance by us of equity or equity-related securities that would represent, after such issuance, or upon conversion, exchange or exercise, as the case may be, at least 10% of the total voting power of our outstanding shares (except in certain circumstances); (iii) any principal investment by us (including any commitment to invest) in an amount greater than $250 million; (iv) any entry by us into a new line of business which does not involve investment management and that requires a principal investment, in excess of $100 million; (v) the adoption of a shareholder rights plan; (vi) any appointment of a chief executive officer or co-chief executive officer; or (vii) the termination of the employment of a principal with us or any of our subsidiaries without cause.

The agreement also prohibits our principals from, directly or indirectly, voluntarily effecting cumulative transfers of specified amounts of their interests in us and the Fortress Operating Group for a period of five years after this offering. See ‘‘Certain Relationships and Related Party Transactions — Transfer Restrictions.’’ The agreement also will provide that so long as our principals and their permitted transferees collectively own more than 50% of the total voting power of all our outstanding shares, our board of directors will nominate individuals designated by the principals such that the principals will have six designees (out of a total possible eleven members) to the board, and if the principals own more than 10% and equal to or less than 50% of the total voting power of all our outstanding shares, our board of directors will nominate individuals designated by the principals such that the principals will have between two and five designees to the board, based on their collective ownership of our outstanding shares.

Incentive income from certain of the private equity funds may be distributed to us on a current basis generally subject to the obligation to repay the amounts so distributed in the event certain specified return thresholds are not ultimately achieved by the fund, as described below. See ‘‘Certain Relationships and Related Party Transactions — Shareholders Agreement.’’ The principals have personally guaranteed, subject to certain limitations, this ‘‘clawback’’ obligation. The shareholders agreement contains our agreement to indemnify the principals for all amounts paid pursuant to any of these personal guaranties.

Agreement Among Principals. Prior to the consummation of this offering, the principals will enter into the Principals Agreement, which provides, that in the event a principal voluntarily terminates his employment with us for any reason prior to the fifth anniversary of the consummation of this offering, a portion of the Fortress Operating Group units (and corresponding Class B shares) held by that principal as of the completion of this offering (the ‘‘Initial Class B Shares’’ and ‘‘Initial Units,’’ respectively, and, together with all securities into which such Initial Class B Shares or Initial Partnership Units are exchangeable, collectively, the ‘‘Forfeitable Interests’’) will be forfeited as of the Forfeiture Date (as defined below) to the principals (‘‘Continuing Principals’’) who are employed by Fortress on the date which is six months after the date of such termination of employment, as follows: (i) in the event such termination occurs prior to the first anniversary of the consummation of this offering, 70% of such principal's Forfeitable Interests shall be forfeited; (ii) in the event such termination occurs after the first anniversary but prior to the second anniversary of the consummation of this offering, 56% of such principal's Forfeitable Interests shall be forfeited; (iii) in the event such termination occurs after the second anniversary but prior to the third anniversary of the consummation of this offering, 42% of such principal's Forfeitable Interests shall be forfeited; (iv) in the event such termination occurs after the third anniversary but prior to the fourth anniversary of the

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consummation of this offering, 28% of such principal's Forfeitable Interests shall be forfeited; and (v) in the event such termination occurs after the fourth anniversary but prior to the fifth anniversary of the consummation of this offering, 14% of such principal's Forfeitable Interests shall be forfeited.

The Principals Agreement may be amended and the terms and conditions of the Principals Agreement may be changed or modified upon the approval of a majority of the Continuing Principals who are parties to the Principals Agreement. We, our shareholders and the Fortress Operating Group have no ability to enforce any provision thereof or to prevent the principals from amending the Principals Agreement or waiving any forfeiture obligation.

For the purposes of the Principals Agreement, ‘‘Forfeiture Date’’ means, as to the Forfeitable Interests to be forfeited to any continuing principal, the date which is the earlier of (i) the date that is six months after the applicable date of termination of employment and (ii) the date that is six months after the date of the latest publicly-reported sale of our equity securities by such continuing principals, but only if as of such earlier date the forfeiting principal has not resumed his employment with us.

Employment, Non-Competition and Non-Solicitation Agreements. Prior to the consummation of this offering, we will enter into an employment, non-competition and non-solicitation agreement with each of our principals. Each such agreement will terminate on the fifth anniversary of completion of this offering, subject to automatic renewal for additional one-year terms unless either party terminates the agreement in accordance with the terms of the agreement. The principal's covenants survive any termination or expiration of the employment agreement. Each principal will be entitled to an annual salary that may be increased, but not decreased, at the discretion of our board of directors. The agreement will also require the principal to protect the confidential information of our company both during and after employment and refrain from soliciting employees or interfering with our relationships with our investors both during and for a 24-month period after employment. If we terminate a principal's employment without cause (as defined in the agreement), during the agreement's term, we will pay the principal a separation payment equal to three times his then-current annual salary and his accrued salary through the date of termination of employment. The employment agreement will provide that if a principal terminates his employment voluntarily or we terminate his employment with cause, whether during the agreement's term or thereafter in the event the agreement's term is not renewed, the principal will be paid his accrued salary through the date of termination of employment and will be subject to an eighteen-month post-employment covenant requiring the principal to refrain from competing with us.

Tax Receivable Agreement. As part of the Transactions, FIG Corp. and FIG Asset Co. LLC (on behalf of any affiliated corporation) (the ‘‘corporate taxpayers’’), will enter into a tax receivable agreement with our principals. Pursuant to the agreement, the corporate taxpayers will be required to make payments to a principal equal to 85% of the tax savings actually realized by the corporate taxpayers, resulting from increases in the tax basis of the assets of certain Fortress Operating Group entities upon the occurrence of any exchange by such principal of his Fortress Operating Group units for Class A shares or, at our option, cash equal to the value of the Class A shares. While the actual increase in tax basis and the amount and timing of any payments under this agreement will vary depending upon a number of factors, including the timing of exchanges, the price of our Class A shares at the time of the exchange, the extent to which such exchanges are taxable, and the amount and timing of our income, we expect that the payments that the corporate taxpayers may make to our principals could be material in amount.

FIG Corp., our wholly-owned subsidiary and general partner of the Fortress Operating Group entities (other than Principal Holdings) will incur U.S. federal, state, local and foreign income taxes on its proportionate share of any net taxable income of such entities.

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FIG Asset Co. LLC, our wholly-owned subsidiary general partner of Principal Holdings, will be, for U.S. federal income tax purposes, an entity disregarded as an entity separate from its owner, and not as an association taxable as a corporation.

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USE OF PROCEEDS

The net proceeds to us from the sale of our Class A shares in this offering are estimated to be approximately $million, assuming an initial public offering price of $ per Class A share (the midpoint of the price range set forth on the cover page of this prospectus) and after deducting the estimated underwriting discount and offering expenses payable by us. Our net proceeds will increase by approximately $if the underwriters' option to purchase additional shares to cover any over-allotments is exercised in full. A $1.00 increase (decrease) in the assumed initial public offering price of $per Class A share (the midpoint of the price range set forth on the cover page of this prospectus) would increase (decrease) the net proceeds to us from this offering by $million, assuming the number of Class A shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discount and estimated offering expenses payable by us.

We intend to contribute the net proceeds from this offering to the Fortress Operating Group. Our credit agreement requires that we use $250 million of the net proceeds received by us from this offering to prepay a portion of the borrowings outstanding under its term loan facility. We will use the remaining net proceeds for general business purposes of the Fortress Operating Group.

As of June 30, 2006, we had borrowed $65 million under the credit agreement's revolving credit facility and $600 million under its term loan facility. As of June 30, 2006, borrowings under the credit agreement accrued interest at a rate equal to LIBOR plus 2.00%, which was 7.57% per annum. Upon consummation of this offering, borrowings under the credit agreement accrue interest at a rate equal to LIBOR plus 1.50%. Borrowings outstanding under this term loan facility mature on June 23, 2011. Borrowings under our credit agreement have been used to repay prior debt of $233 million, to make a distribution to our principals of $250 million, and to increase working capital. Amounts repaid under our credit agreement may be reborrowed from time to time, subject to compliance with borrowing conditions. Certain of the underwriters or their affiliates are lenders under our credit agreement and will receive their pro rata share of amounts repaid thereunder with the net proceeds of this offering. See ‘‘Underwriting.’’

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CASH DIVIDEND POLICY

We expect to pay quarterly dividends on our fully diluted Class A shares equal in the aggregate to approximately % of our annual distributable earnings. We will fund such amount by causing our downstream affiliates to make corresponding distributions. More specifically, first, we will cause Fortress Operating Group to make a distribution to all of its unitholders on a pro rata basis and, second, we will cause our intermediate holding companies, FIG Corp. and FIG Asset Co. LLC, to distribute all or a portion of their proceeds of such distribution to us.

To the extent the distributions on Fortress Operating Group units described above are insufficient for such purpose, Fortress Operating Group will distribute to its unitholders (that is, the principals and our intermediate holding companies), on a pro rata basis, tax distributions based upon the maximum income allocable to any unitholder at the maximum combined U.S. federal, New York State and New York City tax rates. Such tax distributions will take into account the disproportionate income allocation (but not a disproportionate cash allocation) to the principals with respect to ‘‘built-in gain assets’’ at the time of the offering. Consequently, Fortress Operating Group tax distributions will be greater than if such assets had a tax basis equal to their value at the time of this offering.

We believe our dividend policy will have several benefits to Class A shareholders since it provides transparency to our shareholders and imposes upon us an investment discipline with respect to new products, businesses and strategies.

We will be a holding company and, as such, our ability to pay dividends to our Class A shareholders will be subject to the ability of our subsidiaries (including our two wholly owned intermediate holding companies that hold our Fortress Operating Group units) to provide cash to us. Distributions to Fortress Operating Group unitholders in excess of the required tax distributions, and the declaration and payment of future dividends by us, will be at the discretion of our board of directors and will depend on, among other things, cash available for distributions, general economic and business conditions, our strategic plans and prospects, our financial results and condition, contractual, legal and regulatory restrictions on the payment of distributions by us or our subsidiaries, and such other factors as our board of directors considers to be relevant. Fortress Operating Group is not permitted to make distributions to the extent a default exists under our credit agreement.

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CAPITALIZATION

The following table sets forth our consolidated capitalization as of June 30, 2006:


	•	on a historical basis based on the combined Fortress Operating Group as our accounting predecessor;


	•	on a pro forma basis before the effects of our reorganization and this offering, including adjustments for:


	—	the deconsolidation of the Fortress Funds and the liquidation of Northcastle; and


	—	the distributions we made or plan to make to our principals prior to this offering.


	•	on a pro forma basis, as adjusted to give effect to:


	—	the sale ofof our Class A shares offered by us in this offering at an assumed initial public offering price of $ per share (the midpoint of the price range set forth on the cover of this prospectus);


	—	the impact of the reorganization and the related tax adjustments; and


	—	the repayment of $250.0 million of debt with a portion of the proceeds from this offering.

This table should be read in conjunction with ‘‘Our Structure — The Transactions,’’ ‘‘Use of Proceeds’’, ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations,’’ ‘‘Unaudited Pro Forma Financial Information’’, and ‘‘Financial Statements’’ and notes thereto included in this prospectus.

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	Fortress Operating Group Combined Historical				Pro Forma before Reorganization and Offering				Fortress Investment Group LLC Consolidated Pro Forma
	(dollars in thousands)
Cash, cash equivalents, cash held at consolidated subsidiaries and restricted cash		$	852,178			$	66,022			$	—
Investment company debt obligations payable		$	2,286,072			$	—			$	—
Other debt obligations payable			928,481				667,349				—
Non-Controlling Interests in Consolidated Subsidiaries			11,230,028				82,966				—
Members' deficit
Members' deficit			(95,623	)			(486,210	)			—
Accumulated other comprehensive income			1,876				1,816				—
Shareholders' equity
Class A Shares, par value $ per share, shares authorized; shares issued and outstanding on a pro forma as adjusted basis⁽¹⁾			—				—				—
Class B Shares, par value $ per share, shares authorized; shares issued and outstanding on a pro forma as adjusted basis			—				—				—
Additional Paid-in-Capital⁽²⁾			—				—				—
Accumulated other comprehensive income			—				—				—
Total Members' deficit or Shareholders' equity			(93,747	)			(484,394	)			—
Total Capitalization		$	14,350,834			$	265,921			$	—

(1)

The number of Class A shares and Class B shares to be outstanding after this offering, excludes restricted Class A shares and restricted Class B shares that will be issued to certain of our employees in connection with this offering. Restricted shares will vest and restrictions will lapse over time beginning . These restricted shares will constitute approximately% of our shares outstanding immediately following this offering. While these restricted shares are deemed issued and outstanding from a legal perspective, under U.S. generally accepted accounting principles (‘‘GAAP’’), such shares are not included in shares outstanding for purposes of calculating basic earnings per share until they vest and the restrictions lapse. Under GAAP, the restricted shares will be included in shares outstanding for purposes of calculating diluted earnings per share, when the effect is dilutive.

(2)

A $1.00 increase (decrease) in the assumed initial public offering price of $ per Class A share, the mid-point of the price range set forth on the cover page of this prospectus, would increase (decrease) each of total shareholders' equity and total capitalization by $ million, assuming the number of Class A shares offered by us, as set forth on the cover of this prospectus, remains the same and after deducting the estimated underwriting discounts and offering expenses payable by us.

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DILUTION

If you invest in our Class A shares, your interest will be diluted to the extent of the difference between the initial public offering price per share of our Class A shares and the pro forma net tangible book value per share of our Class A shares after this offering. Dilution results from the fact that the per share offering price of the Class A shares is substantially in excess of the net tangible book value per share attributable to the existing equity holders (i.e. the principals). Net tangible book value represents net book equity excluding intangible assets, if any.

Our pro forma net tangible book value before our reorganization and this initial public offering as of June 30, 2006, after giving effect to the deconsolidation of the Fortress Funds and the liquidation of Northcastle and the distributions made to our principals, was a deficit of $ million or $ per Class A share, assuming that our principals exchange all of their Fortress Operating Group units for Class A shares on a one-for-one basis.

After giving effect to the sale of of our Class A shares at an assumed initial public offering price of $ per share, the mid-point of the price range set forth on the cover page of this prospectus in this offering, as well as the impact of the reorganization and capitalization of Fortress Investment Group LLC, the related tax adjustments, and after deducting the underwriting discounts, estimated offering expenses and other related transaction costs payable by us, our pro forma net tangible book value as of June 30, 2006 was $ million or $ per Class A share, assuming that our principals exchange all of their Fortress Operating Group units for Class A shares on a one-for-one basis.

The following table illustrates the pro forma immediate increase in book value of $ per share for existing equity holders and the immediate dilution of $ per share to new shareholders purchasing Class A shares in this offering, assuming the underwriters do not exercise their option to purchase additional shares to cover any over-allotment.

Initial public offering price per share

Pro forma net tangible book value (deficit) per share
prior to our reorganization and this offering

Increase in net tangible book value per share
attributable to Class A shareholders purchasing shares in this offering

Pro forma net tangible book value per share
after this offering

Dilution to new Class A shareholders per share

A $1.00 increase (decrease) in the assumed initial public offering price of $ per Class A share, the mid-point of the price range set forth on the cover of this prospectus, would increase (decrease) our net tangible book value by $ million, our pro forma net tangible book value per share after this offering by $ per share, and the dilution to new investors in this offering by $ per share, assuming the number of Class A shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and offering expenses payable by us.

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The following table summarizes, on the same pro forma basis as of June 30, 2006, the differences between the existing equity holders (i.e. the principals), assuming that our principals exchange all of their Fortress Operating Group units for Class A shares on a one-for-one basis, and the new Class A shareholders in this offering with respect to the number of shares purchased from us, the total consideration paid, and the average price per share paid before deducting the underwriting discount and estimated offering expenses.

Shares Purchased

Total Consideration

Average Price
Per Share

Number

Percent

Amount

Percent

Existing equity holders

New investors

Total

A $1.00 increase (decrease) in the assumed initial public offering price of $ per Class A share, the mid-point of the price range set forth on the cover page of this prospectus, would increase (decrease) total consideration paid by new investors in this offering and by all investors by $ million, and would increase (decrease) the average price per share paid by new investors by $ , assuming the number of Class A shares offered by us, as set forth on the cover page of this prospectus, remains the same and without deducting the estimated underwriting discounts and offering expenses payable by us in connection with this offering.

If the underwriters' option to purchase additional shares to cover any over-allotment is exercised in full, the pro forma net tangible book value per share as of June 30, 2006 would be approximately $ per share and the dilution in pro forma net tangible book value per share to new Class A shareholders would be $ per share. Furthermore, the percentage of our shares held by existing equity owners would decrease to approximately % and the percentage of our shares held by new Class A shareholders would increase to approximately %.

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UNAUDITED PRO FORMA FINANCIAL INFORMATION

The unaudited pro forma financial information presented below was derived from the application of pro forma adjustments to the combined financial statements of Fortress Operating Group, the predecessor for accounting purposes of Fortress Investment Group LLC, to give effect to this offering and related transactions, the borrowings under a new credit agreement on June 23, 2006 and the decision to liquidate Northcastle, one of the Fortress Funds. The unaudited pro forma income statement information for the six months ended June 30, 2006 and 2005 and the year ended December 31, 2005 has been prepared as if this offering and related transactions, the borrowings under a new credit agreement on June 23, 2006 and the liquidation of Northcastle had all occurred on January 1, 2005. The unaudited pro forma balance sheet information as of June 30, 2006 has been prepared as if this offering and related transactions and the liquidation of Northcastle had occurred as of June 30, 2006. The borrowings under a new credit agreement on June 23, 2006 is already reflected in our combined balance sheet as of June 30, 2006. The unaudited pro forma financial information should be read in conjunction with ‘‘Management's Discussion and Analysis of Financial Condition and Results of Operations,’’ and our combined financial statements and the related notes included elsewhere in this prospectus.

This offering and the related transactions, which are described in ‘‘Our Structure — The Transactions,’’ take the legal form of the principals and the public acquiring 100% of our outstanding shares, and our concurrent acquisition, through two intermediate holding companies, of the controlling general partner interest and approximately 10% limited partner interest in the Fortress Operating Group. As we are a newly formed company, Fortress Operating Group is considered our predecessor for accounting purposes and its combined financial statements will be our historical financial statements upon completion of the Transactions. Also, because the principals control Fortress Operating Group before the Transactions and will control us after the Transactions, the Transactions are accounted for as a reorganization of entities under common control. Accordingly, we will carry forward unchanged the value of assets and liabilities recognized in Fortress Operating Group’s combined financial statements into our consolidated financial statements.

The pro forma adjustments are based upon available information and methodologies that we believe are reasonable. The unaudited pro forma income statement information and unaudited pro forma balance sheet information may not be indicative of what our operations or financial position would have been had this offering and related transactions, the borrowings under a new credit agreement and liquidation of Northcastle taken place on the dates indicated, or that may be expected to occur in the future. For further discussion of these matters, see ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations.’’

Concurrent with the completion of this offering, Fortress will amend its agreements with the consolidated Fortress Funds to provide a simple majority of the respective limited partners with the ability to liquidate the funds without cause or otherwise with the ability to exert control over the funds, resulting in our deconsolidation of these funds. Additionally, on October 6, 2006, Fortress informed all the investors in Northcastle of its decision to commence liquidation of the fund and return the net proceeds to investors. The liquidation of this fund is expected to be completed before December 31, 2006. Certain other transactions also will be completed prior to or concurrent with the completion of this offering. The pro forma adjustments are described in the notes to the unaudited pro forma financial information, and principally include the matters set forth below:


	•	The effects of our deconsolidation of the Fortress Funds that we currently consolidate and of our liquidation of Northcastle;


	•	Our borrowings under a new credit agreement on June 23, 2006, the proceeds of which we used (i) to repay a portion of our prior debt, (ii) to make a distribution to our principals and (iii) to increase our working capital;


	•	The effects of other distributions we made or plan to make to our principals prior to the consummation of this offering;


	•	Our reorganization in connection with this offering and our receipt and use of the net proceeds from this offering. See ‘‘Our Structure — The Transactions.’’;

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	•	Compensation expense as a result of our grant of restricted Class A shares and restricted Fortress Operating Group units to certain employees in connection with this offering;


	•	Compensation expense arising from the Principals Agreement pursuant to which the principals will agree to forfeit a portion of their Fortress Operating Group units (and corresponding Class B shares) to each other if they voluntarily terminate their employment with Fortress Operating Group prior to the end of five years from the consummation date of this offering;


	•	Compensation expense arising from annual fees paid to our non-employee directors; and


	•	The impact of federal and state income taxes that our wholly owned subsidiary FIG Corp., as a taxable corporation, will incur on income allocated to it from Fortress Operating Group.

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Unaudited Pro Forma Balance Sheet Information
As of June 30, 2006


	Fortress Operating Group Combined Historical				Deconsolidation of Fortress Funds and Liquidation of Northcastle^(a)				Distributions to Principals^(c)				As Adjusted before Reorganization and Offering				Reorganization and Offering			Fortress Investment Group LLC Consolidated Pro Forma
	(dollars in thousands)
Assets
Cash and cash equivalents		$	81,718			$	(462	)		$	(15,234	)		$	66,022			$	^(e⁾		$
Cash held at consolidated subsidiaries and restricted cash			770,460				(770,460	)			—				—
Due from affiliates			522,891				(30,518	)			(375,413	)			116,960
Receivables from brokers and counterparties			118,324				(118,324	)			—				—
Investment company holdings, at fair value			13,780,066				(13,780,066	)			—				—
Other investments
Loans and securities			475,809				(475,809	)			—				—
Equity method investees			36,668				301,495				—				338,163
Options in affiliates			66,670				—				—				66,670
Other assets			163,966				(111,304	)			—				52,662				^(g⁾
		$	16,016,572			$	(14,985,448	)		$	(390,647	)		$	640,477			$			$
Liabilities and Equity
Liabilities
Due to affiliates		$	31,201			$	(26,602	)		$	—			$	4,599			$			$
Due to brokers and counterparties			266,936				(266,936	)			—				—
Accrued compensation and benefits			101,816				—				—				101,816
Other liabilities			92,465				(46,474	)			—				45,991
Deferred incentive income			810,996				(591,394	)			—				219,602
Securities sold not yet purchased, at fair value			121,588				(121,588	)			—				—
Derivative liabilities, at fair value			240,736				(238,188	)			—				2,548
Investment company debt obligations payable			2,286,072				(2,286,072	)			—				—
Other debt obligations payable			928,481				(261,132	)			—				667,349				^(e⁾
			4,880,291				(3,838,386	)			—				1,041,905
Commitments and Contingencies
Non-controlling Interests in Consolidated Subsidiaries			11,230,028				(11,147,062	)			—				82,966				^(e⁾
Equity
Members' deficit			(95,623	)			60				(390,647	)			(486,210	)			^(e⁾
Class A shares																			^(e⁾
Class B shares																			^(e⁾
Additional paid in capital																			^(e⁾
Retained earnings																			^(g⁾
Accumulated other comprehensive income (loss)			1,876				(60	)			—				1,816				^(e⁾
			(93,747	)			—				(390,647	)			(484,394	)
		$	16,016,572			$	(14,985,448	)		$	(390,647	)		$	640,477			$			$

See notes to the unaudited pro forma financial information.

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Unaudited Pro Forma Income Statement Information
Six Months Ended June 30, 2006


	Fortress Operating Group Combined Historical				Deconsolidation of Fortress Funds and Liquidation of Northcastle^(a)				Other Pro Forma Adjustments				Fortress Investment Group LLC Consolidated Pro Forma
	(dollars in thousands, except per share data)
Revenues
Management fees from affiliates		$	74,544			$	71,465			$	—			$	146,009
Incentive income from affiliates			75,771				5,830				—				81,601
Other revenues			35,499				(32,492	)			—				3,007
Interest and dividend income – investment company holdings			691,735				(691,735	)			—				—
			877,549				(646,932	)			—				230,617
Expenses
Interest expense
Investment company holdings			424,939				(424,939	)			—				—
Other			19,195				(6,188	)			9,832	^(b⁾			15,153
											(7,686	)^(e)
Compensation and benefits			183,445				(15,464	)			500	^(d⁾			168,481
General, administrative and other			50,285				(32,587	)			—				17,698
Depreciation and amortization			3,186				—				—				3,186
			681,050				(479,178	)			2,646				204,518
Other Income
Gains (losses) from investments
Investment company holdings			1,417,325				(1,417,325	)			—				—
Other investments
Net realized gains (losses)			(114	)			100				—				(14	)
Net realized gains from affiliate investments			—				—				—				—
Net unrealized gains (losses)			(2,941	)			597				—				(2,344	)
Net unrealized gains from affiliate investments			58,029				—				(28,616	)^(c)			29,413
Earnings from equity method investees			2,420				14,427				—				16,847
			1,474,719				(1,402,201	)			(28,616	)			43,902
Income Before Deferred Incentive Income, Non-Controlling Interests in Income of Consolidated Subsidiaries and Income Taxes			1,671,218				(1,569,955	)			(31,262	)			70,001
Deferred incentive income			(225,132	)			225,132				—				—
Non-controlling interests in income of consolidated subsidiaries			(1,350,811	)			1,342,917				—	^(f⁾
Income Before Income Taxes			95,275				(1,906	)
Income tax expense			(7,270	)			—				—	^(g⁾
Net Income		$	88,005			$	(1,906	)		$				$
Net income per share^(h):
Basic														$	—
Diluted														$	—
Number of shares outstanding^(h):
Basic															—
Diluted															—

See notes to the unaudited pro forma financial information.

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Unaudited Pro Forma Income Statement Information
Six Months Ended June 30, 2005


	Fortress Operating Group Combined Historical				Deconsolidation of Fortress Funds and Liquidation of Northcastle^(a)				Other Pro Forma Adjustments				Fortress Investment Group LLC Consolidated Pro Forma
	(dollars in thousands, except per share data)
Revenues
Management fees from affiliates		$	41,232			$	42,341			$	—			$	83,573
Incentive income from affiliates			27,503				1				—				27,504
Other revenues			7,433				(6,541	)			—				892
Interest and dividend income – investment company holdings			239,583				(239,583	)			—				—
			315,751				(203,782	)			—				111,969
Expenses
Interest expense
Investment company holdings			73,015				(73,015	)			—				—
Other			3,500				—				10,529	^(b⁾			8,722
											(5,307	)^(e)
Compensation and benefits			88,376				(9,570	)			500	^(d⁾			79,306
General, administrative and other			35,746				(26,014	)			—				9,732
Depreciation and amortization			891				—				—				891
			201,528				(108,599	)			5,722				98,651
Other Income
Gains (losses) from investments
Investment company holdings			940,462				(940,462	)			—				—
Other investments
Net realized gains			—				—				—				—
Net realized gains from affiliate investments			98				—				—				98
Net unrealized gains			3,790				—				—				3,790
Net unrealized gains from affiliate investments			14,797				—				(8,824	)^(c)			5,973
Earnings from equity method investees			7,020				8,941				—				15,961
			966,167				(931,521	)			(8,824	)			25,822
Income Before Deferred Incentive Income, Non-Controlling Interests in Income of Consolidated Subsidiaries and Income Taxes			1,080,390				(1,026,704	)			(14,546	)			39,140
Deferred incentive income			(136,333	)			136,333				—				—
Non-controlling interests in income of consolidated subsidiaries			(895,782	)			890,052				—	^(f⁾
Income Before Income Taxes			48,275				(319	)
Income tax expense			(2,983	)			—				—	^(g⁾
Net Income		$	45,292			$	(319	)		$				$
Net income per share^(h):
Basic														$	—
Diluted														$	—
Number of shares outstanding^(h):
Basic															—
Diluted															—

See notes to the unaudited pro forma financial information.

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Unaudited Pro Forma Income Statement Information
Year ended December 31, 2005


	Fortress Operating Group Combined Historical				Deconsolidation of Fortress Funds and Liquidation of Northcastle^(a)				Other Pro Forma Adjustments				Fortress Investment Group LLC Consolidated Pro Forma
	(dollars in thousands, except per share data)
Revenues
Management fees from affiliates		$	81,356			$	91,819			$	—			$	173,175
Incentive income from affiliates			172,623				69,415				—				242,038
Other revenues			30,334				(29,141	)			—				1,193
Interest and dividend income – investment company holdings			759,781				(759,781	)			—				—
			1,044,094				(627,688	)			—				416,406
Expenses
Interest expense
Investment company holdings			318,705				(318,705	)			—				—
Other			11,682				(3,056	)			22,423	^(b⁾			19,176
											(11,873	)^(e)
Compensation and benefits			259,216				(23,668	)			1,000	^(d⁾			236,548
General, administrative and other			94,054				(63,073	)			—				30,981
Depreciation and amortization			2,267				(29	)			—				2,238
			685,924				(408,531	)			11,550				288,943
Other Income
Gains (losses) from investments
Investment company holdings			2,903,978				(2,903,978	)			—				—
Other investments
Net realized gains			3,750				(44	)			—				3,706
Net realized gains from affiliate investments			120				—				—				120
Net unrealized gains			232				82				—				314
Net unrealized gains from affiliate investments			33,079				—				(23,498	)^(c)			9,581
Earnings from equity method investees			10,465				29,598				—				40,063
			2,951,624				(2,874,342	)			(23,498	)			53,784
Income Before Deferred Incentive Income, Non-Controlling Interests in Income of Consolidated Subsidiaries and Income Taxes			3,309,794				(3,093,499	)			(35,048	)			181,247
Deferred incentive income			(444,567	)			444,567				—				—
Non-controlling interests in income of consolidated subsidiaries			(2,662,926	)			2,646,865				—	^(f⁾
Income Before Income Taxes			202,301				(2,067	)
Income tax expense			(9,625	)			—				—	^(g⁾
Net Income		$	192,676			$	(2,067	)		$				$
Net income per share^(h):
Basic														$	—
Diluted														$	—
Number of shares outstanding^(h):
Basic															—
Diluted															—

See notes to the unaudited pro forma financial information.

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Notes to the Unaudited Pro Forma Financial Information


	a)	Reflects the deconsolidation of the Fortress Funds and the liquidation of Northcastle.

Concurrent with the completion of this offering, Fortress will amend its agreements with the consolidated Fortress Funds to provide a simple majority of the respective limited partners with the ability to liquidate the funds without cause or otherwise with the ability to exert control over the funds, resulting in the deconsolidation of these funds. The deconsolidation of the funds is reflected in the unaudited pro forma balance sheet information as if it had occurred on June 30, 2006 and in the unaudited pro forma income statement information as if it had occurred on January 1, 2005, based on Fortress' accounting for its interest in the funds after deconsolidation using the equity method of accounting.

On October 6, 2006, Fortress informed all the investors in Northcastle of its decision to commence liquidation of the fund and return the net proceeds to investors. The liquidation of this fund is expected to be completed before December 31, 2006. This fund is consolidated by Fortress in its historical financial statements. The liquidation of this fund has been reflected in the unaudited pro forma balance sheet information as if it had occurred on June 30, 2006 and in the unaudited pro forma income statement information as if it had occurred on January 1, 2005, in each case as if the liquidation proceeds equaled net book value.

The effects of the deconsolidation of Fortress Funds and liquidation of Northcastle on the June 30, 2006 unaudited pro forma balance sheet information are summarized as follows (dollars in thousands):


	Deconsolidation of Fortress Funds				Liquidation of Northcastle				Total Deconsolidation of Fortress Funds and Liquidation of Northcastle
Total assets		$	(14,496,926	)		$	(488,522	)		$	(14,985,448	)
Total liabilities		$	(3,574,686	)		$	(263,700	)		$	(3,838,386	)
Non-controlling interests in consolidated subsidiaries			(10,922,240	)			(224,822	)			(11,147,062	)
Total liabilities and non-controlling interests in consolidated subsidiaries		$	(14,496,926	)		$	(488,522	)		$	(14,985,448	)

The effects of the deconsolidation of Fortress Funds and liquidation of Northcastle on the unaudited pro forma income statement information are summarized as follows (dollars in thousands):


For the six months ended June 30, 2006	Deconsolidation of Fortress Funds				Liquidation of Northcastle				Total Deconsolidation of Fortress Funds and Liquidation of Northcastle
Revenues		$	(629,346	)		$	(17,586	)		$	(646,932	)
Expenses			(471,071	)			(8,107	)			(479,178	)
Other income			(1,402,316	)			115				(1,402,201	)
Income before deferred incentive income, non-controlling interests in income of consolidated subsidiaries and income taxes			(1,560,591	)			(9,364	)			(1,569,955	)
Deferred incentive income			225,132				—				225,132
Non-controlling interests in income of consolidated subsidiaries			1,335,459				7,458				1,342,917
Net income		$	—			$	(1,906	)		$	(1,906	)

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For the six months ended June 30, 2005	Deconsolidation of Fortress Funds				Liquidation of Northcastle				Total Deconsolidation of Fortress Funds and Liquidation of Northcastle
Revenues		$	(203,111	)		$	(671	)		$	(203,782	)
Expenses			(108,072	)			(527	)			(108,599	)
Other income			(931,521	)			—				(931,521	)
Income before deferred incentive income, non-controlling interests in income of consolidated subsidiaries and income taxes			(1,026,560	)			(144	)			(1,026,704	)
Deferred incentive income			136,333				—				136,333
Non-controlling interests in income of consolidated subsidiaries			890,227				(175	)			890,052
Net income		$	—			$	(319	)		$	(319	)


For the year ended December 31, 2005	Deconsolidation of Fortress Funds				Liquidation of Northcastle				Total Deconsolidation of Fortress Funds and Liquidation of Northcastle
Revenues		$	(614,900	)		$	(12,788	)		$	(627,688	)
Expenses			(404,318	)			(4,213	)			(408,531	)
Other income			(2,874,298	)			(44	)			(2,874,342	)
Income before deferred incentive income, non-controlling interests in income of consolidated subsidiaries and income taxes			(3,084,880	)			(8,619	)			(3,093,499	)
Deferred incentive income			444,567				—				444,567
Non-controlling interests in income of consolidated subsidiaries			2,640,313				6,552				2,646,865
Net income		$	—			$	(2,067	)		$	(2,067	)


	b)	Reflects the net increase in interest expense of $9.8 million, $10.5 million and $22.4 million for the six months ended June 30, 2006 and 2005 and for the year ended December 31, 2005, respectively, as a result of the borrowings under a new $750 million credit agreement on June 23, 2006 and the repayment of a portion of our prior debt with a portion of the proceeds. The initial proceeds of the borrowings of $600.0 million, which is before subsequent borrowings under the facility that resulted in an outstanding balance of $665.0 million as of June 30, 2006, were used to repay prior debt of $233.0 million, to make a distribution to our principals of $250.0 million, and to increase working capital. There is no pro forma adjustment to the combined historical balance sheet as of June 30, 2006 as the borrowings under the new credit agreement, repayment of prior debt and distribution to the principals is already reflected in the combined historical balance sheet.


	–	The borrowings under the new credit agreement bear interest at LIBOR plus 1.50% and the agreement is subject to unused commitment fees of 0.25% per annum of any undrawn amounts. Pro forma interest expense of $19.4 million, $13.6 million and $30.3 million for the six months ended June 30, 2006 and 2005 and for the year ended December 31, 2005, respectively, is based on the $600.0 million of debt as if it had been borrowed on January 1, 2005 and the three-month average LIBOR during the respective periods of 4.70%, 2.78% and 3.25%.


	–	The corresponding reduction of interest expense of $9.5 million, $3.1 million and $7.9 million for the six months ended June 30, 2006 and 2005 and for the year ended

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		December 31, 2005, respectively, relates to the portion of prior debt that was repaid from the proceeds of the June 23, 2006 borrowings as if the prior debt had been paid on January 1, 2005. The reduction of interest expense is based on the actual interest expense accrued in the respective periods on the prior debt.


	c)	Represents the effects of distributions made to our principals prior to or planned in connection with this offering.

The effects of the distributions made to our principals on the June 30, 2006 unaudited pro forma balance sheet information are summarized as follows (dollars in thousands):


	July Distribution⁽ⁱ⁾				Distribution of previously earned fees⁽ⁱⁱ⁾				Distribution Immediately Prior to this Offering⁽ⁱⁱⁱ⁾			Total Distributions to Principals
Cash and cash equivalents		$	(42,000	)		$	26,766			$			$	(15,234	)
Due from affiliates			—				(375,413	)			—			(375,413	)
Members' equity			(42,000	)			(348,647	)						(390,647	)


	i)	In July 2006, we distributed $42.0 million to our principals. The pro forma adjustment is as if the distribution had occurred on June 30, 2006.


	ii)	We will distribute to our principals the net proceeds received relating to our collection of a portion of a receivable relating to previously earned fees from our offshore hedge funds pursuant to certain contractual arrangements. The following adjustments to the unaudited pro forma balance sheet information are based upon balances outstanding as of June 30, 2006, as if the distribution had occurred on that date.


	•	a reduction of the receivable of $375.4 million for the amount to be collected,


	•	an increase in members' deficit of $348.6 million (which is the amount to be distributed to the principals), and


	•	a net increase in cash of $26.8 million.

The pro forma adjustment to the unaudited pro forma income statement information is the elimination of the actual earnings on the portion of the receivable collected of $28.6 million, $8.8 million and $23.5 million for the six months ended June 30, 2006 and 2005 and for the year ended December 31, 2005, respectively, based on the actual earnings on the receivable in the respective periods, as if the collection and distribution had been made on January 1, 2005.


	iii)	We will make a cash distribution of $million to our principals immediately prior to this offering. The pro forma adjustment is as if the distribution had occurred on June 30, 2006.


	d)	Reflects additional compensation expense we will have following this offering.

The effects of the additional compensation expense on the unaudited pro forma income statement information are summarized as follows (dollars in thousands):


	For the Six Months Ended June 30,						For the Year Ended December 31,
	2006			2005			2005
Employment agreements with principals⁽ⁱ⁾		$	500		$	500		$	1,000
Principals Agreement⁽ⁱⁱ⁾
Grant of restricted Class A shares and restricted Fortress Operating Group units to employees⁽ⁱⁱⁱ⁾
Directors compensation^(iv)
Total compensation expense		$	500		$	500		$	1,000

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	i)	Represents total annual compensation expense of $1.0 million arising from employment agreements entered into by Fortress and each of our principals prior to the consummation of this offering. Each principal will be entitled during his employment to an annual salary of $200,000, which may be increased, but not decreased, at the discretion of the board of directors (see ‘‘Management — Employment, Non-Competition and Non-Solicitation Agreements’’);


	ii)	Represents compensation expense arising from the Principals Agreement, which provides that, in the event a principal voluntarily terminates his employment with Fortress Operating Group for any reason prior to the fifth anniversary of the consummation of this offering, a portion of the Fortress Operating Group units (and corresponding Class B shares) held by that principal as of the completion of this offering will be forfeited to our principals who are employed by Fortress Operating Group as of the date that is six months after the date of such termination of employment. As a result of the service requirement, the fair value of Fortress Operating Group units subject to the risk of forfeiture, estimated based on the fair value Class A shares, will be charged to our compensation expense over the five-year service period. Pro forma compensation expense of $ million, $ million and $ million for the six months ended June 30, 2006 and 2005 and for the year ended December 31, 2005, respectively, is based on the fair value of Class A shares issued in this offering and straight-line amortization over the five-year forfeiture period as if the agreement had been entered into on January 1, 2005;


	iii)	Represents compensation expense arising as a result of the grant ofrestricted Class A shares and restricted Fortress Operating Group units to employees in connection with this offering determined in accordance with SFAS No. 123(R), Share-Based Payment of $ million, $ million and $ million for the six months ended June 30, 2006 and 2005 and for the year ended December 31, 2005, respectively. Compensation expense has been estimated based on the fair value per restricted Class A share or unit of $ , which is equal to the price of Class A shares offered in this offering, amortization over a -year service period and a % total forfeiture estimate, which is based on . For a description of our share-based compensation plans, see ‘‘Management — Equity Incentive Plan.’’ Our compensation expense for employees of the Fortress Funds who have received restricted Class A shares or restricted Fortress Operating Group units, but are not our employees, will be remeasured based on changes in the fair value of our Class A shares and restricted Fortress Operating Group units until the awards are vested. The effects of these remeasurements will be recognized in net income in the periods in which they occur; and


	iv)	Represents compensation we will pay to our non-employee directors at an annual rate of $ , payable semi-annually, including an annual fee of $ that will be paid to the chairs of each of the audit and compensation committees of our board of directors. We do not intend to separately compensate our directors who are also our employees or who are otherwise affiliated with us. Fees to independent directors may be paid in Class A shares, based on the value of such Class A shares at the date of issuance, rather than cash, provided that any such issuance does not prevent such director from being determined to be independent.


	e)	Reflects the effects of this offering and our reorganization on our capitalization.

This offering and the related transactions, which are described in ‘‘Our Structure — The Transactions,’’ take the legal form of our principals and the public acquiring 100% of our outstanding shares and our concurrent acquisition, through two intermediate holding companies, of the controlling general partner interest and an approximately 10% limited partner interest in Fortress Operating Group. However, the Transactions are accounted for as a reorganization of entities under common control. Accordingly, we will carry forward unchanged the value of assets and liabilities recognized in Fortress Operating Group’s

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combined financial statements into our consolidated financial statements. As a consequence of this treatment, the effects of this offering and our reorganization are:


	i)	the reclassification of historical members’ deficit of Fortress Operating Group, net of the effects of pro forma adjustments (a) and (c), of $486.2 million to reflect our principals' interest in Fortress Operating Group as non-controlling interests in consolidated subsidiaries,


	ii)	the recognition of the proceeds of this offering of Class A shares of $ million, net of costs of $ million, assuming an initial public offering price of $ per share (the midpoint of the range set forth on cover of prospectus), as our paid in capital,


	iii)	the reallocation of our total capitalization from our principals and the public of $ million, comprised of the two items described in notes (i) and (ii) above, between non-controlling interests attributable to our principals of $ million and paid in capital of $ million, based on the ownership percentages of our principals (approximately 90%) and us (approximately 10%) in Fortress Operating Group, and


	iv)	the use of a portion of the net proceeds of this offering, which we contributed to Fortress Operating Group (indirectly through FIG Corp.), to repay $250.0 million of the outstanding amount of borrowings under the new credit agreement on June 23, 2006, pursuant to the contractual terms of the credit agreement (see (b) above). Pro forma interest expense has been reduced by $7.7 million, $5.3 million and $11.9 million for the six months ended June 30, 2006 and 2005 and for the year ended December 31, 2005, respectively, to reflect the repayment of $250.0 million of borrowings as if the repayment had occurred on January 1, 2005.


	Cash and Cash Equivalents				Other Debt Obligations Payable				Non-controlling Interests in Consolidated Subsidiaries				Equity
	(dollars in thousands)
Reclassification of members’ deficit as adjusted before reorganization and offering to non-controlling interests in consolidated subsidiaries		$	—			$	—			$	(486,210	)		$	486,210
Recognition of the proceeds of this offering							—				—
Reallocation of our total capitalization			—				—
Use of a portion of net proceeds to repay borrowings			(250,000	)			(250,000	)			—				—
Net effect of this offering and our reorganization on our capitalization		$				$				$				$

The components of our pro forma shareholders’ equity were determined as follows:


	i)	share par value was created by multiplying the Class A shares and the Class B shares by their $ and $ per share par value, respectively, ($ );


	ii)	accumulated other comprehensive income (AOCI) was adjusted by allocating approximately 90% of historical AOCI to non-controlling interests, (an increase of $ );


	iii)	additional paid in capital is total equity less adjusted AOCI balance of $ and the par value of shares of $ million.


	f)	The allocation of pro forma income of $ million, $ million and $ million for the six months ended June 30, 2006 and 2005 and for the year ended December 31, 2005, respectively, to our principals' non-controlling interests in income of consolidated subsidiaries is based on our principals' approximately 90% interest in Fortress Operating Group applied

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		to our pro forma income before non-controlling interest in consolidated subsidiaries and income taxes after reduction for Fortress Operating Group's non-controlling interests in its consolidated subsidiaries. This adjustment is based on pre-tax income because income taxes on income allocated to our principals by Fortress Operating Group will be incurred directly by our principals.


	g)	Reflects the impact of federal and state income taxes that we will incur on income allocated from Fortress Operating Group. Fortress Operating Group is a limited liability company and is not subject to U.S. federal and certain state income taxes. It is, however, subject to New York unincorporated business taxes. Following the reorganization, FIG Corp. will be subject to income tax on income allocated to it from the Fortress Operating Group.


	(i)	Primarily as a result of the contribution of $ million of the net proceeds of this offering by FIG Corp. to the capital of the Fortress Operating Group and the dilution resulting from FIG Corp.’s approximately 10% interest in Fortress Operating Group, a temporary difference will arise between the carrying value of Fortress Operating Group for financial reporting purposes and that for to income tax purposes. Existing temporary differences will also contribute to the overall difference. A pro forma net deferred tax asset has been recorded to reflect the deferred tax effects of the excess of the tax basis over financial reporting basis that is expected to be realized in the foreseeable future. A pro forma valuation allowance has been established for the portion of the gross deferred tax asset that is not expected to be realized in the foreseeable future.


	(ii)	Pro forma income tax expense of $ million, $ million and $ million for the six months ended June 30, 2006 and 2005 and for the year ended December 31, 2005, respectively, was determined based on an assumed effective tax rate of %, applied to pro forma income before income tax for the respective periods.

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	h)	For the purposes of pro forma net income per share, the weighted average shares outstanding and net income available to Class A shareholders on a basic and diluted basis, are calculated based on:


	For the Six Months Ended June 30,								For the Year Ended December 31,
	2006				2005				2005
	Basic		Diluted		Basic		Diluted		Basic		Diluted
Weighted average shares outstanding(i)
Fortress Investment Group LLC Class A shares offered in this offering
Fortress Operating Group units outstanding not subject to forfeiture(ii)
Fortress Operating Group units outstanding subject to forfeiture among principals(ii)
Fortress Investment Group LLC restricted Class A shares granted to employees(iii)
Fortress Operating Group restricted units granted to employees(ii)
Weighted average shares outstanding
Basic and diluted net income per share
Pro forma net income		$		$		$		$		$		$
Add back non-controlling interests in income of Fortress Operating Group, net of assumed corporate income tax at enacted rates, attributable to:
Fortress Operating Group units outstanding not subject to forfeiture
Fortress Operating Group units subject to forfeiture among principals
Fortress Operating Group restricted units granted to employees
Pro forma net income available to Class A shareholders		$		$		$		$		$		$
Basic and diluted weighted average shares outstanding
Basic and diluted pro forma net income per Class A share(iv)		$		$		$		$		$		$


(i)	The number of weighted average shares outstanding for the purposes of pro forma net income per share is based on the assumption that the number of Fortress Investment Group LLC Class A shares and Fortress Operating Group units outstanding upon consummation of this offering, whether or not vested and whether or not subject to forfeiture, has been outstanding from January 1, 2005.

(ii)

For purposes of computing pro forma net income per share, Fortress Operating Group units, including units outstanding not subject to forfeiture, units outstanding subject to forfeiture among principals and nonvested restricted units granted to employees, are treated as convertible into Class A shares on a one-to-one basis. These units are not included in the computation of basic earnings per share. These units enter into the computation of diluted net income per Class A share when the effect is dilutive using the if-converted method, under which non-controlling interests in income of Fortress Operating Group attributable to the units, net of assumed corporate income tax at enacted tax rates, is added to net income in the numerator of the computation and the Class A shares available from the assumed conversion of the Fortress Operating Group units, as if it had occurred at the beginning of the period, is added to the denominator.


(iii)	Fortress Investment Group LLC restricted Class A shares granted to employees participate fully in our earnings from the date they are granted. They are included in the computation of both basic and diluted net income per Class A share using the two-class method for participating securities.


(iv)	Class B shares have no net income per share as they do not directly participate in our earnings. The effect on net income per Class A share of the Fortress Operating Group units that correspond to our Class B shares is included in the computation, as provided above.

We have not made any pro forma adjustments relating to the following matters for the reasons described:

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	(i)	Our principals will have the right to exchange each of their Fortress Operating Group units for one of our Class A shares, or at our option, cash equal to the value of a Class A share. Certain Fortress Operating Group entities intend to make an election under Section 754 of the Code, which may result in an adjustment to the tax basis of the assets owned by Fortress Operating Group at the time of the exchange. The exchanges may result in increases in tax basis that would reduce the amount of tax that the corporate taxpayers would otherwise be required to pay in the future. The corporate taxpayers will enter into a tax receivable agreement with each of our principals that will provide for the payment to an exchanging principal of 85% the amount of cash savings, if any, in U.S. federal, state, and local income tax that the corporate taxpayers actually realize as a result of these increases in tax basis. The effects of the tax receivable agreement, and any consequences of any hypothetical future unit exchanges and related increase in the tax basis of Fortress Operating Group assets resulting therefrom, are not reflected as a pro forma adjustment since Fortress Operating Group units held by our principals are exchangeable based on the principals' sole decision and no exchanges have occurred or are planned to occur concurrent with this offering (see ‘‘Certain Relationships and Related Party Transactions — Tax Receivable Agreement’’).


	(ii)	As a public company we will incur reporting and compliance costs and investor relation costs that are in addition to our historical expenses. Following completion of this offering, all of Fortress's expenses (other than income tax expenses of FIG Corp. and obligations incurred under the tax receivable agreement), including all expenses incurred by or attributable solely to Fortress Investment Group LLC, such as expenses incurred in connection with this offering, will be accounted for as expenses of the Fortress Operating Group. No pro forma adjustment has been made for these additional expenses as an estimate of the expenses is not objectively determinable.

SELECTED FINANCIAL AND OPERATING DATA

The following table sets forth selected financial information on a historical basis.

The selected financial information set forth below as of December 31, 2005, and 2004, and for each of the three years ended December 31, 2005, has been derived from our audited combined financial statements. The selected financial information set forth below as of June 30, 2006, and for the six month periods ended June 30, 2006 and 2005, has been derived from our unaudited interim combined financial statements. The selected historical financial information set forth below as of December 31, 2003, 2002 and 2001, and for each of the years then ended, and as of June 30, 2005 has been derived from our unaudited accounting records prepared on a consistent basis with the financial statements described above. The unaudited interim combined financial statements include all adjustments (consisting of normal, recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of our financial position and results of operations for the periods presented. The interim results of operations are not necessarily indicative of operations for a full fiscal year.


	Selected Financial Information (in thousands)
	Six Months Ended June 30,								Year Ended December 31,
	2006				2005				2005				2004				2003				2002				2001
	(Unaudited)				(Unaudited)																(Unaudited)				(Unaudited)
Operating Data
Revenues
Management fees and incentive income from affiliates and other revenues		$	185,814			$	76,168			$	284,313			$	128,671			$	47,557			$	13,720			$	9,092
Interest and dividend income – investment company holdings			691,735				239,583				759,781				222,707				172,759				64,097				87,325
			877,549				315,751				1,044,094				351,378				220,316				77,817				96,417
Expenses			681,050				201,528				685,924				198,403				81,627				33,579				10,829
Other Income
Gains (losses) – investment company holdings			1,417,325				940,462				2,903,978				881,658				123,276				37,624				54,150
Gains (losses) – other investments			54,974				18,685				37,181				20,512				9,120				—				—
Earnings from equity method investees			2,420				7,020				10,465				14,616				4,762				2,334				6,597
			1,474,719				966,167				2,951,624				916,786				137,158				39,958				60,747
Income before deferred incentive income, non-controlling interests in income of consolidated subsidiaries and income taxes			1,671,218				1,080,390				3,309,794				1,069,761				275,847				84,196				146,335
Deferred incentive income			(225,132	)			(136,333	)			(444,567	)			(104,558	)			(17,487	)			(6,542	)			(12,710	)
Non-controlling interests in income of consolidated subsidiaries			(1,350,811	)			(895,782	)			(2,662,926	)			(847,365	)			(216,594	)			(67,306	)			(118,547	)
Income before income taxes			95,275				48,275				202,301				117,838				41,766				10,348				15,078
Income tax expense			(7,270	)			(2,983	)			(9,625	)			(3,388	)			(1,495	)			(920	)			(446	)
Net income		$	88,005			$	45,292			$	192,676			$	114,450			$	40,271			$	9,428			$	14,632


	As of June 30,							As of December 31,
	2006				2005			2005			2004			2003			2002			2001
	(Unaudited)				(Unaudited)									(Unaudited)			(Unaudited)			(Unaudited)
Balance Sheet Data
Investment company holdings, at fair value		$	13,780,066			$	7,201,000		$	10,582,109		$	5,365,309		$	2,036,107		$	1,047,424		$	611,158
Other investments			579,147				84,603			451,489			48,444			52,879			51,556			54,947
Cash, cash equivalents and restricted cash			852,178				462,178			288,363			179,727			41,661			15,907			2,858
Total assets			16,016,572				8,050,682			11,863,938			5,796,733			2,212,564			1,165,075			675,272
Debt obligations payable			3,214,553				1,229,801			2,250,433			928,504			226,205			36,936			36,250
Deferred incentive income			810,996				277,630			585,864			141,277			36,739			19,252			12,710
Total liabilities			4,880,291				1,806,476			3,343,262			1,306,021			339,028			78,804			53,730
Non-controlling interests in consolidated subsidiaries			11,230,028				6,185,267			8,397,167			4,405,835			1,836,163			1,046,896			599,827
Members' equity (deficit) including net accumulated other comprehensive income (loss)			(93,747	)			58,939			123,509			84,877			37,373			39,375			21,715


	Six Months Ended June 30,								Year Ended December 31,
	2006				2005				2005				2004				2003				2002				2001
	(Unaudited)				(Unaudited)																(Unaudited)				(Unaudited)
Other Data
Distributable earnings⁽¹⁾
Private equity funds		$	76,578			$	12,469			$	102,014			$	62,922			$	22,837			$	2,982			$	8,855
Liquid hedge funds			77,041				17,605				89,413				31,140				9,871				1,085				—
Hybrid hedge funds			37,572				27,096				57,417				38,576				14,557				1,681				—
Hedge fund subtotal			114,613				44,701				146,830				69,716				24,428				2,766				—
Castles			5,041				2,820				4,440				9,312				8,158				—				—
Unallocated			(28,010	)			(7,200	)			(22,756	)			(8,778	)			(2,098	)			(2,863	)			(3,700	)
Total distributable earnings⁽¹⁾		$	168,222			$	52,790			$	230,528			$	133,172			$	53,325			$	2,885			$	5,155
Reconciliation of Net Income to Distributable Earnings⁽¹⁾
Net income		$	88,005			$	45,292			$	192,676			$	114,450			$	40,271			$	9,428			$	14,632
Adjust incentive income			113,809				8,810				62,496				60,525				20,838				(4,133	)			(2,834	)
Adjust unrealized gains and earnings from equity method investees			(27,001	)			(14,463	)			(23,132	)			(26,746	)			(5,840	)			(2,410	)			(6,643	)
Adjust income from the receipt of options			(18,692	)			(4,323	)			(2,310	)			(2,285	)			(1,424	)			—				—
Adjust compensation expense			—				—				—				5,901				—				—				—
Adjust employee portion of incentive income			12,101				17,474				798				(18,673	)			(520	)			—				—
Distributable earnings⁽¹⁾		$	168,222			$	52,790			$	230,528			$	133,172			$	53,325			$	2,885			$	5,155


(1)	‘‘Distributable earnings’’ for the existing Fortress businesses is equal to net income adjusted as follows:


	o	Incentive Income


	(i)	a. for Fortress Funds which are private equity funds, adding (a) incentive income paid (or declared as a distribution) to us (including incentive income paid to us during the first 15 business days of the following year), less an applicable reserve for potential future clawbacks if the likelihood of a clawback is deemed greater than remote (net of the reversal of any prior such reserves that are no longer deemed necessary), minus (b) incentive income recorded in accordance with U.S. generally accepted accounting principles, or GAAP, based on the accounting method described in ‘‘Management's Discussion and Analysis of Financial Condition and Results of Operations—Application of Critical Accounting Policies–Revenue Recognition on Incentive Income,’’


	o	Other Income


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


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


	b.	subtracting gains (or adding losses) on stock options held in certain of the Castles which are treated as derivatives,


	c.	subtracting unrealized gains (or adding unrealized losses) from our consolidated private equity funds,


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


	o	Expenses


	(iv)	adding back compensation expense recorded in connection with the assignment of a portion of these Castle options to our employees, and


	(v)	adding or subtracting, as necessary, the employee profit sharing in (i) above for timing differences related to the 15 business day adjustment thereto.


	(i)	adding the income (or subtracting the loss) allocable to the non-controlling interests attributable to Fortress Operating Group units,


	(ii)	adding back compensation expense recorded in connection with the grant of restricted Class A shares and of restricted Fortress Operating Group units to employees,


	(iii)	adding back compensation expense recorded in connection with the forfeiture arrangements entered into among the principals, described in ‘‘Agreement Among Principals’’ below, and


	(iv)	adding back income tax expense and any expense recorded in connection with the tax receivable agreement, and subtracting income tax expense calculated on our pre-tax distributable earnings at the appropriate effective income tax rate.

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

The following discussion should be read in conjunction with Fortress Operating Group's combined financial statements and the related notes (referred to as ‘‘combined financial statements’’ or ‘‘historical combined financial statements’’) included within this prospectus. This discussion contains forward-looking statements that are subject to known and unknown risks and uncertainties. Actual results and the timing of events may differ significantly from those expressed or implied in such forward-looking statements due to a number of factors, including those included in the section entitled ‘‘Risk Factors’’ and elsewhere in this prospectus.

The pro forma data discussed below reflects the application of the pro forma adjustments to the historical data. This additional information is presented in order to provide a more meaningful understanding of our financial position and results of operations on a pro forma basis generally and in particular to reflect the deconsolidation of the Fortress Funds concurrent with the completion of this offering. The deconsolidation of the Fortress Funds will result in financial statements which are materially different from the historical combined financial statements that appear in this prospectus. For an understanding of pro forma financial information taking into account, among other things, this deconsolidation, refer to the ‘‘Unaudited Pro Forma Financial Information’’ included within this prospectus.

This offering and the related transactions, which are described in ‘‘Our Structure — The Transactions,’’ take the legal form of the principals and the public acquiring 100% of our outstanding shares, and our concurrent acquisition, through two intermediate holding companies, of the controlling general partner interest and approximately 10% limited partner interest in Fortress Operating Group. As we are a newly formed company, Fortress Operating Group is considered our predecessor for accounting purposes and its combined financial statements will be our historical financial statements following completion of the Transactions. Also, because the principals control Fortress Operating Group before the Transactions and will control us after the Transactions, the Transactions are accounted for as a reorganization of entities under common control. Accordingly, we will carry forward unchanged the value of assets and liabilities recognized in Fortress Operating Group’s combined financial statements into our consolidated financial statements.

General

Our Business

Fortress is a leading global alternative asset manager with approximately $26 billion in assets under management as of September 30, 2006. We raise, invest and manage private equity funds, hedge funds and publicly traded alternative investment vehicles. We earn management fees based on the size of our funds, incentive income based on the performance of our funds, and investment income from our principal investments in those funds. We invest substantial capital in each of the investment funds we manage. As of June 30, 2006, the net asset value of Fortress’s investments in, and the amount of our unfunded commitments to, our funds was approximately $500 million in the aggregate.

As of September 30, 2006, we managed approximately $26 billion of alternative assets in three core businesses:

Hedge Funds — a business that manages approximately $9.4 billion of AUM comprised of two business segments; (i) hybrid hedge funds – which make highly diversified investments globally in undervalued and distressed assets, including loans, assets and corporate securities; and (ii) liquid

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

Managing Business Performance

Fortress conducts its management and investment business through the following four primary segments: (i) private equity funds, (ii) liquid hedge funds, (iii) hybrid hedge funds, and (iv) Castles. These segments are differentiated based on their varying investment strategies.

The amounts not allocated to a segment consist primarily of interest earned on short term investments, general and administrative expenses, interest incurred with respect to corporate borrowings, and income taxes.

Management makes operating decisions and assesses performance with regard to each of Fortress’s primary segments based on financial data that is presented without the consolidation of any Fortress Funds. Accordingly, segment data for these segments is reflected on a deconsolidated basis.

Management assesses the net performance of each segment based on its ‘‘distributable earnings’’. Distributable earnings is not a measure of cash generated by operations which is available for distribution. Distributable earnings should not be considered in isolation or as an alternative to cash flow or net income, and is not necessarily indicative of liquidity or cash available to fund operations.


	‘‘Distributable earnings’’ for the existing Fortress businesses is equal to net income adjusted as follows:


	o	Incentive Income


	(i)	a. for Fortress Funds which are private equity funds, adding (a) incentive income paid (or declared as a distribution) to us (including incentive income paid to us during the first 15 business days of the following year), less an applicable reserve for potential future clawbacks if the likelihood of a clawback is deemed greater than remote (net of the reversal of any prior such reserves that are no longer deemed necessary), minus (b) incentive income recorded in accordance with U.S. generally accepted accounting principles, or GAAP, based on the accounting method described in ‘‘Management's Discussion and Analysis of Financial Condition and Results of Operations—Application of Critical Accounting Policies–Revenue Recognition on Incentive Income,’’


	o	Other Income


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


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


	b.	subtracting gains (or adding losses) on stock options held in certain of the Castles which are treated as derivatives,


	c.	subtracting unrealized gains (or adding unrealized losses) from our consolidated private equity funds,


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


	o	Expenses


	(iv)	adding back compensation expense recorded in connection with the assignment of a portion of these Castle options to our employees, and


	(v)	adding or subtracting, as necessary, the employee profit sharing in (i) above for timing differences related to the 15 business day adjustment thereto.


	(i)	adding the income (or subtracting the loss) allocable to the non-controlling interests attributable to Fortress Operating Group units,


	(ii)	adding back compensation expense recorded in connection with the grant of restricted Class A shares and of restricted Fortress Operating Group units to employees,


	(iii)	adding back compensation expense recorded in connection with the forfeiture arrangements entered into among the principals, described in ‘‘Agreement Among Principals’’ below, and


	(iv)	adding back income tax expense and any expense recorded in connection with the tax receivable agreement, and subtracting income tax expense calculated on our pre-tax distributable earnings at the appropriate effective income tax rate.

Market Considerations

Economic and global financial market conditions can materially affect our financial performance. See ‘‘Risk Factors.’’ Revenues and distributable earnings in any period may not be indicative of full-year results or the results of any other period and may vary significantly from year to year and quarter to quarter. In recent years, our business has been, and we expect will continue to be, influenced by a number of industry-wide trends and conditions. In particular, we are dependent on global credit markets and equity capital markets which have been strong in recent years and which we expect will continue to be strong in the near term. Changes to these markets could impact materially our ability to finance our operations as well as our ability to execute our private equity funds' transactions.

Pro Forma Transactions and this Offering

For further discussion of these pro forma adjustments, see ‘‘Unaudited Pro Forma Financial Information.’’

Prior to or concurrent with the consummation of this offering, we have completed or will complete transactions, which are reflected in the unaudited pro forma financial information.


	•	The effects of our deconsolidation of the Fortress Funds that we currently consolidate and of our liquidation of Northcastle.


	•	Our borrowings under a new credit agreement on June 23, 2006, the proceeds of which we used (i) to repay our prior debt, (ii) to make a distribution to our principals and (iii) to increase our working capital.


	•	The effects of other distributions we made or plan to make to our principals prior to this offering.


	•	Our reorganization in connection with this offering and our receipt and use of the net proceeds. See ‘‘Our Structure — The Transactions.’’


	•	Compensation expense as a result of our grant of restricted Class A shares and restricted Fortress Operating Group units to certain employees in connection with this offering.


	•	Compensation expense arising from the Principals Agreement among themselves to forfeit a portion of their Fortress Operating Group units (and corresponding Class B shares) to each other if they voluntarily terminate their employment with Fortress Operating Group prior to the end of five years from the consummation of this offering.


	•	Compensation expense arising from annual fees paid to our non-employee directors.


	•	The impact of federal and state income taxes that our wholly owned subsidiary FIG Corp., as a taxable corporation, will incur on income allocated to it from the Fortress Operating Group.

Pro Forma Segment Analysis

The following is a summary of our distributable earnings on a pro forma basis by segment:


	Six Months Ended June 30,				Year Ended December 31, 2005
	2006		2005		Year Ended December 31, 2005
Private equity funds		$		$		$
Hedge funds
Liquid hedge funds
Hybrid hedge funds
Subtotal hedge funds
Castles
Unallocated
Pro forma distributable earnings⁽¹⁾		$		$		$

Segment distributable earnings are primarily driven by revenues from management fees and incentive income from the Fortress Funds. The increases in these revenues are the result of the raising of additional Fortress Funds and the strong performance of the private equity and hedge funds during these periods.

The following table provides a reconciliation of pro forma net income to pro forma distributable earnings:

Six Months Ended June 30,

Year Ended
December 31,
2005

2006

2005

Pro forma net income

Adjust incentive income

Adjust unrealized gains and earnings from equity method investees

Adjust income from the receipt of options

Adjust compensation expense

Adjust employee portion of incentive income

Adjust income taxes

Adjust principals' non-controlling interests

Total adjustment

Pro forma distributable earnings⁽¹⁾


(1)	For a description of the reconciling items between pro forma net income and pro forma distributable earnings see ‘‘—General—Managing Business Performance.’’ For a more detailed analysis of the factors impacting distributable earnings on a historical basis, see ‘‘Results of Operations on a Historical Basis.’’

Pro Forma Liquidity and Capital Resources

Liquidity is a measurement of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain investments, including our capital commitments to our funds, pay compensation, and satisfy our other general business needs. In addition, we will require cash to meet our intended distribution policy as described in ‘‘Cash Distribution Policy’’. Our primary sources of funds for liquidity consist of cash flow provided by operating activities, primarily the management fees and incentive income paid to us from the Fortress Funds, borrowings under loans, and the issuance of debt and equity securities, as well as the investment returns on our principal investments in these funds.

We expect that our cash on hand and our cash flows from operating activities will satisfy our liquidity needs with respect to current commitments relating to investments and with respect to our debt obligations over the next twelve months. We expect to meet our long-term liquidity requirements, including the repayment of our debt obligations and any new commitments, and any increases in our commitments, relating to principal investments, through the generation of operating income and additional borrowings.

Our ability to execute our business strategy, particularly our ability to form new funds and increase our assets under management, depends on our ability to obtain additional capital with which to make principal investments in such funds. Decisions by counterparties to enter into transactions with us will depend upon a number of factors, such as our historical and projected financial performance, compliance with the terms of our current credit arrangements, industry and market trends and performance, the availability of capital and our counterparties’ policies and rates applicable thereto, the rates at which we are willing to borrow, and the relative attractiveness of alternative investment or lending opportunities.

As of June 30, 2006, our material cash commitments and contractual cash requirements relate to our planned distributions to our principals, capital commitments to our funds, our lease obligations and our debt obligations.

In connection with this offering, we have made, or plan to make, the following distributions to our principals:


	•	in June 2006 we made a cash distribution of $250.0 million, which is reflected in our June 30, 2006 combined balance sheet;


	•	in July 2006 we made a cash distribution of $42.0 million;


	•	in 2007, we will distribute to our principals the net proceeds received relating to our collection of a portion of a receivable relating to previously earned fees from our offshore hedge funds pursuant to certain contractual arrangements.


	•	we will make a cash distribution of $ million to our principals immediately prior to this offering.

On a pro forma basis which reflects these distributions as if they had been made as of June 30, 2006, our cash and cash equivalents would have been decreased by $ million.

Our capital commitments to our funds as of June 30, 2006 consisted of the following (dollars in thousands):


	Total Commitment			Remaining Commitment
Private Equity Funds
Fund II		$	9,281		$	2,417
Fund III			13,534			4,130
Fund III Coinvestment Fund			57			8
FRID			30,000			16,159
Fund IV			45,050			45,050
Fund IV Coinvestment Fund			166			166
Fortress RIC Coinvestment Fund			93,825			93,825
LDV Fund			10,000			2,824
LDV Fund II			10,000			8,975
Total		$	211,913		$	173,554

As of June 30, 2006, our debt obligations consisted of our aircraft loan and our credit agreement, as described below.

In 2002, we borrowed $2.9 million collateralized by our interest in an aircraft (the ‘‘Aircraft Loan’’), of which $2.3 million was outstanding as of June 30, 2006. This loan bears interest at LIBOR plus 2.25% (which was 7.60% per annum as of June 30, 2006) and matures in July 2007. We have hedged our exposure to the risk of changes in market interest rates with respect to this loan by entering into an interest rate swap, which fixes the effective interest rate on this loan at approximately 6.80% through maturity.

In 2003, we refinanced our $45 million credit agreement, which bore interest at LIBOR plus 3.50%, with a $98.5 million senior secured credit facility which bore interest at LIBOR plus 3.00% and was subject to an unused commitment fee of 0.375% per annum.

In March 2005, we entered into a new $175 million credit agreement (the ‘‘2005 Credit Agreement’’) which among other things, refinanced the $98.5 million credit facility. The 2005 Credit Agreement bore interest at LIBOR plus 2.75% and was subject to unused commitment fees of 0.375% per annum and letter of credit fees of 2.75% per annum. The 2005 Credit Agreement was collateralized by substantially all of our assets as well as our rights to fees from the Fortress Funds and our equity interest therein. In connection with the 2005 Credit Agreement, fees of approximately $2.6 million were incurred. In December 2005, the agreement was amended to increase the available line by $70.1 million. In connection with this amendment, fees of approximately $1.8 million were incurred.

In June 2006, we entered into a new $750 million credit agreement (the ‘‘2006 Credit Agreement’’). Borrowings under the 2006 Credit Agreement bear interest at LIBOR plus 2.00% (which was 7.49% per annum as of June 30, 2006), with the agreement being subject to unused fees of 0.375% per annum. The purpose of the 2006 Credit Agreement was to refinance the 2005 Credit Agreement described above, to make funds available for investments in the various existing and new Fortress Funds, and to make a one-time $250 million distribution of capital to our principals. The 2006 Credit Agreement matures in June 2011. In connection with the repayment of the prior credit facility, deferred loan costs of approximately $3.1 million were written off to interest expense.

Covenants

The borrowers are required to prepay loans under the credit agreement upon the occurrence of certain events, including asset sales and other dispositions, extraordinary receipts and the issuance of equity.

In addition, the aggregate revolving commitments will be permanently reduced on December 31, 2010 to an amount equal to $100 million (unless the aggregate revolving commitments have previously been reduced to a lower amount).

The credit agreement includes customary covenants. Among other things, the borrowers are prohibited from incurring additional indebtedness or further encumbering their assets, subject to certain exceptions. The credit facility also contains (i) a minimum management fee earning assets covenant, (ii) minimum EBITDA covenant, (iii) minimum investment assets covenant and (iv) a minimum collateral value covenant.

Fortress Operating Group is not permitted to make distributions to the extent a default exists under our credit agreement.

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Results of Operations on a Historical Basis

The following table presents our results of operations as derived from our accompanying combined financial statements


	Six Months Ended June 30,								Year Ended December 31,
	2006				2005				2005				2004				2003
	(Unaudited)				(Unaudited)
Revenues
Management fees from affiliates		$	74,544			$	41,232			$	81,356			$	51,993			$	17,193
Incentive income from affiliates			75,771				27,503				172,623				54,251				26,055
Other revenues			35,499				7,433				30,334				22,427				4,309
Interest and dividend income – investment company holdings			691,735				239,583				759,781				222,707				172,759
			877,549				315,751				1,044,094				351,378				220,316
Expenses
Interest expense			444,134				76,515				330,387				27,013				10,825
Compensation and benefits			183,445				88,376				259,216				123,084				57,521
General, administrative and other (including depreciation and amortization)			53,471				36,637				96,321				48,306				13,281
			681,050				201,528				685,924				198,403				81,627
Other Income
Gains (losses) – investment company holdings			1,417,325				940,462				2,903,978				881,658				123,276
Gains (losses) – other investments			54,974				18,685				37,181				20,512				9,120
Earnings from equity method investees			2,420				7,020				10,465				14,616				4,762
			1,474,719				966,167				2,951,624				916,786				137,158
Income Before Deferred Incentive Income, Non-Controlling Interests in Income of Consolidated Subsidiaries and Income Taxes			1,671,218				1,080,390				3,309,794				1,069,761				275,847
Deferred incentive income			(225,132	)			(136,333	)			(444,567	)			(104,558	)			(17,487	)
Non-controlling interests in income of consolidated subsidiaries			(1,350,811	)			(895,782	)			(2,662,926	)			(847,365	)			(216,594	)
Income Before Income Taxes			95,275				48,275				202,301				117,838				41,766
Income tax expense			(7,270	)			(2,983	)			(9,625	)			(3,388	)			(1,495	)
Net Income		$	88,005			$	45,292			$	192,676			$	114,450			$	40,271

Factors Affecting Our Business

During the periods discussed herein, the three significant factors affecting our business, which have materially impacted our results of operations, are as follows:


•	growth in our assets under management;


•	improved performance of our funds; and


•	growth of our fund management and investment platform.

Assets Under Management

We measure total assets under management by reference to the assets we manage, including the capital we have the right to call from our investors to their capital commitments in both our consolidated and unconsolidated Fortress Funds. As a result of raising new funds with sizeable capital commitments, raising capital for our Castles, and increases in the net asset values of our hedge funds from new investor capital and retained profits, our management fee paying assets under management have increased significantly over the periods discussed.

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Revenues

The significant growth of our assets under management has had a positive effect on our revenues. Management fees are calculated based upon assets under management of unconsolidated funds. Therefore, as these assets under management in our unconsolidated funds grew so did the management fees we generated. However, depending on the timing of the capital contribution in a given period, its full economic benefits may not be recognized until the following period. Fees earned from our consolidated funds were eliminated in consolidation. Increases in assets under management of our consolidated funds generated gross interest and dividend income. Increases in assets under management also drove significant growth in our balance sheet, including significant increases in our loans and securities and portfolio company holdings.

Interest Expense

Our historical combined financial statements reflect payments of interest on our collateralized debt obligations issued in 2004 by our hybrid hedge funds and also reflect allocations to us from the master funds of our liquid hedge funds of interest payments by such funds. These allocations increased during the periods primarily due to the increased use by such master funds of repurchase transactions in their trading business.

Performance of Our Funds

Revenues, Gains from Investments and Deferred Incentive Income

Incentive income is calculated as a percentage of profits earned by the Fortress Funds. Incentive income that is not subject to contingent repayment, as described in our historical combined financial statements, is recorded as earned. To the extent the incentive income is generated from unconsolidated Fortress Funds, it is recorded as incentive income from affiliates, while incentive income generated from consolidated Fortress Funds increases our share of the net income from such consolidated funds. Incentive income allocated to us from the consolidated funds that continues to be subject to contingent repayment is deferred and recorded as a deferred incentive income liability until the related contingency is resolved.

The performance of the consolidated Fortress Funds has impacted our gains (losses) from investments, both realized and unrealized. Unrealized gains within our consolidated private equity funds increased primarily as a result of the change in fair value of the funds’ portfolio company investments. Unrealized gains within our consolidated liquid and hybrid hedge funds also increased as a result of positive growth in the value of securities held within their portfolios.

Income Tax Expense

Certain consolidated subsidiaries within our hedge fund segments are subject to New York City Unincorporated Business Tax (‘‘UBT’’) on their net taxable income. As the amounts earned by these consolidated subsidiaries increased, the amount subject to UBT increased. In addition, as our global presence has expanded in recent years, we have been subject to increasing foreign income taxes in various jurisdictions.

Fund Management and Investment Platform

In order to accommodate the increasing demands of our funds’ rapidly growing investment portfolios, we have expanded our investment platforms, which are comprised primarily of our people, financial and operating systems and supporting infrastructure. Expansion of our investment platform required increases in headcount, consisting of newly hired investment professionals and support staff, as well as leases and associated improvements to new corporate offices to house the increasing number of employees, and related augmentation of systems and infrastructure. Our headcount increased from 147 employees as of December 31, 2003, to 257 employees as of December 31, 2004, and to approximately 400 employees as of December 31, 2005. As of June 30, 2006, our headcount had grown to approximately 500 employees. As a result, our compensation and other personnel related expenses have increased as have our rent and other office related expenses.

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Revenues

Six Months Ended June 30, 2006 compared to June 30, 2005

Management fees from affiliates increased by $33.3 million, as assets under management in the unconsolidated Fortress Funds increased. This increase was a result of capital raises net of redemptions of $1.6 billion and net performance of the unconsolidated Fortress Funds of $274.4 million. Incentive income from affiliates increased by $48.3 million, due to improved performance of the unconsolidated Fortress Funds. Management fees and incentive income generated by our consolidated funds are eliminated in consolidation.

Interest and dividend income relating to investment company holdings increased by $452.2 million primarily attributable to allocations by our consolidated funds of increased assets under management to investments that generated higher dividend and interest income.

Year Ended December 31, 2005 compared to December 31, 2004

Management fees from affiliates increased by $29.4 million, as assets under management in the unconsolidated Fortress Funds increased. This increase was a result of capital raises net of redemptions of $199.6 million and net performance of $428.1 million of the unconsolidated Fortress Funds. Incentive income from affiliates increased by $118.4 million, due to improved performance of the unconsolidated Fortress Funds.

Interest and dividend income relating to investment company holdings increased by $537.1 million primarily attributable to the allocations by our consolidated funds of increased assets under management to investments that generated higher dividend and interest income.

Year Ended December 31, 2004 compared to December 31, 2003

Management fees from affiliates increased by $34.8 million, as assets under management in the unconsolidated Fortress Funds increased. This increase was a result of capital raises net of redemptions of $2.2 billion and net performance of the unconsolidated Fortress Funds of $77.1 million. Incentive income from affiliates increased by $28.2 million, due to improved performance of the unconsolidated Fortress Funds.

Interest and dividend income relating to investment company holdings increased by $49.9 million primarily attributable to the allocations by our consolidated funds of increased assets under management to investments that generated higher dividend and interest income.

Expenses

In the analysis below, general, administrative and other expenses include depreciation and amortization.

Six Months Ended June 30, 2006 compared to June 30, 2005

Interest expense incurred by our consolidated investment company subsidiaries increased by $351.9 million. This change is primarily attributable to an increase of $297.1 million resulting from our proportional share of interest expense from the master funds in which our consolidated liquid hedge funds are invested as a consequence of the financing of significantly expanded treasury security holdings in the liquid hedge fund trading business.

Other interest expense increased by $15.7 million primarily due to the increase of our outstanding weighted average debt outstanding in our borrowings under Fortress Operating Group's credit facility to $236.0 million for the six months ended June 30, 2006, from $97.1 million for the six months ended June 30, 2005, while weighted average annual interest rates rose to 10.86% for the period ended June 30, 2006 from 6.81% in the comparable period in 2005. In addition, in connection with the repayment of the prior credit facility deferred loan costs of approximately $3.1 million were written off to interest expense.

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Our compensation expense increased by $95.1 million. A primary driver of the rise in compensation expense was attributable to an increase in the employee portion of incentive income of $65.6 million. In addition, general compensation expense increased by $17.6 million as a consequence of our overall headcount increase from 400 employees as of June 30, 2005 to approximately 500 employees as of June 30, 2006.

General, administrative and other expenses increased by $14.6 million, primarily attributable to the expansion of our office space required by our headcount growth, which has led to increased rent and other office related expenses.

Year Ended December 31, 2005 compared to December 31, 2004

Interest expense incurred by our consolidated investment company subsidiaries increased by $297.2 million. During the year ended December 31, 2004, our hybrid hedge funds began issuing collateralized debt obligations to introduce non-recourse leverage into their portfolios. During the year ended December 31, 2005, we significantly increased the size of these non-recourse financings from $588.0 million to $1.2 billion, which led to a corresponding increase in interest expense of $25.9 million. The change is primarily attributable to an increase of $245.9 million resulting from our proportional share of interest expense from the master funds in which our consolidated liquid hedge funds are invested, as a consequence of the financing of significantly expanded treasury security holdings in the liquid hedge fund trading business.

Other interest expense increased by $6.2 million, primarily due to the increase of our weighted average debt outstanding to $112.8 million for the year ended December 31, 2005, from $72.2 million for the year ended December 31, 2004, while the weighted average annual interest rate rose to 7.31% for the year ended December 31, 2005 from 7.14% for the year ended December 31, 2004.

Our compensation expense increased by $136.1 million. A primary driver of the rise in compensation expense was attributable to an increase in the employee portion of incentive income of $80.4 million. In addition, general compensation expense increased by $56.5 million as a consequence of our overall headcount increase from 257 employees as of December 31, 2004 to approximately 400 employees as of December 31, 2005.

General, administrative and other expenses increased by $48.0 million. This increase was mainly comprised of: (1) an increase in professional fees of the Fortress Operating Group of $7.0 million; (2) increased rent and office expenses of Fortress Operating Group of $7.7 million; (3) increased professional fees in our consolidated funds of $9.9 million; and (4) increased due diligence and similar transaction expenses related to investment opportunities our consolidated funds pursued but did not consummate of $11.4 million.

Year Ended December 31, 2004 compared to December 31, 2003

Interest expense incurred by our consolidated investment company subsidiaries increased by $13.5 million. During the year ended December 31, 2004, our hybrid hedge funds began issuing collateralized debt obligations to introduce non-recourse leverage into their portfolios totaling $588.0 million as of December 31, 2004 which led to a corresponding increase in interest expense of $5.8 million. This change is primarily attributable to an increase of $2.5 million resulting from our proportional share of interest expense from the master funds in which our consolidated liquid hedge funds are invested as a consequence of the significantly expanded use of financing of treasury security holdings in the liquid hedge fund trading business.

Other interest expense increased by $2.7 million, primarily due to the increase of our weighted average debt outstanding in our borrowings under Fortress Operating Group's credit facility to $72.2 million for the year ended December 31, 2004, from $36.9 million for the year ended December 31, 2003, while the weighted average annual interest rates rose to 7.14% for the year ended December 31, 2004 from 5.94% for the year ended December 31, 2003. In addition, in connection with the repayment of the prior credit facility, deferred loan costs of approximately $1.3 million were written-off to interest expense.

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Our compensation expense increased by $65.6 million. A primary driver of this rise in compensation expense was attributable to an increase in the employee portion of incentive income of $18.5 million. In addition, general compensation expense increased by $40.4 million as a consequence of our overall headcount increase by 75%.

General, administrative and other expenses increased by $35.0 million, primarily attributable to the expansion of our office space required by our headcount growth, which has led to increased rent and other office related expenses.

Other Income

Six Months Ended June 30, 2006 compared to June 30, 2005

Gains from holdings within our consolidated investment company subsidiaries increased by $476.9 million. This increase was attributable to the increase in the fair value of our private equity funds’ investment portfolios, as well as the growth in value of securities within our consolidated hedge funds’ investment portfolios.

Gains from other investments increased by $36.3 million. This increase was primarily attributable to an increase in the value of a receivable for previously earned fees from our unconsolidated hedge funds of $23.9 million, and an increase in the gain of $19.4 million on the mark-to-market of our Castle stock options treated as derivatives. These increases were partially offset by a decrease of $6.7 million on the mark-to-market of a derivative.

Earnings from equity method investees decreased by $4.6 million. This decrease was due to a decline in our share of net income from an equity method investee that experienced a one-time gain on the sale of a real estate portfolio during the six months ended June 30, 2005.

Year Ended December 31, 2005 compared to December 31, 2004

Gains from holdings within our consolidated investment company subsidiaries increased by $2.0 billion. This increase was attributable to the increase in the fair value of our private equity funds investment portfolios of $1.9 billion, as well as the growth in value of securities within our consolidated hedge funds’ investment portfolios.

Gains from other investments increased by $16.7 million. The increase was primarily attributable to a $21.6 million increase in the value of our receivable for previously earned fees from the unconsolidated hedge funds. In addition, the mark-to-market of a derivative increased by $7.9 million. These increases were partially offset by a $12.8 million decrease in the gain on the
mark-to-market of our Castle stock options treated as derivatives as well as a gain on a distribution of a Castle and NIH stock options to employees during 2004.

Earnings from equity method investees decreased by $4.2 million. This decrease was due to the decline in our shares of net income of the Castles of $1.8 million, and a decline in our share of net income of Newcastle Investment Holdings LLC, or NIH of $2.4 million, which related to a lower number of shares held by us in these entities as a result of a distribution of a portion of the shares to the principals.

Year Ended December 31, 2004 compared to December 31, 2003

Gains from holdings within our consolidated investment company subsidiaries increased by $758.4 million. This increase was attributable to the increase in fair value of our private equity funds' investment portfolios of $73.3 million as well as the growth in the value of securities within our consolidated hedge funds’ investment portfolios.

Gains from other investments increased by $11.4 million. While the gain for the year ended December 31, 2003 was primarily attributable to a gain from the distribution of shares of common stock of a Castle to a former partner of $8.1 million, the gain for the year ended December 31, 2004, primarily related to the gain on the mark-to-market of our Castle stock options treated as derivatives of $18.9 million as well as improved performance in our unconsolidated hedge funds of $3.9 million.

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Earnings from equity method investees increased by $9.9 million. This increase was primarily due to a $2.6 million increase in our share of net income from the Castles and an increase in our share of net income from NIH of $7.0 million.

Deferred Incentive Income

Deferred incentive income represents the deferral of our share of incentive income allocated from private equity funds which is recognized to the extent that this income is not subject to contingent repayment. Changes throughout these periods are a result of the net change in our proportionate share of the profits of our private equity funds which are subject to contingent repayment.

Income Tax Expense

Six Months Ended June 30, 2006 compared to June 30, 2005

The primary cause of the $4.3 million growth in tax expense was increased management and incentive fees from our unconsolidated hedge funds.

These fees are subject to UBT at a rate of 4%. Both the increase in fees earned and growth on the investment of those deferred fees resulted in an increase of deferred tax expense. Also contributing to the increase was the continued growth of our international operations and the income tax on the profits from those operations in several jurisdictions. In addition, as of January 1, 2006, a wholly owned subsidiary of the Fortress Operating Group entered into a sub-advisory fee agreement with certain subsidiaries, resulting in its recording increased fee income and correspondingly increased accrued tax expenses, offset only partially by deductions on the books of its subsidiaries due to New York City limitations on payment to partners.

Year Ended December 31, 2005 compared to December 31, 2004

The primary cause of the $6.2 million growth in tax expense was increased management and incentive fees from our unconsolidated hedge funds.

These fees are subject to UBT at a rate of 4%. Both the increase in fees earned and growth on the investment of those deferred fees resulted in an increase of deferred tax expense. Other contributing events included current tax expense incurred as a result of increased management fees from our hybrid hedge funds and our liquid hedge funds, also subject to UBT, and increased flow through of entity level tax from consolidated subsidiaries. Further contributing to the increase was the continued growth of international operations and the income tax on the profits from those operations in several jurisdictions.

Year Ended December 31, 2004 compared to December 31, 2003

The primary cause of the $1.9 million growth in tax expense was increased management and incentive fees from our unconsolidated hedge funds.

These fees are subject to UBT at a rate of 4%. Both the increase in fees earned and growth on the investment of those deferred fees results in an increase of deferred tax expense. Other contributing events included current tax expense incurred as a result of compensatory options exercised in 2004 subject to UBT and increased flow through of entity level tax from consolidated subsidiaries. The company was also subject to increased income tax on foreign operations.

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Segment Analysis

Segment Revenues

The following is a reconciliation of total segment revenues as included in distributable earnings to GAAP revenues as presented in our combined financial statements:


	Six Months Ended June 30,								Year Ended December 31,
	2006				2005				2005				2004				2003
Total segment revenues included in distributable earnings		$	327,286			$	118,583			$	475,889			$	258,723			$	109,440
Adjust incentive income			(113,809	)			(8,810	)			(62,496	)			(60,525	)			(20,838	)
Adjust income from the receipt of options			18,692				4,323				2,310				2,285				1,424
Other revenues			456				(1,623	)			1,327				1,445				608
Total adjustments			(94,661	)			(6,110	)			(58,859	)			(56,795	)			(18,806	)
GAAP revenues – Manager unconsolidated			232,625				112,473				417,030				201,928				90,634
Consolidation of investee subsidiaries			721,824				245,938				786,618				240,122				174,942
Eliminations			(76,900	)			(42,660	)			(159,554	)			(90,672	)			(45,260	)
GAAP revenues		$	877,549			$	315,751			$	1,044,094			$	351,378			$	220,316

The following is a reconciliation of distributable earnings to GAAP net income as presented in our historical combined financial statements:


	Six Months Ended June 30,								Year Ended December 31,
	2006				2005				2005				2004				2003
Distributable earnings		$	168,222			$	52,790			$	230,528			$	133,172			$	53,325
Adjust incentive income			(113,809	)			(8,810	)			(62,496	)			(60,525	)			(20,838	)
Adjust unrealized gains and earnings from equity method investees			27,001				14,463				23,132				26,746				5,840
Adjust income from the receipt of options			18,692				4,323				2,310				2,285				1,424
Adjust compensation expense			—				—				—				(5,901	)			—
Adjust employee portion of incentive income			(12,101	)			(17,474	)			(798	)			18,673				520
Total adjustments			(80,217	)			(7,498	)			(37,852	)			(18,722	)			(13,054	)
GAAP net income		$	88,005			$	45,292			$	192,676			$	114,450			$	40,271

As segment revenues reflected in our distributable earnings are presented on an unconsolidated basis, management fee and incentive income are reflected on a gross basis prior to elimination as required in consolidation. As a result of this presentation, management fees and incentive income are greater than those reflected on a consolidated GAAP basis. Other items within distributable earnings are less than the related amounts on a GAAP basis, as they do not include the effects of consolidating the Fortress Funds.

As segment revenues are presented on an unconsolidated basis, changes in assets under management indirectly impact our management fee and incentive income revenues. We therefore believe distributable earnings more clearly reflect the effects of such changes on our results of operations and thereby, form the primary basis upon which we ourselves assess our performance as an asset manager.

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Private Equity Funds


	Six Months Ended June 30,						Year Ended December 31,
	2006			2005			2005			2004			2003
Management fees		$	37,722		$	23,721		$	46,695		$	28,042		$	23,326
Incentive income			67,019			—			103,251			78,305			26,471
Segment revenues – total		$	104,741		$	23,721		$	149,946		$	106,347		$	49,797
Distributable earnings		$	76,578		$	12,469		$	102,014		$	62,922		$	22,837

Six Months Ended June 30, 2006 compared to June 30, 2005

Distributable earnings increased by $64.1 million due to $67.0 million of growth in incentive income and $14.0 million of growth in management fees offset by a corresponding increase in the employees’ share of incentive income reflected as compensation expense. Incentive income growth was due to a $67.0 million incentive income distribution from a fund due to a significant non-recourse portfolio company financing. Management fee growth also reflected the raising of additional funds during the six months ended June 30, 2006 which generated $10.2 million in fees as well as the half year effect of a fund raised in the third quarter of 2005 which generated $5.0 million in management fees in the six months ended June 30, 2006.

Year Ended December 31, 2005 compared to December 31, 2004

Distributable earnings increased by $39.1 million due to the growth in management fees of $18.7 million and in incentive income of $24.9 million offset by a corresponding increase in the employees' share of incentive income reflected as compensation expense. Incentive income was driven by a higher level of realized gains in our funds. Management fee growth reflected an increase of $18.5 million primarily related to the first full year of operation of a private equity fund created in the third quarter of 2004 and fees on capital raised for funds of $1.2 million. The increases in management fees were partially offset by the return of capital in prior periods from more mature funds thereby reducing management fees in these funds. Distributable earnings also grew due to the receipt of a dividend of $4.0 million as a result of the sale of a substantial real estate portfolio within a consolidated fund.

Year Ended December 31, 2004 compared to December 31, 2003

Distributable earnings increased by $40.1 million due to the growth in management fees of $4.7 million and in incentive income of $51.8 million offset by a corresponding increase in the employees' share of incentive income reflected as compensation expense. Incentive income was driven by a higher level of realized gains in our funds. Management fees grew as a result of capital raised for a new fund as well as two funds created to invest in a single portfolio company during the year. Collectively, these new funds generated $7.4 million in fees during 2004 partially offset by a decrease in the capital base as a result of the 2003 and first half of 2004 realization events in the main funds.

Liquid Hedge Funds


	Six Months Ended June 30,						Year Ended December 31,
	2006			2005			2005			2004			2003
Management fees		$	40,428		$	27,692		$	55,978		$	33,511		$	5,233
Incentive income			70,324			637			114,353			16,638			9,586
Segment revenues – total		$	110,752		$	28,329		$	170,331		$	50,149		$	14,819
Distributable earnings		$	77,041		$	17,605		$	89,413		$	31,140		$	9,871

Six Months Ended June 30, 2006 compared to June 30, 2005

Distributable earnings increased by $59.4 million due to a $12.7 million growth in management fees and a $69.7 million growth in incentive income offset by a corresponding increase in the

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employees' share of incentive income reflected as compensation expense. Average assets under management had a significant impact on revenues during this period, specifically management fees. Average assets under management increased by $1.3 billion over the period. This increase was the result of a significant increase in net capital contributions of $1.0 billion as well as the effects of the net performance. The larger capital base accounted for $27.4 million of the $69.7 million growth in incentive income. In addition, gains from investments attributable to our receivable relating to previously earned fees pursuant to certain contractual arrangements increased by $20.5 million as a result of the strong performance of the funds. These increases to revenues and investment income were partially offset by increases to expenses of $1.4 million driven by a 22.7% increase in headcount to 119 employees.

Year Ended December 31, 2005 compared to December 31, 2004

Distributable earnings increased by $58.3 million due to a $22.5 million growth in management fees and in incentive income of $97.7 million offset by a corresponding increase in the employees' share of incentive income reflected as compensation expense. Average assets under management grew by $1.1 billion. This increase was the result of significant increase in net capital contributions during the second half of 2004 as well as the effects of the net performance. The larger capital base accounted for $51.6 million of the $97.7 million growth in incentive income with the balance of the increase relating to a higher investment return. In addition, gains from investments attributable to our receivable relating to previously earned fees pursuant to certain contractual arrangements increased by $19.5 million as a result of the strong performance of the funds. The growth in distributable earnings was partially offset by increases to expenses of $29.4 million driven by a 71.2% increase in headcount to 89 employees.

Year Ended December 31, 2004 compared to December 31, 2003

Distributable earnings increased by $21.3 million due to a growth in management fees of $28.3 million and growth in incentive income of $7.1 million offset by a corresponding increase in the employees' share of incentive income reflected as compensation expense. Average assets under management grew by $1.4 billion over the period. This increase was the result of significant increase in net capital contributions of $1.8 billion as well as the effects of the net performance. The larger capital base generated an increase of $14.8 million in incentive income offset by a decline in investment return. These increases to revenues were partially offset by increases to expenses of $6.6 million driven by a 173.7% increase in headcount to 52 employees.

Hybrid Hedge Funds


	Six Months Ended June 30,						Year Ended December 31,
	2006			2005			2005			2004			2003
Management fees		$	36,893		$	22,132		$	50,507		$	27,534		$	12,115
Incentive income			53,171			31,466			73,230			53,456			23,711
Segment revenues – total		$	90,064		$	53,598		$	123,737		$	80,990		$	35,826
Distributable earnings		$	37,572		$	27,096		$	57,417		$	38,576		$	14,557

Six Months Ended June 30, 2006 compared to June 30, 2005

Distributable earnings increased by $10.5 million due to growth in management fees of $14.8 million and growth in incentive income of $21.7 million offset by a corresponding increase in the employees' share of incentive income reflected as compensation expense. Average assets under management, which drive growth in management fees and in incentive income, increased over the period by $1.5 billion due to an increase in net capital contributions of $0.7 billion and the net performance. The larger capital base generated an increase of $23.7 million in incentive income partially offset by a decline in investment return of $2.0 million. This was partially offset by a decline in investment income of $1.8 million due to our redemption of $20.3 million of our principal investment in the LP fund, and by an increase to expenses of $14.5 million driven by a 55.5% increase in headcount to 171 employees.

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Year Ended December 31, 2005 compared to December 31, 2004

Distributable earnings increased by $18.8 million due to growth in management fees of $23.0 million and incentive income of $19.8 million offset by a corresponding increase in the employees' share of incentive income reflected as compensation expense. Average assets under management grew by $1.2 billion over the period. This increase was due to an increase in net capital contributions of $0.8 billion as well as the effects of the net performance. The larger capital base accounted for a $20.0 million increase partially offset by a decline in investment return of $0.2 million. In addition, gains from investments attributable to our receivable relating to previously earned fees pursuant to certain contractual arrangements from the unconsolidated hedge funds increased by $4.7 million as a result of the strong performance of the funds. These increases were partially offset by an increase to expenses by $18.4 million driven by a 73.7% increase in headcount to 132 employees.

Year Ended December 31, 2004 compared to December 31, 2003

Distributable earnings increased by $24.0 million due to growth in management fees of $15.4 million and in incentive income of $29.7 million offset by a corresponding increase in the employees' share of incentive income reflected as compensation expense. Average assets under management grew by $0.8 billion over the period. This increase was due to a significant increase in net capital contributions as well as the net performance. The larger capital base accounted for a $28.8 million increase with the balance of the increase relating to a higher investment return. An incremental $20.3 million investment into the LP fund generated an increase of $3.2 million in investment income. The growth was partially offset by an increase to expenses of $10.9 million driven by an 85.4% increase in headcount to 76 employees.

Publicly Traded Alternative Investment Vehicles (‘‘Castles’’)


	Six Months Ended June 30,						Year Ended December 31,
	2006			2005			2005			2004			2003
Management fees		$	15,260		$	8,415		$	19,463		$	13,278		$	4,745
Incentive income			6,469			4,520			12,412			7,959			4,253
Segment revenues – total		$	21,729		$	12,935		$	31,875		$	21,237		$	8,998
Distributable earnings		$	5,041		$	2,820		$	4,440		$	9,312		$	8,158

Six Months Ended June 30, 2006 compared to June 30, 2005

Distributable earnings increased by $2.2 million due to a growth in management fees of $6.8 million and in incentive income of $1.9 million. Average assets under management which drive growth in revenues, specifically management fees, grew by $0.9 billion over the periods. The incentive income from the Castles is based on a percentage of their Funds From Operations, or FFO, in excess of certain performance hurdles. This FFO return on equity decreased by 0.9%. Incentive income is also driven by higher average assets under management. These increases were partially offset by an increase to expenses of $3.6 million mainly driven by a 40.0% increase in headcount to 70 employees.

Year Ended December 31, 2005 compared to December 31, 2004

Distributable earnings decreased by $4.9 million. Average assets under management grew by $0.4 billion over the periods. The decline was driven by the $5.4 million expenses incurred in connection with the creation of Northcastle. Even though FFO return on equity declined by 0.6%, incentive income increased as a result of a higher level of average assets under management. The increase to expenses of $13.3 million were driven by a 78.1% increase in headcount to 57 employees.

Year Ended December 31, 2004 compared to December 31, 2003

Distributable earnings increased by $1.2 million due to a growth in management fees of $8.5 million and in incentive income of $3.7 million. Average assets under management grew by

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$0.6 billion over the periods, as we increased capital through an initial public offering, offset by a decline of 1.9% of FFO return on equity. The increases to expenses of $10.5 million were mainly driven by a 68.4% increase in headcount to 32 employees.

Unallocated


	Six Months Ended June 30,								Year Ended December 31,
	2006				2005				2005				2004				2003
Management fees		$	—			$	—			$	—			$	—			$	—
Incentive income
Segment revenues – total		$	—			$	—			$	—			$	—			$	—
Distributable earnings		$	(28,010	)		$	(7,200	)		$	(22,756	)		$	(8,778	)		$	(2,098	)

Six Months Ended June 30, 2006 compared to June 30, 2005

Distributable earnings decreased by $20.8 million. This decrease was driven by the increase in interest expense of $8.7 million and the increase in professional fees of $5.0 million as well as the increase in income tax expense by $4.3 million. In addition, in connection with the repayment of the 2005 Credit Agreement deferred loan costs of approximately $3.1 million were written-off as interest expense. Our weighted average debt balance was $236.0 million for the six months ended June 30, 2006 in contrast to $97.1 million for the six months ended June 30, 2005. Higher average debt balance coupled with rising weighted average annual interest rates of 10.86% for the six months ended June 30, 2006 from 6.81% for the six months ended June 30, 2005 led to the increase in interest expense.

Year Ended December 31, 2005 compared to December 31, 2004

Distributable earnings decreased by $14.0 million. This decrease was driven by the increase in income tax expense of $7.6 million, and interest expense of $2.6 million along with the costs related to an unlaunched fund of $3.6 million. Higher average outstanding debt of $112.8 million in 2005 in comparison with average outstanding debt during 2004 of $72.2 million coupled with rising weighted average annual interest rates of 7.31% for the year ended December 31, 2005 from 7.14% for the year ended December 31, 2004 led to the increase in interest expense.

Year Ended December 31, 2004 compared to December 31, 2003

Distributable earnings decreased by $6.7 million. This decrease was driven by the increase in interest expense of $1.2 million and income taxes of $1.4 million as well as a one-time gain in 2003. Higher average outstanding debt of $72.2 million in 2004 in comparison with average outstanding debt during 2003 of $36.9 million while weighted average annual interest rates declined to 7.14% for the year ended December 31, 2004 from 5.94% for the year ended December 31, 2003 led to the increase in interest expense. In addition, in connection with the repayment of the prior credit facility, deferred loan costs of approximately $1.3 million were written-off as interest expense. Income tax expense increased due to higher hybrid hedge fund income generating greater UBT.

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Historical Liquidity and Capital Resources

On a historical basis, in addition to the capital resources described above our consolidated Fortress Funds received capital from their third-party equity investors (treated in our historical financial statements as non-controlling interests in consolidated subsidiaries) and from their debt obligations as shown in the following table (dollars in thousands).


														June 30, 2006
	Face Amount						Carrying Value						Final Stated Maturity	Weighted Average Funding Cost⁽¹⁾	Weighted Average Maturity (Years)
Debt Obligation	June 30, 2006			December 31, 2005			June 30, 2006			December 31, 2005			Final Stated Maturity	Weighted Average Funding Cost⁽¹⁾	Weighted Average Maturity (Years)
Investment Company Debt
Repurchase Agreements⁽²⁾		$	24,771		$	14,391		$	24,771		$	14,391	Aug. 2006 – Jan. 2020	5.66%		5.79
CDO Bonds Payable			1,633,842			1,193,200			1,633,842			1,193,200	Jul. 2012 – Sep. 2017	6.09%		9.74
Credit Agreements/lines⁽³⁾			576,391			565,808			576,479			565,942	Aug. 2006 – May 2009	7.01%		3.00
Term loans			50,328			46,700			50,980			46,616	Jul. 2018	4.77%		13.01
Subtotal – Investment Co. Debt.			2,285,332			1,820,099			2,286,072			1,820,149		6.29%		8.07
Other Debt
Northcastle Debt			261,132			197,935			261,132			197,935	Feb. 2007 – Aug. 2010	6.16%		4.03
Credit Agreement⁽⁴⁾			665,000			230,000			665,000			230,000	Feb. 2007 – Mar. 2008	7.49%		1.75
Aircraft Loan			2,349			2,349			2,349			2,349	Jul. 2007	7.60%		1.08
Subtotal – Other Debt			928,481			430,284			928,481			430,284		7.12%		2.39
Total		$	3,213,813		$	2,250,383		$	3,214,553		$	2,250,433		6.53%		6.43


(1)	Including the effect of the applicable hedge in the case of the aircraft loan. The weighted average funding cost of the credit agreement excludes a $3.1 million write-off of financing expenses.


(2)	Subject to potential mandatory prepayments based on collateral value; payable on demand.


(3)	Approximately $1.66 billion remained undrawn on these credit agreements/lines as of June 30, 2006.


(4)	A maximum of $750.0 million is available on this credit agreement.

Our historical consolidated statements of cash flows reflect the cash flows of Fortress Operating Group as well as those of our consolidated Fortress Funds, all but one of which are investment companies. The consolidated Fortress Funds, on a gross basis, are much larger than Fortress Operating Group and therefore substantially all of the gross cash flows reflected in our statement of cash flows relate to their activities. The primary cash flow activities of Fortress Operating Group are: (i) generating cash flow from operations, (ii) making investments in Fortress Funds (these cash flows are eliminated in consolidation), (iii) meeting financing needs through a credit agreement, and (iv) distributing cash flow to equity holders. The primary cash flow activities of the consolidated Fortress Funds are: (i) raising capital from their investors, which have historically been reflected as non-controlling interests of consolidated subsidiaries in our financial statements, (ii) using this capital to make investments, (iii) financing certain investments with debt, (iv) generating cash flow from operations through the realization of investments, and (iv) distributing cash flow to investors.

As described above in ‘‘Results of Operations on a Historical Basis,’’ our assets under management, which are representative of the net assets within the Fortress Funds, have grown significantly during the periods reflected in our financial statements included in this prospectus. This growth is a result of these funds raising and investing capital, and generating gains from investments, during these periods. Their cash flows, which are reflected in our statement of cash flows for consolidated Fortress Funds, have increased substantially as a result of this growth. It is this growth which is the primary cause of increases in the gross cash flows reflected in our statement of cash flows.

Operating Activities

Our net cash flow used in operating activities was ($2.1) billion, ($2.4) billion, and ($0.7) billion during the years ended December 31, 2005, 2004 and 2003, respectively. These amounts primarily

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include net purchases of investments by consolidated Fortress Funds which are investment companies, after proceeds from sales of investments, of ($2.4 ) billion, ($2.4) billion and ($0.8) billion during those years, respectively, which are reflected as operating activities pursuant to investment company accounting.

Similarly, our net cash flow (used in) operating activities was ($1.9) billion and ($1.1) billion during the six months ended June 30, 2006 and 2005, respectively. These amounts primarily include net (purchases) of investments by consolidated Fortress Funds which are investment companies, after proceeds from sales of investments, of ($1.4) billion and ($0.9) billion during those periods, respectively, which are reflected as operating activities pursuant to investment company accounting.

Investing Activities

Our net cash flow (used in) investing activities was ($0.4 ) billion during the year ended December 31, 2005 and less than ($0.1 billion) during each of the years ended December 31, 2004 and 2003. Our investing activities during the year ended December 31, 2005 included the net purchases of loan and security investments, after proceeds from sales of investments, of ($0.4 ) billion by our one consolidated Fortress Fund which is not an investment company.

Similarly, our net cash flow (used in) investing activities was ($0.1) billion and less than ($0.1) billion during the six months ended June 30, 2006 and 2005, respectively. Our investing activities during the six months ended June 30, 2006 included the net purchases of loan and security investments, after proceeds from sales of investments, of ($0.1) billion by our one consolidated Fortress Fund which is not an investment company.

Financing Activities

Our net cash flow provided by financing activities was $2.5 billion, $2.4 billion, and $0.7 billion during the years ended December 31, 2005, 2004 and 2003, respectively. Our financing activities primarily include: (i) contributions made by, net of distributions made to, the Investors in our consolidated Fortress Funds, historically reflected as non-controlling interests in consolidated subsidiaries, of $1.4 billion, $1.7 billion and $0.6 billion during those years, respectively, (ii) financing of investments by our consolidated Fortress Funds of $1.0 billion, $0.7 billion and $0.2 billion during those years, respectively, (iii) meeting financing needs of Fortress Investment Group through net draws on our credit agreement of $0.1 billion during the year ended December 31, 2005 and less than $0.1 billion during each of the years ended December 31, 2004 and 2003, and (iv) making distributions to our equity holders of $0.1 billion during the year ended December 31, 2005 and less than ($0.1 ) billion during each of the years ended December 31, 2004 and 2003.

Similarly, our net cash flow provided by financing activities was $2.0 billion and $1.1 billion during the six months ended June 30, 2006 and 2005, respectively. Our financing activities primarily include: (i) contributions made by, net of distributions made to, the Investors in our consolidated Fortress Funds, reflected as non-controlling interests in consolidated subsidiaries, of $1.4 billion and $0.9 billion during those periods, respectively, (ii) financing of investments by our consolidated Fortress Funds of $0.5 billion and $0.3 billion during those periods, respectively, (iii) meeting financing needs of Fortress Investment Group through net draws on its credit agreement of $0.4 billion during the six months ended June 30, 2006 and less than $0.1 billion during the six months ended June 30, 2005, and (iv) making distributions to our equity holders of ($0.3 ) billion and ($0.1 ) billion during those periods, respectively.

Application of Critical Accounting Policies

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our combined financial statements, which have been prepared in accordance with U.S. Generally Accepted Accounting Principles (‘‘GAAP’’) as adjusted on a pro forma basis for the transactions described above. The preparation of financial statements in accordance with GAAP requires the use of estimates and assumptions that could affect the reported amounts of assets and liabilities, the

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disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. Actual results could differ from these estimates. A summary of our significant accounting policies is presented in Note 2 to our audited historical combined financial statements included in this prospectus. The following is a summary of our accounting policies that are most affected by judgments, estimates and assumptions.

Our critical accounting policies on a pro forma basis are the same as they are on a historical basis. Due to the consolidation of certain of the Fortress Funds, the effects of these policies on our gross revenues, expenses assets and liabilities were, in some cases, different on a historical basis. However, our historical and pro forma net income and net equity are equivalently affected by these policies with the exception of our accounting for income taxes since our tax status will change on a pro forma basis.

Consolidation

Historically, we consolidated certain of the Fortress Funds as a result of owning a substantive, controlling general partner interest in these entities, or, for variable interest entities, by being their primary beneficiary. We had operational discretion and control of these funds combined with the limited partners' limited substantive rights to impact their ongoing governance and operating activities which resulted in their being consolidated by us; however, in no case were we the majority equity holder. Concurrent with the completion of this offering, Fortress will amend its agreements with the consolidated Fortress Funds to provide a simple majority of the limited partners with the ability to liquidate the funds without cause or otherwise have the ability to exert control over the funds, resulting in the deconsolidation of these funds for financial reporting purposes.

The analysis as to whether to consolidate an entity is subject to a significant amount of judgment. Some of the criteria considered are the determination as to the degree of control over an entity by its various equity holders, the design of the entity, how closely related the entity is to each of its equity holders, the relation of the equity holders to each other and a determination of the primary beneficiary in entities in which we have a variable interest. These analyses involve estimates, probability weighting of subjectively determined cash flow scenarios, and other estimates based on the assumptions of management.

Fortress Operating Group’s combined financial statements reflect the assets, liabilities, revenues, expenses and cash flows of the consolidated Fortress Funds on a gross basis. Our investors' interests in these funds, which are the majority ownership interests, have historically been reflected as non-controlling interests in consolidated subsidiaries in these financial statements. The management fees and incentive income earned by Fortress from the consolidated Fortress Funds are eliminated in consolidation; however, our allocated share of the net income from these funds is increased by the amount of these eliminated fees. Accordingly, the consolidation of these Fortress Funds has no net effect on our net earnings from the Fortress Funds and the deconsolidation of the funds likewise has no net effect on Fortress’s earnings. The deconsolidation will have the effect of restoring the presentation of management fees and incentive income from the Fortress Funds that had been eliminated in consolidation.

Revenue Recognition on Incentive Income

Incentive income is calculated as a percentage of the profits earned by the Fortress Funds subject to the achievement of performance criteria. Incentive income from certain of the private equity funds we manage which is subject to contingent repayment (or clawback) may be paid to us as particular investments made by the funds are realized. If, however, upon liquidation of a fund the aggregate amount paid to us as incentive income exceeds the amount actually due to us based upon the aggregate performance of the fund, the excess is required to be returned by us (i.e. ‘‘clawed back’’) to that fund. We have elected to adopt the preferred method of recording incentive income subject to contingencies, Method 1 of Emerging Issues Task Force Topic D-96 ‘‘Accounting for Management Fees Based on a Formula.’’ Under this method, we do not recognize incentive income subject to contingent repayment until all of the related contingencies have been resolved. Recognition of

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incentive income allocated to us prior to that date is deferred and recorded as a deferred incentive income liability. For GAAP purposes, the determination of when incentive income is recognized as income is formulaic in nature, resulting directly from each fund’s governing documents.

When we calculate distributable earnings, we include incentive income received as revenue, subject to an applicable reserve for potential future clawback if the likelihood of a clawback is deemed greater than remote. For the purpose of calculating distributable earnings, the determination of whether this reserve is necessary is subject to judgment and estimation based on the expected future performance of the related fund. Changes in estimates could result in material changes to the calculation of distributable earnings.

Valuation of Investments

As a result of the deconsolidation described above, our investments in the Fortress Funds are accounted for under the equity method in our pro forma financial information. The Fortress Funds themselves apply specialized accounting principles specified by the AICPA Audit and Accounting Guide – Investment Companies, which we have retained when applying the equity method. As such, our results are based on the reported value of the funds as of the reporting date with our pro rata ownership interest (based on our principal investment) of the changes in each fund's net asset value reflected in our results of operations. We are the manager of these funds and in certain cases participate in the valuation of underlying investments, many of which are illiquid and/or without a public market. The fair value of these investments is generally estimated based on either values provided by independent valuation agents, who use their own proprietary valuation models, or proprietary models developed by us, which include discounted cash flow analyses and other techniques. The values arrived at may be adjusted if, when estimating the value, it is determined that a more accurate value can be obtained from recent trading activity or by incorporating other relevant information that may not have been reflected in pricing obtained from the models. Significant judgment and estimation goes into the assumptions which drive these models and the actual values realized with respect to investments could be materially different from values obtained based on the use of those estimates. The valuation methodologies applied impact the reported value of investment company holdings in our historical combined financial statements.

Income Taxes

Historically, Fortress operated as a limited liability company and was not subject to U.S. federal and had limited state income taxes. However, certain consolidated subsidiaries of Fortress are subject to UBT on their trade and business activities conducted in New York City. The UBT rates vary significantly between the rate applicable to income from business activities and the rate applicable to income from investment activities. Allocation of income between business activities and investing activities is subject to detailed and complex rules applied to facts and circumstances that generally are not readily determinable at the date financial statements are prepared. Accordingly, estimates are made of income allocations in computing our effective tax rate that might be different from actual allocations determined when tax returns are prepared by investee companies and subsidiaries.

After completion of the transactions contemplated by this offering, and the reorganization of our businesses, FIG Corp. will be subject to U.S. federal and state income tax on income allocated to it from Fortress Operating Group. FIG Corp.’s carrying value of the Fortress Operating Group will be higher for income tax purposes than for financial reporting purposes. The net deferred tax asset that will be recognized for this difference will be limited to the tax benefit expected to be realized in the foreseeable future. This benefit will be estimated based on a number of factors, with an important factor being the amount of unrealized gains in all of the net assets of the Fortress Operating Group existing for tax purposes at the date of the reorganization that are actually expected to be realized for tax purposes in the foreseeable future. If the unrealized gains at the date of this offering that will be realized in the future increase or decrease, deferred income tax expense or benefit will be recognized.

Recent Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board (‘‘FASB’’) issued Interpretation No. 48, ‘‘Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109’’ (‘‘FIN

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48’’). FIN 48 requires companies to recognize the tax benefits of uncertain tax positions only where the position is ‘‘more likely than not’’ to be sustained assuming examination by tax authorities. The tax benefit recognized is the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. FIN 48 is effective for fiscal years beginning after December 15, 2006. The adoption of FIN 48 is not expected to have a material impact on Fortress’s financial statements.

In February 2006, the FASB issued Statement of Financial Accounting Standards (‘‘SFAS’’) No. 155, ‘‘Accounting for Certain Hybrid Financial Instruments,’’ which amends SFAS 133, ‘‘Accounting for Derivative Instruments and Hedging Activities,’’ and SFAS 140, ‘‘Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.’’ SFAS 155 provides, among other things, that (i) for embedded derivatives which would otherwise be required to be bifurcated from their host contracts and accounted for at fair value in accordance with SFAS 133 an entity may make an irrevocable election, on an instrument-by-instrument basis, to measure the hybrid financial instrument at fair value in its entirety, with changes in fair value recognized in earnings and (ii) concentrations of credit risk in the form of subordination are not considered embedded derivatives. SFAS 155 is effective for all financial instruments acquired, issued or subject to remeasurement after the beginning of an entity’s first fiscal year that begins after September 15, 2006. Upon adoption, differences between the total carrying amount of the individual components of an existing bifurcated hybrid financial instrument and the fair value of the combined hybrid financial instrument should be recognized as a cumulative effect adjustment to beginning retained earnings. Prior periods are not restated. The adoption of SFAS 155 is not expected to have a material impact on Fortress’s financial statements.

In December 2004, the FASB issued SFAS No. 123 (R), ‘‘Share-Based Payment,’’ which requires all equity-based payments to employees to be recognized using a fair value based method. Fortress’s policy is to expense all equity-based compensation awards granted or modified under the fair value recognition provisions of SFAS 123. However, to date Fortress has not issued any equity-based compensation awards. On January 1, 2006, Fortress adopted SFAS No. 123 (R) using the modified prospective method. Under this method prior period amounts are not restated. While the adoption of SFAS 123 (R) did not have a material impact on our historical financial statements, it has a material impact on our pro forma transactions. This impact has been quantified in ‘‘Unaudited Pro Forma Financial Information.’’

In September 2006, the FASB cleared Statement of Position No. 71, ‘‘Clarification of the Scope of the Audit and Accounting Guide Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies’’ (‘‘SOP 71’’) for issuance. SOP 71 addresses whether the accounting principles of the Audit and Accounting Guide for Investment Companies may be applied to an entity by clarifying the definition of an investment company and whether those accounting principles may be retained by a parent company in consolidation or by an investor in the application of the equity method of accounting. SOP 71 applies to the later of (i) reporting periods beginning on or after December 15, 2007 or (ii) the first permitted early adoption date of the FASB’s proposed fair value option statement. Fortress is currently evaluating the potential impact on adoption of SOP 71.

In September 2006, the FASB issued SFAS No. 157, ‘‘Fair Value Measurements.’’ SFAS 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 applies to reporting periods beginning after November 15, 2007. The adoption of SFAS 157 is not expected to have a material impact on Fortress’s financial statements.

Market Risks

Our predominant exposure to market risk is related to our role as investment manager for the Fortress Funds and the sensitivities to movements in the fair value of our investment on management fee and incentive income revenue. Our investment in the funds will continue to impact our net income in a similar way after the deconsolidation of the Fortress Funds following completion of this offering. For a discussion of the impact of market risk factors on our financial instruments refer to ‘'Quantitative and Qualitative Disclosures About Market Risk’’.

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Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Contractual Obligations

As of December 31, 2005, our material contractual obligations are our capital commitments to our funds, our lease obligations and our debt obligations as described above. In addition, on a historical basis, we had the contractual obligations of our consolidated Fortress Funds. Fixed and determinable payments due in connection with these obligations are as follows:


	Payments due by period
	Total				Less than 1 year				1-3 years				3-5 years				More than 5 years
Operating lease obligations		$	61,030			$	7,196			$	13,427			$	13,269			$	27,138
Service contracts			25,641				6,314				6,525				4,846				7,956
Fortress Operating Group debt obligations payable^(1),(5)			271,814				18,804				253,010				—				—
Northcastle debt obligations payable^(2),(5)			236,328				17,570				16,052				202,706				—
Investment company debt obligations payable^(3),(5)			2,560,362				144,661				691,617				313,031				1,411,053
Consolidated Contractual Obligations			3,155,175				194,545				980,631				533,852				1,446,147
Add Fortress Operating Group capital commitments to Fortress Funds⁽⁴⁾			53,553				53,553				—				—				—
Less consolidated Fortress Funds contractual obligations:
Northcastle debt obligations payable^(2),(5)			(236,328	)			(17,570	)			(16,052	)			(202,706	)			—
Investment company debt obligations payable^(3),(5)			(2,560,362	)			(144,661	)			(691,617	)			(313,031	)			(1,411,053	)
Fortress Operating Group Contractual Obligations		$	412,038			$	85,867			$	272,962			$	18,115			$	35,094


(1)	Included in Fortress Operating Group debt obligations payable is a credit agreement of $230.0 million, which was refinanced on June 23, 2006. As of June 30, 2006, $665.0 million had been drawn under the $750.0 million credit agreement, which is due in June 2011. (See ‘‘Management's Discussion and Analysis of Financial Condition and Results of Operations.’’)


(2)	Represents debt of Northcastle, a Castle for which we have announced liquidation. In connection with the liquidation, which is expected to be completed before December 31, 2006, this debt will be repaid.


(3)	These obligations are those of the Fortress Funds, which will be deconsolidated following completion of this offering. See ‘‘Unaudited Pro Forma Financial Information.’’ During the six months ended June 30, 2006, an additional $305.0 million collateralized debt facility was issued.

(4)

These obligations represent commitments by us to provide capital funding to the Fortress Funds, which are consolidated as of December 31, 2005. Upon completion of this offering, the Fortress Funds will be deconsolidated and these commitments to them will remain. (See ‘‘Unaudited Pro Forma Financial Information’’). These amounts are due on demand and are therefore presented in the less than one year category. However, the capital commitments are expected to be called substantially over the next three years. An additional $139.0 million was committed to newly formed Fortress Funds as of June 30, 2006 as indicated in our capital commitments table.


(5)	Includes interest to be paid over the maturity of the related debt obligation.

Qualitative and Quantitative Disclosures About Market Risk

Our predominant exposure to market risk is related to our role as investment manager for the Fortress Funds and the sensitivities to movements in the fair value of their investments on management fee and incentive income revenue.

The fair value of our financial assets and liabilities of the Fortress Funds may fluctuate in response to changes in the value of securities, foreign exchange, commodities and interest rates. The

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net effect of these fair value changes impacts the gains (losses) from investments in our combined income statements. However, the majority of these fair value changes are absorbed by the non-controlling interest holders. To the extent the Fortress Funds are deconsolidated, our investment in the funds will continue to impact our net income in a similar way.

The following table summarizes our financial assets and liabilities that may be impacted by various market risks such as equity prices, interest rates and exchange rates:


	As of December 31, 2005
Fortress Funds	Fortress Operating Group			Fortress Funds						Consolidated
Fortress Funds	Fortress Operating Group			Investment Companies			Non-Investment Companies⁽¹⁾			Consolidated
Assets
Loans and securities		$	—		$	3,597,958		$	389,978		$	3,987,936
Options in affiliates			23,910			—			—			23,910
Derivatives			655			11,294			—			11,949
		$	24,565		$	3,609,252		$	389,978		$	4,023,795
Liabilities
Securities sold not yet purchased at fair value		$	—		$	45,219		$	—		$	45,219
Derivative liabilities at fair value			247			686			—			933
Investment company debt obligation payable			—			1,820,149			—			1,820,149
Other debt obligations payable			232,349			—			197,935			430,284
		$	232,596		$	1,866,054		$	197,935		$	2,296,585


(1)	Relates to Northcastle

Fortress Funds

The Fortress Operating Group is sensitive to changes in market risk factors that impact management fees and incentive income, which are reflected in our historical combined financial statements as an allocation of income from consolidated Fortress Funds.

Impact on Management Fees

Our management fees are based on either: (i) capital commitments to a Fortress Fund, (ii) capital invested in a Fortress Fund, or (iii) the net asset value, or NAV, of a Fortress Fund, as described in the audited financial statements. Management fees will only be impacted by changes in market risk factors to the extent they are based on NAV. These management fees will be increased (or reduced) in direct proportion to the impact of changes in market risk factors on our investments in the related funds. The proportion of our management fees that are based on NAV is dependent on the number and types of Fortress Funds in existence and the current stage of each fund's life cycle. As of December 31, 2005, approximately 35.7% of our assets under management was based on NAV.

Impact on Incentive Income

Our incentive income is generally based on a percentage of profits of the various Fortress Funds subject to the achievement of performance criteria. Our incentive income will be impacted by changes in market risk factors. However, several major factors will influence the degree of impact: (i) the performance criteria for each individual fund in relation to how that fund’s results of operations are impacted by changes in market risk factors, (ii) whether such performance criteria are annual or over the life of the fund, (iii) to the extent applicable, the previous performance of each fund in relation to its performance criteria, and (iv) whether each fund’s incentive income is subject to contingent repayment. As a result, the impact of changes in market risk factors on incentive income will vary widely from fund to fund, is heavily dependent on the prior performance of each fund, and is therefore not readily predicted or estimated.

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Fortress Operating Group

Financial assets and liabilities of Fortress Operating Group, on a stand-alone basis, that are impacted by changes in the value of securities, foreign exchange, and interest rates are debt obligations payable, options in affiliates and foreign currency forward contracts entered into to economically hedge the risk of fluctuations in foreign currency exchange rates with respect to its foreign investments.

Interest Rate Risk

Fortress Operating Group has debt obligations payable that accrue interest at variable rates. Interest rate changes may therefore impact the amount of interest payments, future earnings and cash flows. Based on debt obligations payable as of December 31, 2005, we estimate that interest expense relating to variable rate debt obligations payable would increase $2.3 million on an annual basis in the event interest rates were to increase by one percentage point.

Equity Prices and Exchange Rate Risk

Gains (losses) on options granted to us by one of the Castles may be affected by movements in (i) the equity price of the underlying shares and (ii) the rate of exchange between the U.S. dollar and the Euro. Fortress Operating Group is not materially exposed to foreign exchange risk since foreign investments are economically hedged by foreign currency forward contracts. Based on the levels of gains (losses) on investments for the year ended December 2005, we estimate that gains and losses on investments would amount to $4.9 million and $4.6 million, respectively, in the event of a 10% change in the equity price of the underlying shares.

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INDUSTRY

Overview of the Alternative Asset Management Industry

Background

The asset management industry is a multi-trillion dollar business, based on assets under management, focused on the management of investments on behalf of investors in exchange for a contracted fee. The asset management industry can be broadly divided into two categories: traditional asset management, and the alternative asset management business.


	•	Traditional asset management, in general, involves managing portfolios of actively traded equity, fixed income and/or derivative securities. The investment objectives of such portfolios may include total return, capital appreciation, current income and/or replicating the performance of a specific index. Such portfolios may include investment companies registered under the Investment Company Act of 1940 (e.g. mutual funds, closed-end funds or exchange-traded funds) or separate accounts managed on behalf of individuals or institutions. Managers of such portfolios are compensated, in general, on a monthly or quarterly basis, at a contracted fee based on the assets under management, generally without regard to performance of the investments held in the portfolio. Managers of such portfolios, in the United States, are typically registered with the SEC under the Investment Advisers Act.


	•	Alternative asset management, in general, involves a variety of investment strategies where the common element is the manager's goal of delivering investment performance on an absolute return basis within certain predefined risk parameters. These investment returns tend to have a lower correlation to the broader market than do traditional asset management strategies. Such portfolios may include commingled funds organized as limited partnerships, separate accounts managed on behalf of individuals or institutions, or investment companies registered under the Investment Company Act of 1940 (e.g. business development companies). Alternative investment funds of such portfolios are typically exempt from registration with regulatory authorities. Advisers of such portfolios, in the United States, may or may not be registered with the SEC under the Investment Advisers Act, depending upon the composition of the portfolio investors.

Alternative asset management portfolios are commonly referred to by such categories as hedge funds, private equity funds or real estate funds, among others. The commonality across nearly all alternative asset management portfolios is that the fee arrangements typically include a significant performance fee (incentive income) component and that investor expectations are satisfied by the ability to deliver absolute returns, rather than returns which are measured in relation to benchmark indices.

A further discussion of private equity funds, hedge funds and real estate funds is set forth below.

Private Equity Funds

Private equity funds generally refer to portfolios of non-actively traded common equity, preferred stock or mezzanine or distressed debt securities of private companies, but such funds may include investments in such equity or debt securities of public companies. Private equity funds also may include investments that constitute either control or minority positions in private companies or investments in an array of real estate securities or assets, including those made through special purpose funds that have risk-return characteristics similar to those of other private equity investments and venture capital investments. Private equity fund managers often seek to exploit dislocations in the market when other investors do not recognize the value of a certain company or security. These investments may include significant changes to a company's capital structure through the use of borrowed capital, a strategy referred to as a ‘‘leveraged buyout’’. In certain cases, private equity funds engage in the acquisition and delisting of public companies.

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Private equity funds are typically structured as unregistered limited partnership funds that obtain commitments from certain qualified investors to invest a specified amount of equity capital on their behalf. These funds are typically ten year fixed-lived vehicles with provisions to extend if appropriate. Investors' capital is typically called by the fund as investments are made over the first three to six years of the fund's term. Investors' capital is returned through distributions and when those investments are subsequently liquidated. Liquidation typically occurs within five to eight years. Typical private equity fund investors are high net worth individuals and institutions. Private equity fund managers typically earn fees as follows: (i) management fees on committed or contributed capital, (ii) transaction and monitoring fees as capital is invested and (iii) fees based on the net profits of the fund, often subject to a preferred return for investors and contingent repayment based on actual realized performance of the fund at the time of liquidation. Private equity fund managers typically commit a portion of their own capital to the funds they manage.

Private equity fund managers expect to outperform the broader stock indices. Based on the Thomson Venture Economics/National Venture Capital Association's Private Equity Index, the annualized return on private equity funds for the ten-year period ended December 31, 2005 was 12.3% as compared with a return of 7.3% for the S&P 500 Index over the same period.

According to Thomson Venture Economics, there are currently over 1,800 private equity funds in existence globally. Private equity funds have experienced significant inflows recently, with over $350 billion of capital raised in the U.S. since 2002, according to Thomson Financial. In addition, Thomson Financial reports that leveraged buyout deal volume was at an all-time high of over $97 billion in 2005 and has already exceeded $110 billion in the six months ending June 30, 2006.


Capital Raised by US Private Equity Firms			US LBO Volume

Source: BUYOUTS. YTD 2006 as of June 30, 2006.			Source: Thomson Financial. YTD 2006 as of June 30, 2006.

Hedge Funds

Hedge funds generally refer to privately held and unregistered investment vehicles managed with the primary aim of delivering positive risk-adjusted returns under all market conditions. Hedge funds typically differ from traditional asset vehicles such as mutual funds either by the strategies they employ or the asset classes in which they invest. Asset classes in which hedge funds may invest include liquid and illiquid securities, derivatives instruments, pools of loans or other financial assets, asset-backed securities and a variety of other non-traditional assets such as distressed securities. Strategies employed by hedge funds include asset based lending; equity long-short convertible arbitrage; distressed securities; equity market neutral; fixed income arbitrage; merger arbitrage; and global macro and other quantitative and non-quantitative strategies. These strategies can employ methods including use of leverage, short positions, hedging, swaps, arbitrage derivatives and quantitative or other methods.

Hedge funds are typically structured as limited partnerships or limited liability companies. Hedge fund managers may be subject to registration as investment advisors under federal securities law. Hedge fund managers typically earn (i) management fees based on the net asset value of the fund and

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(ii) incentive fees based on the performance of the fund that they manage (i.e., the net realized and unrealized gains in the portfolio). There are, however, some limitations to these fees. Some hedge funds set a ‘‘hurdle rate’’, under which the fund manager does not earn an incentive fee until the fund's performance exceeds a benchmark rate. Another feature common to hedge funds is the ‘‘high water mark’’, which serves to encourage fund managers to recoup losses. Under a high water mark arrangement, a fund manager does not earn incentive fees until the net asset value exceeds the highest historical value on which incentive fees were last paid. Hedge fund managers typically commit a portion of their own capital in the funds they manage. Investors can invest and withdraw funds periodically in accordance with the terms of the funds, which may include initial lock-up periods and limitations on withdrawals. Typical hedge fund investors are high net worth individuals and institutions.

Historically, many hedge fund strategies have provided investors with attractive risk-adjusted returns and limited statistical correlation with the performance of equity or bond markets. For example, the HFRI Fund Weighted Composite, which is an index that tracks the performance of a broad group of hedge funds, yielded an annualized 8.7% return with a standard deviation of 5.1% over the last five years in comparison to the S&P 500 Index, which yielded an annualized 2.5% return with a standard deviation of 13.6% from July 1, 2001 to June 30, 2006. During the same period, eleven out of the nineteen hedge fund strategies tracked by the HFRI Fund Weighted Composite had a correlation of 0.5 or less to the monthly returns of the S&P 500 Index.

According to Hedge Fund Research, as of September 30, 2006, there are currently more than 7,093 hedge funds in existence globally, spanning a range of target risk return profiles. Global assets under management in the hedge fund industry, as reported by Hedge Fund Research, have grown by approximately 25% annually since 1990 to exceed $1.2 trillion as of June 30, 2006.


Hedge Fund Assets Under Management			Hedge Fund Net Asset Flows

Source: Hedge Fund Research. YTD 2006 as of June 30, 2006.			Source: Hedge Fund Research. YTD 2006 as of June 30, 2006.

Real Estate Funds

Real estate funds generally refer to portfolios of actively or non-actively traded equity, fixed income, preferred stock or loan securities of real estate companies, mortgage backed securities, or direct investments in real estate properties. In general, real estate funds are return-oriented portfolios that provide income and/or the potential for long-term capital appreciation. A real estate fund may be structured as a limited partnership, similar to a private equity fund or limited liability company or, as a REIT. Typical real estate fund investors are high net worth individuals and institutions and may include retail investors under certain structures such as a REIT. Real estate fund managers typically earn fees as follows: (i) management fees paid as a percentage of average assets under management in a fund and (ii) performance or incentive fees paid as a percentage of a fund's earnings performance (i.e., funds from operations) in excess of established preferred returns.

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Industry Trends

Increased Institutional Investor Allocations

Based on their relative share of new investment flows, alternative asset management strategies have gained market share from traditional asset management strategies and are expected to continue to do so. According to McKinsey & Company, the percentage of net new investment flows into alternative asset classes has grown from 7% to 22% between 2002 and 2005, Hedge funds alone are reported by McKinsey & Company to have received approximately 40% to 50% of these flows during 2005.

Much of the recent growth in the alternative investment industry can be attributed to investments by a growing community of individual and institutional investors seeking alternative asset management strategies as a means to obtain diversification improving the risk adjusted return profile of their portfolios. Despite the rapid expansion in institutional inflows, alternative asset management strategies still account for a relatively small portion of total institutional assets, which in turn implies significant opportunity for continued growth. Among hedge funds, for example, Casey, Quirk & Associates reported that global institutional holdings are expected to grow from approximately $360 billion in 2005 to over $1 trillion by 2010. Likewise, global hedge fund allocations, in the aggregate, are expected to rise to 3.5% of overall institutional assets by 2010 from 2% in 2005. The increased role of institutional investors has resulted in increased professionalism in the industry and a greater focus on risk management and investment operations.

Product Innovation

Alternative asset managers are expanding their investment products in an effort to take advantage of attractive investment opportunities, provide more choices and attract more capital from investors. Private equity fund managers are broadening their fund offerings to include specialized strategies such as distress investing, in distressed securities, the development of mezzanine and infrastructure funds, and are also expanding into new geographic regions. Hedge funds also are increasing their investment product offerings such as expanding the number of single strategy funds offered and creating multi-strategy vehicles to provide additional diversification to investors. In addition, the managers of some private equity and hedge funds are seeking to expand their investor base by creating publicly-traded permanent capital vehicles which co-invest in their funds, giving public investors exposure to these asset classes.

Growth of Larger Funds

Institutional investors are attracted to larger funds with well established track records, systems, operations and advanced risk management capabilities. Managers of larger funds typically manage multiple funds with various strategies and, in the case of hedge funds, may have the ability to allocate capital among strategies in a dynamic fashion based on market conditions. As a result, the number of larger funds in both the private equity and hedge fund sectors has increased in recent years. According to Thomson Venture Economics, the percentage of new private equity funds with more than $1 billion in capital raised increased from 6.6% of all new private equity funds formed in 2002 to 16% by the end of 2005.

Convergence of Private Equity and Hedge Funds

Many fund managers which have traditionally been associated with hedge funds or private equity funds have begun to adopt the strategies typically associated with the other classification. Examples include hedge funds taking control positions in companies, private equity funds making minority investments in public companies or managers establishing new funds with mandates more typical of the other class.

Additionally, in recent years, especially in the context of larger funds, private equity and hedge fund operations have increasingly converged. Housing both private equity and hedge funds under the

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same organization has offered investment management companies significant opportunities. Successful managers are able to rely upon their track records, existing client base and long-term relationships to secure capital as well as provide a more diverse range of products and strategies to suit their clients' evolving needs. Additionally, from an operational perspective, managing both private equity and hedge fund businesses within the same organization has provided managers with opportunities to leverage support and fundraising operations, research activities and to obtain deeper industry expertise. Among more sophisticated, institutionalized managers, this convergence trend will likely continue as investment management companies realize the scalability of the model and the potential benefits associated with it.

Increased Sector Scrutiny

The institutionalization of the alternative asset management industry is pressuring alternative asset managers to develop more robust infrastructures, as large institutional investors require greater transparency and robust risk management systems. In addition, as the investor base of alternative asset managers continues to expand, there is increased regulatory attention to the sector. In particular, in 2005, the SEC adopted a new rule that had the effect of requiring certain hedge fund managers to register with the SEC as registered investment advisers. Although this rule has been overturned by a US court, the SEC continues to consider the scope of regulation of the hedge fund industry.

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BUSINESS

Overview

Fortress was founded in 1998 as an asset-based investment management firm with a fundamental philosophy premised on alignment of interests with the investors in our funds. Our funds primarily employ absolute return strategies. Investment performance is our cornerstone – as an investment manager, we earn more if our investors earn more. In keeping with our fundamental philosophy, we invest substantial capital in each of the investment funds we manage. As of June 30, 2006, the net asset value of Fortress's principal investments in, and the amount of our unfunded commitments to, our funds was approximately $500 million in the aggregate.

We have grown our assets under management significantly, from approximately $1.2 billion as of December 31, 2001 to approximately $26 billion as of September 30, 2006, or an 91% compounded annual growth rate. We will continue to strategically grow our assets under management and to generate superior risk-adjusted investment returns in our funds, solidifying our status as a best-of-class global alternative asset management enterprise. We are guided by the following key objectives and values:


•	generating top-tier risk-adjusted investment returns;


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


•	maintaining a disciplined investment process and intensive asset management;


•	being a thought leader in the alternative asset management industry; and


•	adhering to the highest standards of professionalism and integrity.

Why We Are Going Public

In order to maintain and expand our position as a leading global alternative asset manager, we need people, permanence, capital and currency. As a public company, we will be best positioned to meet each of these goals:

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	•	People — to increase our ability to provide financial incentives to our existing and future employees through the issuance of publicly-traded equity securities that represent the value and performance of the company as a whole. In a highly competitive market for investment professional talent, publicly-traded equity securities provide us with a valuable additional compensation tool;


	•	Permanence — to solidify our institutional presence as an ‘‘investor.’’ Being a public alternative asset manager will benefit us as institutions and individuals increase the portion of the capital they allocate to us;


	•	Capital — to more efficiently access capital that we can use to grow our businesses and create new investment products; and


	•	Currency — to provide us with a publicly-traded equity security that we can use to finance future strategic acquisitions.

Our Current Businesses

As of September 30, 2006, we managed approximately $26 billion of alternative assets in three core businesses:

Our Growth Strategy

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Competitive Strengths

By taking advantage of the following competitive strengths, we expect to continue to grow our asset management business and consistently deliver superior returns for our investors:


	•	Distinguished Investment Track Record. Our funds are consistently among the highest performing funds within their strategies, and have earned Fortress a reputation as a top-tier firm that is able to deliver strong and consistent performance across industries, geographic regions and economic cycles. A defining feature of our investing approach has been our ability to deliver these returns while also minimizing the risk of investment loss.


	•	Alignment with Our Investors. In keeping with our fundamental philosophy premised on an alignment of interest with our investors, we invest substantial capital in each of the investment funds we manage. As of June 30, 2006, the net asset value of Fortress's investments in, and the amount of our unfunded commitments to, our funds was approximately $500 million in the aggregate. In addition, a significant portion of the compensation of our senior investment professionals is based on the performance of our investment funds.


	•	People. We have assembled a team of more than 250 investment professionals to deliver focused idea generation and execution across our businesses. The team is led by our five principals, who have participated in investment activities together in various capacities for many years. The success and dynamism of the company, and our investment-oriented culture, helps us attract and retain the highest quality, result-driven people.


	•	Global Platform. We invest broadly in multiple geographic markets. We believe that our ability to successfully translate our investment strategies into various geographic markets allows us to take advantage of a diverse range of opportunities and provides us with additional opportunities to deploy capital on behalf of our funds.


	•	Dividend Policy. Unlike many publicly-traded asset managers, we intend to pay out a significant portion, approximately %, of our annual distributable earnings in the form of quarterly dividends to our Class A shareholders (on a fully-diluted basis). We believe that this dividend policy will provide transparency to our Class A shareholders and will impose upon us an investment discipline with respect to new products, businesses and strategies.


	•	Strong Investor Base with Efficient Distribution. The entities and individuals that invest in our funds, which we refer to as ‘‘our investors,’’ include many of the largest pension funds, university endowments, and financial institutions, as well as individuals. We manage capital for approximately 650 investors in our private equity funds and hedge funds. Many of our investors are invested in multiple Fortress Funds, and have invested in new products at launch. We believe that our deep investor relationships, founded on our consistent performance, disciplined and prudent management of our investors' capital and emphasis on clear, responsive investor communication, make it easier for us to grow our existing businesses and launch new businesses. In addition, the strong performance of the companies whose initial public offerings we have sponsored, including our Castles and certain portfolio companies of our private equity funds has earned us brand recognition as a financial sponsor and support among institutional public equity investors, which should positively affect our ongoing ability to capitalize new businesses in the public markets.


	•	Long-Standing Relationships. We manage diverse and highly transactional businesses, and therefore we are continuously active in the capital markets on behalf of our funds as both an

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		issuer and investor. We have close relationships with key financing sources and capital market intermediaries that have augmented our ability to execute transactions in various businesses. We have long-standing relationships with business and financial leaders that are also crucial to the success of our transactional businesses.

Investment Performance of Our Funds

We believe the main reason for the growth in our assets under management is the investment performance of the Fortress Funds. A manager's ability to create value on an absolute return basis is a central element common to all ‘‘alternative investment’’ categories: investor perceptions of manager performance are driven not by how well a fund performs relative to a benchmark index, but by how well the fund performs.

The following table provides the performance of certain of our funds.


($ in billions)	AUM⁽¹⁾			Inception		No. of Funds Managed⁽²⁾		Net Annualized Returns⁽³⁾
Private Equity⁽⁴⁾		$	13.6		1999		13		38.8	%
Hedge Funds
Liquid hedge funds (Global Macro funds)			4.4		2002		2		14.2	%⁽⁵⁾
Hybrid hedge funds (Special Opportunities funds)			4.5		2002		2		13.7	%⁽⁶⁾
Castles			3.0		2002		2		50.6	%
Total		$	25.5				19


(1)	‘‘AUM’’ is assets under management as of September 30, 2006.


(2)	Included in the number of funds managed in our private equity business are our four main private equity funds, seven co-investment funds and two long dated value funds.


(3)	‘‘Net Annualized Returns’’ for each of the four groups of funds are based on the following methodologies:


	a)	For the private equity funds, the return is as of June 30, 2006 based on an aggregate IRR of the investors of each of our private equity funds net of all fees and expenses (see ‘‘Net IRR’’ note on page 112).


	b)	For each of the Drawbridge Global Macro and Drawbridge Special Opportunities hedge funds, the net annualized returns are as of September 30, 2006, and reflect monthly returns for a ‘‘new issue eligible’’ investor investing in the funds at their inception net of all fees and expenses borne by the fund. Allocation of new issues to new issue eligible investors has historically resulted in returns to such investors that are higher than the returns to other investors.


	c)	For the Castles, the return is based on a simple average of Eurocastle's and Newcastle's annualized compounded rate of return. The compounded rate of return is based on (i) the change in stock price from the initial public offering through October 27, 2006, and (ii) assuming that the dividends paid from the initial public offering through October 27, 2006 are reinvested in the company's stock at the closing price on the dividend payment date.


(4)	For fund level net annualized returns of the private equity funds, see ‘‘— Our Funds — Private Equity.’’

(5)

The net annualized returns of the Liquid Hedge Fund segment since inception in 2002, including both the Drawbridge Global Macro Funds and, for their 19 months since inception, the Drawbridge Relative Value Funds which had AUM of $0.2 billion as of September 30, 2006, calculated using the net monthly returns of new issue eligible investors in the funds paying standard fees, weighted by the AUM of each fund as of the first day of each month, is 13.3%.

(6)

The net annualized returns of the Hybrid Hedge Fund segment since inception in 2002, including both the Drawbridge Special Opportunities Funds and, for its 3 months since inception, the Fortress Partners Fund which had AUM of $0.3 billion as of September 30, 2006, calculated using the net monthly returns of new issue eligible investors in the funds paying standard fees, weighted by the AUM of each fund as of the first day of each month, is 13.7%.

In considering the performance information contained herein, prospective Class A shareholders should bear in mind that the performance reflected in the preceding table is not indicative of the possible performance of our Class A shares and is also not necessarily indicative of the results of such funds, even if investments were in fact liquidated on the dates indicated, or of future fund results, and there can be no assurance that these funds will continue to achieve, or that future funds will achieve, comparable results.

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With respect to the private equity funds, valuations of unrealized investments (other than public securities) are subjective in nature, and do not necessarily represent the ultimate realizable value of these investments. In addition, recent trading prices of public securities are not necessarily indicative of the ultimate value of these investments. The actual realized returns on unrealized investments will depend on, among other factors, future operating results, the value of assets and market conditions at the time of disposition, any related transaction costs and the timing and manner of sale, all of which may differ from the assumptions on which the valuations are based. Accordingly, the actual realized returns on unrealized investments may differ materially from those used in the returns indicated above.

In addition, prospective Class A shareholders should bear in mind that the private equity funds' rates of returns have been positively influenced by a select number of investments that experienced rapid and substantial increases in value following the initial public offering of the private equity portfolio companies in which those investments were made; there is no way to determine if the market circumstances which resulted in such increases in value will repeat themselves with respect to any other portfolio company of any present or future private equity fund.

Our Funds

We are a global investment manager specializing in alternative assets. Our current offering of alternative investment products includes private equity funds, hedge funds and publicly traded alternative investment vehicles. We refer to these investment products, collectively, as the Fortress Funds. Our principal sources of revenues from the Fortress Funds consist of (i) management fees, which are typically earned as a percentage of assets under management, (ii) incentive income, which is typically earned as a percentage of profits, in some cases in excess of, or subject to achieving, specified thresholds, and (iii) investment income, which represents the returns on our principal investments in the Fortress Funds.

Across our businesses, our investment approach is defined by certain common elements:


	•	Disciplined investment process. Each of Fortress's businesses is focused on fundamental research regarding investment opportunities to ensure that relationships between profit potential and risk are understood. In businesses that are conducted primarily by means of privately negotiated transactions, such as the private equity and hybrid hedge fund businesses, written investment committee memoranda setting forth our investment thesis, generally accompany any significant investment.


	•	Active management. Fortress takes an extremely active, hands on approach to identifying and managing our investments, using an extensive in-house asset management and risk control teams. Our asset management group's core competencies vary from business to business, consistent with the business's specific investment profile. We believe our ability to take advantage of situations, sectors and structures allows us to create value in ways often overlooked by other alternative investment managers.


	•	Focus on fundamentals. We approach investments in each of our businesses by focusing on the fundamental drivers of return. We employ a disciplined investment process which evaluates the risk-adjusted return on capital from both new and incremental investments.


	•	Preservation of capital. We believe that a critical step to delivering attractive returns to investors is minimizing the risk of loss on investments. Accordingly, in each of our businesses we focus on strategies for minimizing downside risk. Within our private equity and hybrid hedge fund businesses, for example, our focus on asset-based investing provides downside protection in the form of tangible collateral and diversified cash flows, and often enables us to return invested capital over a short time period, while retaining upside potential. Within our liquid hedge fund business, risk analysis and an actively managed portfolio limits our funds' exposure to market risks.


	•	Capital markets sophistication. Fortress is regarded as a leader in the global debt and equity capital markets. We draw on our team of dedicated structured finance, tax and legal experts

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		to structure innovative financing alternatives in order to minimize our capital costs and provide conservative but efficient financing that matches the investment profile of our funds. This, combined with our significant activities in the public equity markets, enhances Fortress's ability to source, execute and maximize the value of investments we manage.


	•	Synergies between our businesses. Complementary interaction between our businesses, which invest in all levels of the capital structure, allows us to capitalize on potential investment opportunities wherever they arise. Our businesses operate across asset types and geographies and provide us with superior information ranging from broad macro analysis to deep sector and company-specific knowledge. The personnel in our various businesses have broad-ranging skill sets, with expertise specific to such businesses. By managing our company openly, we are able to share information, expertise and risk analysis methodologies across our businesses, consistent with our rigorous policies and procedures for ensuring compliance with all applicable laws and regulations.

Private Equity

Overview

Fortress is a leading global private equity investment manager. Our private equity business is made up primarily of a series of funds named the ‘‘Fortress Investment Funds’’ and organized to make control-oriented investments in cash flow generating, asset-based businesses in North America and Western Europe. In addition, we manage two smaller ‘‘long dated value’’ funds to take advantage of opportunities to buy undervalued assets with long dated cash flows.

Investors in our private equity funds commit capital at the outset of a fund, which is then drawn down as investment opportunities become available, generally over a one to three year investment period. Profits are returned to investors as investments are realized, generally over eight to ten years. Management fees of 1% to 1.5% are generally charged on committed capital during the investment period of a new fund, and then on invested capital. We also earn a 20% share of the profits on each realized investment — our incentive income — subject to our achieving a minimum return with respect to the fund as a whole, that is, taking into account all gains and losses on all investments in the fund. In the ordinary course, several years may elapse between the time that a fund's capital is raised and gains or losses are realized. In the interim, the funds' investments are marked at fair value at the end of each quarter, which valuations are reflected in our quarterly results relating to our principal investments in the funds. For a discussion of our incentive income with respect to the private equity funds, see ‘‘Management's Discussion and Analysis of Financial Condition and Results of Operations — Segment Analysis — Private Equity Funds.’’ Private equity assets under management was $13.6 billion as of September 30, 2006, $9.8 billion as of December 31, 2005, $5.2 billion as of December 31, 2004, and $2.2 billion as of December 31, 2003. Our private equity funds' distributable earnings represented 47% of our distributable earnings for the year ended December 31, 2004, 44% of our distributable earnings for the year ended December 31, 2005 and 46% of our distributable earnings for the six months ended June 30, 2006. We also make principal investments in these funds and earn investment income from the returns on those investments.

Fortress Investment Funds

The Fortress Investment Funds are overseen by Wesley Edens, our Chief Executive Officer, along with Robert Kauffman and Randal Nardone. Fortress has raised four diversified private equity funds and a series of co-investment funds, totaling $10.7 billion of capital, from leading institutional investors and high net worth individuals. Since launching our private equity business in 1999, our funds have acquired assets and asset-based businesses in 76 transactions. Over their lives, the Fortress Investment Funds seek to generate 20% annual net returns to investors and to return at least two times invested capital. Our funds have averaged 38.8% annualized net returns through June 30, 2006 while at the same time minimizing investment loss. In 76 transactions to date, only one significant investment has lost money, with total losses representing less than 1.0% of total invested capital.

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The following table sets forth certain information with respect to our private equity funds.


					June 30, 2006
(dollars in thousands)
	Inception Date	Total Capital Commitments			Equity Invested/ Committed⁽¹⁾			Remaining Equity Invested			NAV⁽²⁾			Net IRR⁽³⁾
Fortress Investment Fund I	Nov-99		$	872,838		$	946,115		$	74,670		$	1,437,946		31.3	%
Fortress Investment Fund II	Jul-02			1,250,000			1,619,350			507,457			2,136,061		69.5	%
Fortress Investment Fund III	Sep-04			2,170,179			1,963,200			1,834,378			2,033,679		30.0	%
Fortress Investment Fund IV	Mar-06			3,045,050			470,000			470,000			—		—
Subtotal – ‘‘Main’’ Funds				7,338,067			4,998,665			2,886,505			5,607,686		39.3	%
Fortress Brookdale Investment Fund	Sep-00			15,000			15,000			3,676			37,965		24.0	%
Fortress Pinnacle Investment Fund	Jul-02			25,500			25,500			—			243,257		93.6	%
Fortress GAGACQ Sidecar Funds	Sep-04			293,299			293,299			293,299			499,810		28.9	%
Fortress Investment Fund III Coinvestment Fund	Nov-04			250,000			216,000			216,000			285,992		39.5	%
Fortress Residential Investment Deutschland	Mar-05			2,036,725			1,014,500			944,341			907,478		nm
Fortress Investment Fund IV Coinvestment Fund	Apr-06			750,166			75,000			75,000			—		—
Subtotal – Coinvestment Funds				3,370,690			1,639,299			1,532,316			1,974,502		35.8	%
Long Dated Value Fund	Apr-05			223,869			218,585			216,947			180,178		12.3	%
Long Dated Value Fund II	Nov-05			272,510			65,388			65,388			28,945		19.6	%
Subtotal – Long Dated Funds				496,379			283,973			282,335			209,123		12.5	%
Total			$	11,205,136		$	6,921,937		$	4,701,156		$	7,791,311		38.8	%


(1)	‘‘Equity Invested/Committed’’ for a fund (i) represents amounts invested as well as committed to investments as of the applicable date and (ii) may exceed the total capital commitments of investors to the fund as a result of the fund manager's limited ability to recall for investment capital which has been previously invested and returned.

(2)

‘‘NAV’’ of a fund on June 30, 2006 is the net asset value of such fund as of that date. In determining net asset value of an investment fund the fair value of the fund's investments is determined in accordance with the fund's valuation policies as described in the audited financial statements. Specifically, the fair value of public securities is their closing price on June 30, 2006, without any illiquidity discount to reflect the size of the holdings, restrictions or insider status, or any control premium for large equity positions. Investment valuations (other than those for public securities) are subjective in nature and do not necessarily represent the ultimate realizable value of these investments. Recent trading prices of public securities are not necessarily indicative of the ultimate value of these investments.

(3)

‘‘Net IRR’’ is the internal rate of return based upon actual investor contributions and distributions through June 30, 2006 and an assumed liquidation of investments on June 30, 2006 at their NAV, calculated after deducting management fees, incentive income, taxes and other fund expenses. An internal rate of return is the discount rate that delivers a net present value of zero for a series of cash flows which expresses the annual yield from an investment based on the series of cash flows.

In considering the performance information contained herein, prospective Class A shareholders should bear in mind that the performance reflected in the preceding table is not indicative of the possible performance of the Class A shares and is also not necessarily indicative of results of the funds, even if investments were in fact liquidated on the dates indicated, or of future fund results, and there can be no assurance that new private equity investments will achieve comparable results.

We focus on sectors and opportunities where we think we can (i) acquire assets at attractive valuations; (ii) lock in downside protection in the form of tangible collateral and diversified cash flows; and (iii) create significant upside from improvements to the operations, capitalization and growth of the underlying businesses pursuant to strategic development plans. Sectors within which our private equity funds have been active investors include financial services, residential and commercial real estate, senior living, transportation and media/telecommunications.

We draw upon Fortress's specialized expertise in asset valuation, structured finance, mergers and acquisitions, bankruptcy and restructuring, and the public markets to identify, underwrite and create value in entities held by our private equity funds (‘‘portfolio companies’’). To find the most compelling opportunities, we pursue a broad range of transaction types. Our funds have acquired entities both

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directly and through the bankruptcy/restructuring process. We have also built businesses from the ground up, assembling assets and management teams, in order to take advantage of unique market opportunities.

We routinely access the public capital markets to efficiently capitalize our portfolio companies. We have considerable capital markets expertise and are regarded as a market leader in securing low-cost, low-risk structured financing. In numerous ‘‘first of a kind’’ securitized transactions, we have utilized innovative financing alternatives to significantly reduce borrowing costs and increase financing flexibility; in previously miscapitalized sectors, we have also been able to stabilize companies' capital structures and help sustain long term cash flows.

We have also sponsored the initial public offering of seven private equity portfolio companies since 2004. Our funds' investments in these public companies include $7.5 billion of unrealized gains based on their stock price as of October 27, 2006. Twenty percent of those profits, which we call our private equity unrealized ‘‘surplus,’’ represent Fortress's unrealized potential incentive income in respect of these investments. This potential incentive income, while not reflected currently in our revenues or distributable earnings, represent a significant source of potential additional revenues to us if and when such investments are realized. The periods in which such incentive income will be realized will be a function of our decisions regarding the timing of realization of fund investments in our portfolio companies, with actual amounts, which may be significantly less, a function of market conditions at those times.


Portfolio Company	IPO Date	Shares owned⁽¹⁾		Price per share			USD Market Value⁽²⁾
		(in thousands)		(October 27, 2006)			(dollars in thousands)
Gatehouse Media (NYSE: GHS)	10/06		22,050		$	22.00		$	485,100
GAGFAH (FSE: GFJ)	10/06		150,421		€	22.95			4,398,043
Aircastle Limited (NYSE: AYR)	8/06		35,000		$	31.75			1,111,250
Brookdale Senior Living (NYSE: BKD)	10/05		59,925		$	48.05			2,879,396
Mapeley Limited (LSE: MAY)	6/05		15,582		£	34.42			1,017,948
Eurocastle Investment Ltd (ENXT: ECT)	N/A		8,571		€	35.30			385,457
Global Signal (NYSE: GSL)	6/04		24,368		$	54.72			1,333,417
Total								$	11,610,611


Potential USD Proceeds	$	11,610,611
Cost Basis (including debt) as of October 27, 2006		(4,092,962	)
Total Potential Unrealized Gains	$	7,517,649	⁽³⁾
Fee Paying %		94.26	%
Promotable Dollars	$	7,086,136
Maximum Eligible Performance Fee %		20.00	%
Total Potential Performance Fee	$	1,417,227
Employee % of Performance Fee		37.6	%
Potential Performance Fees to Fortress Operating Group (unrealized surplus)	$	884,350	⁽⁴⁾


(1)	Includes shares owned in hybrid hedge funds.


(2)	Foreign exchange rates are as of October 27, 2006. Calculated as the number of shares held multiplied by the closing stock price on the applicable stock exchange, without regard to liquidity discounts or other factors that could adversely impact the potential proceeds that might be realized upon disposition of these shares.


(3)	Assumes all incentive income thresholds specified in applicable fund agreements are met.

(4)

Amounts ultimately received by us may vary significantly based on a variety of factors including future public market values of these investments as well as the performance of investments which are not listed above held by the funds which hold the investments listed above. See ‘‘Risk Factors — Risks Related to this Offering — Historical returns attributable to our funds may not be indicative of the future results of our funds and are not indicative of our future results.’’

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Long Dated Value Funds

In addition to our Fortress Investment Fund family of funds, we introduced in early 2005 a pioneering private equity fund product — the Long Dated Value family of funds — which focuses on making investments with long dated cash flows that may be undervalued because of the lack of current cash flows or because the investment is encumbered by a long term lease or financing, and that provide for significant capital appreciation over the long term. Over their lives, the Long Dated Value Funds seek to generate approximately 9% to 10% annual net returns to investors. The Long Dated Value Funds are overseen by Peter Briger. The Long Dated Value Funds focus on transactions which may be complicated, unique or highly structured in situations where market participants may have limited ability to assess the value of an asset until many years in the future. Examples of investments include rent-stabilized apartment portfolios, residual interests in power plants and oil and gas royalty interests.

The Long Dated Value Funds are generally similar in structure to the Fortress Investment Fund family of funds, including in terms of fees payable to us, except that the funds have an investment life of 25 years, reflecting the funds' investment profiles, and incentive income is distributed to us after all of a fund's invested capital has been returned, rather than as each investment is realized. Historical assets under management are as follows:

Long Dated Value Funds


	9/30/2006			12/31/2005
AUM (dollars in millions)		$	518		$	506

Certain additional information with respect to the Long Dated Value Funds is included in the table above under ‘‘—Investment Performance of our Funds’’.

Hedge Funds

Overview

Fortress is a market leader in the creation and management of hedge fund investment products. Our hedge fund business focuses on absolute returns and is comprised of two business segments: hybrid hedge funds and liquid hedge funds.

Investors are able to invest in our hedge funds as frequently as monthly. Management fees from our hedge funds range generally from 2% to 3% annually of the fund's assets under management. In addition, we earn incentive income that ranges generally from to 20% to 25% of a fund's profits, realized and unrealized, calculated based on the fair value of the fund's assets. Management fees are paid to us at the beginning of each quarter based on the applicable fund's net asset value. Incentive income is calculated and distributed to us at either quarter end or at calendar year end, depending on the fund, based on the fund's performance during the period. Any losses on a fund's investments during the period are netted against gains before our incentive income is calculated. Each hedge fund has a perpetual life: once formed, new investors can invest in the fund at the beginning of each month, assuming the fund is accepting investor contributions. Investors have the right to redeem their interest in a fund in accordance with the terms of the fund's organizational documents. Accordingly, each hedge fund's assets under management will increase or decrease, period over period, without regard to the fund's performance, depending on the amounts of new investor contributions to the fund relative to the amount of investor redemptions.

For a discussion of our incentive income with respect to the two business segments which together constitute our hedge fund business, see ‘‘Management's Discussion and Analysis of Financial Condition and Results of Operations — Segment Analysis.’’ Our hedge funds' distributable earnings represented 68% of our distributable earnings for the six months ended June 30, 2006, 64% of our distributable earnings for the year ended December 31, 2005, and 52% of our distributable earnings for the year ended December 31, 2004. We also make principal investments in these funds and earn investment income from the returns on those investments.

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Hybrid Hedge Funds

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

The funds are able to invest in a wide array of financial instruments, ranging from loans to pools of assets and receivables. The funds' diverse and idiosyncratic portfolios require significant infrastructure and asset management experience to fully realize value. We have developed a substantial asset management infrastructure with expertise in managing the funds' investments in order to be able to increase the number and complexity of investments which the fund can acquire while maintaining comprehensive oversight of the investments. See ‘‘Business — Our Investment Process and Risk Controls.’’ Our endowment strategy funds are designed to blend this investing style with more traditional investing with third party managers to create lower volatility, and longer term, stable returns.

Drawbridge Special Opportunities Funds

The Drawbridge Special Opportunities Funds are overseen by Peter Briger. These funds form the core of our hybrid hedge fund investing strategy. The Drawbridge Special Opportunities Funds seek to generate annual net returns to investors equal to the risk free interest rate plus 5% to 10%, by making investments which are expected to be liquidated or realized within two to three years. The funds' AUM was $4.5 billion as of September 30, 2006. The Drawbridge Special Opportunities Funds' historical assets under management are as follows:

Drawbridge Special Opportunities Funds


	9/30/2006			12/31/2005			12/31/2004			12/31/2003
AUM (dollars in millions)		$	4,571		$	3,115		$	2,033		$	1,063

The funds opportunistically acquire a diversified portfolio of investments primarily throughout the United States, Western Europe and the Pacific region. The funds' investment program incorporates three complementary investment strategies, focusing on asset-based transactions, loans and corporate securities. A multi-disciplined approach provides the funds with the flexibility to dynamically adjust investments as industry and market conditions change. The funds opportunistically acquire and participate in a wide variety of high yield real estate and corporate loans. Asset-based transactions include the acquisition of portfolios of commercial and consumer based tangible assets from undervalued or financially troubled companies, as well as market purchases of distressed asset-backed securities. The funds also acquire debt and equity securities of companies that are in distress, default or bankruptcy, or that we believe have had the pricing of their liabilities undervalued by the market. The majority of the funds' investments are relatively illiquid, and the funds generally make investments that are expected to liquidate or be realized within a two to three year period.

Fortress Partners Funds

The Fortress Partners Funds were launched in July 2006. Alex Cook, one of our managing directors, has primary responsibility for the Fortress Partners Funds. The funds' assets under management was $262 million as of September 30, 2006. The Fortress Partners Funds seek to generate annual net returns to investors that are at least equal on a long term basis to returns of large capitalization equity indices, with lower risk when measured over a full market cycle.

The funds invest with a broad mandate, similar to endowment portfolios of large universities. Investments are made both in Fortress Funds and in funds managed by other managers, and in direct investments that are sourced either by Fortress personnel or by third party fund managers with whom we have relationships. The funds' investment philosophy is premised on the belief that while

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alternative asset investing in general exploits areas of less efficient asset pricing, skilled alternative asset managers are able to consistently generate superior risk-adjusted returns.

Liquid Hedge Funds

The liquid hedge fund business is overseen by Michael Novogratz. The funds, which invest daily in markets around the globe, seek to exploit opportunities in global currency, interest rate, equity and commodity markets and their related derivatives. Risk management is the cornerstone of the investment process, and the funds invest with a focus on preservation of capital. Investment opportunities are evaluated and rated on a thematic and an individual basis to determine appropriate risk-reward and capital allocations. See ‘‘Business — Our Investment Process and Risk Controls.’’

Drawbridge Global Macro Funds

The Drawbridge Global Macro Funds are overseen by Michael Novogratz. The Drawbridge Global Macro Funds seek to generate 15% to 20% annual net returns to investors. The funds' assets under management were $4.4 billion as of September 30, 2006. Drawbridge Global Macro Funds' historical assets under management are as follows:

Drawbridge Global Macro Funds


	9/30/2006			12/31/2005			12/31/2004			12/31/2003
AUM (dollars in millions)		$	4,418		$	2,821		$	2,463		$	610

The funds apply an investment process based on macroeconomic fundamental, market momentum and technical analyses to identify strategies offering a favorable risk-return profile. The funds' investment strategies are premised on the belief that imbalances in various financial markets are created from time to time by the influence of economic, political and capital flow factors. Directional and relative value strategies are applied to exploit these conditions. The funds have the flexibility to allocate capital dynamically across a wide range of global strategies, markets and instruments as opportunities change, and are designed to take advantage of a wide variety of sources of market, economic and pricing data to generate trading ideas.

The funds invest primarily in major developed markets; however, they also invest in emerging markets if market conditions present opportunities for attractive returns. While the funds pursue primarily global macro directional and relative value strategies, capital is allocated within the funds to particular strategies to provide incremental returns and diversity.

Drawbridge Relative Value Funds

The Drawbridge Relative Value Funds were launched in February 2005. Thomas Paul, one of our managing directors, has primary responsibility for the Drawbridge Relative Value Funds. The Drawbridge Relative Value Funds seek to generate 14% annual net returns to investors. Drawbridge Relative Value Funds historical assets under management are as follows:

Drawbridge Relative Value Funds


	9/30/2006			12/31/2005
AUM (dollars in millions)		$	208		$	411

The funds seek to maintain an optimal portfolio of financial assets by employing relative value strategies with directional strategy and discretionary trading overlays, such as trend-following strategies and the use of fundamental models. The funds apply an investment process based on ascertaining the relative risk premiums inherent in various markets and the correlation characteristics between these markets to attempt to identify strategies or combinations of strategies that offer a favorable risk return profile.

Castles

Overview

We manage two publicly traded companies: Newcastle Investment Corp. and Eurocastle Investment Limited, which we call our ‘‘Castles’’ business. The Castles were raised with broad

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investment mandates to make investments in a wide variety of real estate related assets, including securities, loans and real estate properties. The Castles business is overseen in the U.S. by Wesley Edens, our Chief Executive Officer. Kenneth Riis, one of our managing directors, has primary responsibility for Newcastle. In addition, one of our co-founders, Erik Nygaard, dedicates his time to Newcastle and Bruce Snider, one of our managing directors, dedicates his time to Eurocastle.

Each Castle was initially formed privately to capitalize on Fortress's experience in acquiring real estate related assets with stable cash flows and creating financing structures which allow the assets to be held on a match funded basis in order to minimize interest rate risks that are otherwise associated with holding these assets. The companies have no employees; we provide each company with a management team pursuant to management agreements entered into in connection with the formation of each company. Newcastle and Eurocastle each distribute all or nearly all of their funds from operations (or ‘‘FFO’’, which is the real estate industry's term most closely resembling our distributable earnings); since they do not retain their FFO, they are required to issue new shares in order to raise equity capital. Since being taken public by Fortress, the companies have regularly raised capital in public common stock offerings.

Pursuant to our management agreements, we earn management fees from each Castle equal to 1.5% of the company's equity. In addition, we earn incentive income equal to 25% of the company's FFO in excess of specified returns to the company's shareholders. Incentive income is calculated and distributed to us at each calendar year end based on the company's performance during the year. For a discussion of our incentive income with respect to the Castles, see ‘‘Management's Discussion and Analysis of Financial Condition and Results of Operations — Segment Analysis — Publicly Traded Alternative Investment Vehicles (‘‘Castles’’)’’. In addition to these fees, we also receive from the Castles, for services provided, options to purchase shares of their common stock in connection with each of their common stock offerings, and we earn incentive income from the gains on the sale of shares we acquire upon exercise of these options; we currently hold shares in Newcastle related to the exercise of our options. These options are vested immediately and have an exercise price equal to the applicable offering price. We also hold shares in each of the Castles generally related to (i) our principal investments at the time of their initial formation and (ii) earn investment income from both the dividends paid on those shares as well as gains on sale of those shares.

Our Castles' distributable earnings represented 3% of our distributable earnings for the six months ended June 30, 2006, 2% of our distributable earnings for the year ended December 31, 2005, and 7% of our distributable earnings for the year ended December 31, 2004.

Newcastle

Newcastle Investment Corp. (NYSE: NCT) is a U.S. real estate investment trust that owns $7.1 billion of assets, primarily U.S. real estate debt and other real estate-related assets. The company actively manages a portfolio consisting of more than 600 individual securities and loans.

Newcastle invests with the objective of producing long-term, stable returns under varying interest rate and credit cycles, with a moderate amount of credit risk. Critical to the company's strategy is its ability to match fund its assets and liabilities when appropriate and it has, consequently, issued in excess of $5.8 billion of long term securitized debt. Newcastle continues to diversify its investment portfolio through the acquisition and financing of real estate debt investments.

As of October 27, 2006, Newcastle had a market capitalization of approximately $1.3 billion and Newcastle's total return to its stockholders since its initial public offering in October 2002 is approximately 33.7% annualized.

Eurocastle

Eurocastle Investment Limited (Euronext Amsterdam: ECT) is a Euro denominated company that owns €4.6 billion of assets, primarily German commercial real estate leased to high credit quality tenants. The company manages 502 properties throughout Germany, totaling 14 million square feet.

Eurocastle focuses on assets that are underpinned by stable, long term cash flows with an upside potential through active asset management. Eurocastle's growth strategy is based on increasing

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earnings through organic and acquisition-related growth. The Company manages assets by leasing-up vacancies, increasing rents as appropriate and controlling costs. On the acquisition side, Eurocastle targets single assets or small portfolios and pursues large portfolios through privatizations and/or restructurings.

As of October 27, 2006, Eurocastle had a market capitalization of approximately €1.6 billion and Eurocastle's total return to its stockholders since its initial public offering in June 2004 is approximately 67.5% annualized.

Our Investment Process and Risk Controls

Measuring, understanding and controlling risk is fundamental to the way we do business. Our central philosophy is the preservation of our funds' capital, and we seek to achieve this both before and after investments are made through a disciplined investment and intensive asset management process. Risks are analyzed across funds from the ‘‘bottom up’’ and from the ‘‘top down’’ with a particular focus on asymmetric risk. We gather and analyze data, monitor investments and markets in detail, and constantly strive to better quantify, qualify and circumscribe relevant risks.

Although our businesses share many common themes, each business runs its own investment and risk management process subject to our overall risk tolerance and philosophy:


	•	the investment process of our private equity funds involves a detailed analysis of potential acquisitions, and asset management teams assigned to oversee the strategic development, financing and capital deployment decisions of each portfolio investment;


	•	our hybrid hedge funds and Castles perform extensive credit and cash-flow analysis of borrowers, tenants and credit-based assets, and have extensive asset management teams that monitor covenant compliance by, and relevant financial data of, borrowers, tenants and other obligors, asset pool performance statistics, tracking of cash payments relating to investments, and ongoing analysis of the credit status of investments; and


	•	our liquid hedge funds continuously monitor a variety of markets for attractive trading opportunities, applying a number of traditional and customized risk management metrics to analyze risk related to specific assets or portfolios, as well as fund-wide risks.

Each business has an institutional risk management process and related infrastructure to address these risks.

Company-Wide Compliance

From a company-wide perspective, rigorous legal and compliance analysis of our business and investments is fundamental to our risk management culture. We strive to maintain a ‘‘culture of compliance’’ through the use of typical securities industry processes and procedures such as: oversight compliance, codes of conduct, compliance systems, communication of compliance guidance and employee education and training.

We have extensive experience operating under a variety of legal regulatory regimes: with a view toward ensuring development of company-wide compliance culture, we registered as an investment adviser with the SEC in early 2004; we are also registered with the United Kingdom’s Financial Services Authority. In addition, several of our private equity funds are registered investment companies under the Investment Company Act of 1940, while one of our Castles, whose securities are registered under the Securities Exchange Act of 1934, is subject to NYSE regulations and the Sarbanes-Oxley Act of 2002. Our businesses have operated, consequently, for many years within a legal framework that requires our being able to monitor and comply with a broad range of legal and regulatory developments that affect our activities.

Our general counsel supervises the fourteen lawyers that comprise our legal and compliance department. Each business has dedicated legal and compliance staff integrated into its management structure. Our Global Compliance Committee meets bi-weekly to address compliance and regulatory

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issues throughout the company. Our Global Compliance Committee includes Mr. Briger and Mr. Nardone, our general counsel, our chief compliance officer, and senior executives and lawyers from each of our businesses. We maintain and monitor policies and procedures that address a variety of legal and compliance risks such as the handling of material non-public information, position reporting, employee personal account trading, valuation of investments on a fund-specific basis, document retention, potential conflicts of interest and the allocation of investment opportunities. Our compliance policies and programs are managed by our general counsel and our chief compliance officer.

While some firms rely on ‘‘information barriers’’ to permit the ‘‘public-only’’ side of the firm to continue trading when the ‘‘private-side’’ comes into possession of material non-public infomation, we currently use a ‘‘Restricted List’’-based system tailored to the firm’s investment processes to control the use of material non-public information. We maintain a proprietary system to monitor trading of securities in our liquid hedge funds to prevent transactions in securities of companies on the restricted list. All personnel must attest in writing on a quarterly basis that they are in compliance with our employee securities trading policy and pre-clear each trade in their personal accounts with our compliance department.

We monitor and analyze transactions which raise potential conflicts of interest. A senior lawyer is responsible for monitoring decisions regarding the allocation of investment opportunities and identifying and analyzing transactions which raise potential conflicts of interest. Potential conflict of interest situations are resolved by members of our legal department in consultation with senior investment professionals. Our funds generally have independent advisory boards comprised of representatives of significant investors in those funds or, in the case of the Castles, Boards of Directors a majority of whose members are independent and, where appropriate, approval for transactions is sought from the relevant fund or company’s board.

Investors in our funds are subject to appropriate review as required by the USA Patriot Act. We also have processes and procedures in place to comply with the requirements of the Investment Advisors Act and, where relevant, the Investment Company Act of 1940.

Investment Process and Risk Controls by Business

Private Equity Funds

Investment Process

Private equity pursues an investment approach that emphasizes:

• effective control;

• rigorous financial, legal and operational due diligence;

• intensive asset management; and

• aggressive return of capital to reduce risk.

Effective Control

A key element of our private equity funds' investment approach is the importance of making control investments in portfolio companies. We view effective control of equity investments under our management as materially different from the negative control rights prevalent in some private equity structures.

Rigorous Financial, Legal and Operational Due Diligence

Our private equity funds approach each investment as a discrete set of assets within a complex corporate capital structure. To evaluate these investments, we employ a rigorous due diligence protocol focused on (i) ‘‘bottom-up’’ financial analysis; (ii) fundamental asset-level valuations; and (iii) legal, structural and operational conditions for controlling and maximizing asset and entity level value.

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In asset-based investments, we view this underwriting approach as critical to sound investing, particularly in situations involving distressed or poorly managed companies whose values may be obscured by accounting, legal or other non-asset related factors.

Investment Committee

The investment committee consists of Mr. Edens, Mr. Kauffman and Mr. Nardone as well as a number of other senior investment professionals. The committee meets regularly to discuss investments which are under consideration for the private equity funds and a detailed written investment memorandum accompanies every investment. A member of the investment committee is responsible for each investment made by the funds.

Intensive Asset Management

We take an extremely active, hands-on approach to managing our private equity investments, and have an extensive in-house asset management group. The private equity funds rely on a team of in-house investment professionals focused on the financing, capital deployment and strategic development of our portfolio companies. To reposition and maximize the value of our portfolio companies, members of the private equity group will often assume leadership positions in the portfolio companies (including those of chairman and chief executive officer) and will expect to maintain those positions in order to maximize the long term value of our ownership stakes. We also seek to identify and attract top management for portfolio companies based on our industry knowledge and relationships.

Aggressive Return of Capital to Reduce Risk

A key element of reducing the risk of loss on private equity investments is to minimize outstanding equity capital over time. We have employed strategies for returning significant capital to our private equity fund investors, typically 18 to 36 months following an investment, through a combination of dividends, sale of non-strategic assets, and restructuring or refinancing of investments. One of our goals in private equity is to return fund investors' capital while retaining the potential for equity upside at little or no risk.

Hedge Funds

Understanding risk is at the heart of our hedge fund business. In addition to our extensive quantitative risk measurements and reports, we believe that our open and diverse culture assists us in identifying unanticipated risks. Risks are constantly re-evaluated and examined, questioned and measured from different perspectives.

Risk management is fundamental to the operation of the business, rather than a distinct report-producing function. Our hedge funds use disciplined risk management methodologies to measure and understand risk. Risks are analyzed from the ‘‘bottom-up’’ (by individual investment or investment theme) and the ‘‘top-down’’ (by portfolio, as a whole), with particular emphasis on controlling asymmetric risks.

Our hedge funds are managed by targeting an ideal return profile, adjusted for the type of assets, size, leverage and diversity of each fund. Preservation of capital takes precedence over extreme return potential. We measure and control risk diversification in the funds by industry and by specific companies. The liquid hedge funds also measure exposures by region, country and asset class.

We look for overall portfolio risk that may not be measured by traditional risk management methods. We identify specific global events that could cause losses and stress-test portfolios to identify potential exposures. Our hedge funds have diversified and, where appropriate, funding sources that adequately match asset and liability duration. The liquid hedge funds closely monitor all exchange traded products to measure all large positions relative to open interest and daily volume.

We identify interest rate and other market risks in the hybrid hedge funds, and seek to minimize exposure against such risks as appropriate.

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Hybrid Hedge Funds

Investment Process

The hybrid hedge funds' investment process involves both a broad analysis of various business and economic sectors, and a detailed and rigorous analysis of each potential investment. We employ a diverse group of investment professionals with expertise across many asset types. The investment process for the hybrid hedge fund emphasizes sourcing and screening, due diligence and research, an Investment Committee process and ongoing asset management.

Sourcing and Screening

In addition to the direct efforts of our investment professionals to locate attractive investment opportunities, the fund employs numerous channels through which it sources ideas and opportunities. Based upon the recommendation of the investment professional responsible for a transaction, an analysis of each potential investment is prepared for review by certain members of senior management and Mr. Briger to determine whether the investment should be analyzed in detail.

Due Diligence and Research

The fund employs a wide range of professionals with various industry and asset knowledge as well as third parties to assist with the analysis of and performance of due diligence on investment opportunities. A detailed due diligence plan is included in an investment memorandum that is circulated to the investment committee for review.

Investment Committee

The investment committee consists of Mr. Briger and other senior investment professionals. The investment committee reviews each investment memorandum and discusses the transaction with the responsible investment professional and other senior professionals with particular industry or asset knowledge.

Asset and Risk Management

The fund has a dedicated staff assigned to the management of its investments. The asset management group is organized by asset type with a focus on the timely review and analysis of information related to each investment. Fundamentally, the fund employs a systematic approach to identify leading indicators of potential changes to investment thesis and to aggressively maximize return on each investment. Additionally, the asset managers identify situations that might present opportunities to add to exposures or examine complementary investments. The monitoring is performed on a daily basis with additional weekly meetings with senior management and a series of monthly meetings discussing every investment held by the fund. A monthly management book is prepared summarizing the current status of every investment. This information is reviewed in detail by Mr. Briger and other senior investment professionals.

Valuation

We employ a number of professional service providers to provide us with independent valuations for illiquid assets in the fund.

Diversification

The fund’s portfolio conforms with a number of over-all diversification measures. The fund has strict issuer specific and sector investment concentration limits. In addition, we review the allocation of investments (i) by geographic location, (ii) as between liquid and illiquid instruments, (iii) as between performing and non-performing debt, (iv) as to the stage of reorganization (for companies in or near bankruptcy) and (v) as to seniority in the capital structure, in an effort to ensure that the fund's assets are and remain diversified. The fund may substantially alter asset allocations to take advantage of market opportunities as they occur.

Liquid Hedge Funds

Investment Process

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Our liquid hedge funds apply an investment process based on macroeconomic fundamental analysis and market momentum analysis to attempt to identify strategies offering a favorable risk return profile. In selecting trading themes and individual transactions, preservation of capital is the number one priority in our liquid hedge funds. Risk-reward opportunities are evaluated and rated on a thematic and individual basis and capital is allocated to various trades and trading strategies adjusting for the volatility of specific trades and strategies. Investment professionals meet with Mr. Novogratz weekly to share data and trading concepts, and develop consensus on current trends. Trade ideas are generated based on macroeconomic fundamentals such as economic growth indicators, actual and expected inflation rates, flows of funds and balance of payments information world-wide. Data is gathered from multiple sources and analyzed by different professionals using different perspectives and methodologies. Thematic trading ideas are developed, and translated into specific trading strategies.

We have access to numerous experts, economists, trading strategists and business leaders, whose insights we synthesize and combine with market price movements to create trading opportunities. Often these opportunities are not fully reflected in asset prices somewhere around the world. We also take advantage of ideas and market insight generated in Fortress's other businesses, subject to our compliance policies and procedures.

Risk Management

Effective risk management is central to the operation of the liquid hedge fund business. We use both quantitative and qualitative assessments in an effort to offer high annual returns combined with a low level of return volatility, with the goal of achieving a high Sharpe ratio of returns. Risk management helps manage volatility and avoid positions that could lead to excessive losses.

All positions in the funds are actively managed, allowing for rapid reallocation in response to changes in economic, business or market conditions. Mr. Novogratz personally trades a large portion of the portfolio, and directly oversees the other investment professionals both in person and using risk and position reports. Investment professionals are authorized to trade fixed amounts of capital subject to various constraints and limitations including maximum value-at-risk and volatility, maximum losses and maximum concentration of positions. Generally, any investment professional whose portfolio loses more than 5% from prior peak values will have allocated capital reduced. The liquid market risk committee oversees the risk management function for the funds. The committee is responsible for setting risk limits, directing the development of risk management infrastructure, identifying risks to the portfolio, allocating capital, and developing fund-level hedging strategies. The liquid market risk committee has seven members with over 100 years of combined investment and risk management experience.

The liquid market risk group provides daily risk reporting across the portfolio, develops risk management infrastructure, and monitors the risk and performance of individual investment professionals within the business. We use both third-party commercial risk management software (including RiskMetrics RiskManager) and proprietary systems to analyze and monitor risk in the portfolio. Daily risk reports measure exposures, expected volatility, value at risk (typically using a 95% confidence level, over a one day horizon, based on the most recent year of historical data), and portfolio liquidity. These reports also include stress tests based on historical and hypothetical scenarios, measures of aggregate options exposure, and measures of credit risk and attributes of risk by region, country, asset class, and investment professional. Additional reports analyze individual liquidity exposures and idiosyncratic or specific risks relevant to individual positions or groups of trades. Customized risk reports are also prepared and distributed to both the risk committee and individual portfolio managers.

Compliance

All trading carried out by the liquid hedge funds are subject to our compliance policies and procedures. See ‘‘—Company-Wide Compliance.’’ In particular, purchasing and selling equity and debt securities is subject to both our restricted list policy and the over-all policy against trading in securities when in receipt of relevant material non-public information. Use of brokers is governed by our best-execution guidelines and we do not use soft-dollars.

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Castles

The Castles' investment objectives are to deliver stable dividends and attractive risk-adjusted returns through prudent asset selection and the use of match-funded financing structures where appropriate, which structures are intended to reduce interest rate, refinancing and currency risks. The Castles seek to generate returns by locking in the difference between the yield on investments and the costs of financing these investments, and optimizing this difference over the life of the investments. Newcastle targets U.S. real estate and real estate debt investments and Eurocastle targets primarily German credit-leased real estate.

The Castles focus primarily on moderate credit risk and take a disciplined approach to acquiring, financing and managing assets. They seek to diversify investments by asset type, industry, location, issuer and tenant in order to minimize the risk of capital loss and to enhance the terms of financing structures. The Castles manage their credit exposure through this diversification and also through ongoing asset selection and surveillance.

The Castles use leverage to finance their portfolios and attempt to reduce interim refinancing risk and minimize exposure to interest rate fluctuations through the use of match-funded financing structures in order to match: (i) the maturities of its debt obligations with the maturities of its assets and (ii) the interest rates on its assets with like-kind debt (i.e., floating rate assets are financed with floating rate debt and fixed rate assets are financed with fixed rate debt), directly or through the use of interest rate swaps, caps or other financial instruments, or through a combination of these strategies.

Legal Proceedings

On September 15, 2005, a lawsuit captioned David T. Atkins et al. v. Apollo Real Estate Advisors, L.P. et al. was brought on behalf of current and former limited partners in certain investing partnerships related to the sale of certain facilities to an unaffiliated real estate investment trust against a number of defendants, including one of our private equity portfolio companies and Fortress. Fortress was the investment manager of consolidated Fortress Funds which were controlling shareholders of the private equity portfolio company during the relevant time periods. The suit alleges that the defendants improperly obtained certain rights with respect to such facilities from the investing partnerships. The plaintiffs have asked for damages in excess of $100 million on each of nine counts, as to which Fortress is a defendant on seven counts, including treble damages with respect to certain counts. Fortress is seeking to have itself removed as a named defendant in this case. The portfolio company has filed a motion to dismiss the claims and continues to vigorously defend this action. Fortress believes that the resolution of this action will not have a material adverse effect on its financial condition or results of operations.

We may from time to time be involved in litigation and claims incidental to the conduct of our business. Our industry is always subject to scrutiny by government regulators, which could result in litigation related to regulatory compliance matters. As a result, we maintain insurance policies in amounts and with the coverage and deductibles we believe are adequate, based on the nature and risks of our business, historical experience and industry standards. We believe that the cost of defending any pending or future litigation or challenging any pending or future regulatory compliance matter will not have a material adverse effect on our business. However, increased regulatory scrutiny of hedge fund trading activities combined with extensive trading in our liquid hedge funds may cause us to re-examine our beliefs regarding the likelihood that potential investigation and defense-related costs could have a material adverse effect on our business.

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MANAGEMENT

Directors and Executive Officers

The following table sets forth certain information about our directors and executive officers as of the consummation of this offering. Each of our executive officers serves at the pleasure of our board of directors, subject to rights under any employment agreement and the rights of our Class A shareholders. See ‘‘— Employment, Non-Competition and Non-Solicitation Agreements.’’ Each director listed below is elected by our shareholders, voting as a single class, to serve until his or her successor is duly elected or appointed and qualified or until his or her earlier death, retirement, disqualification, resignation or removal. Upon consummation of this offering, our board is expected to consist of eleven members, a majority of which will be ‘‘independent’’ as defined under the rules of the NYSE.


Name	Age	Position
Wesley R. Edens	45	Chief Executive Officer and Director
Peter L. Briger, Jr.	42	Director
Robert I. Kauffman	43	Director
Randal A. Nardone	51	Director
Michael E. Novogratz	41	Director

Wesley R. Edens has been a principal and the Chairman of the Management Committee of Fortress since co-founding the Company in May 1998. Mr. Edens is responsible for the Company's private equity and publicly traded alternative investment businesses. He is Chairman of the board of directors of each of Aircastle Limited, Brookdale Senior Living Inc., Eurocastle Investment Limited, GateHouse Media, Inc., Global Signal Inc. and Mapeley Limited and a director of GAGFAH S.A. Mr. Edens is the Chairman of the board of directors and Chief Executive Officer of Newcastle Investment Corp. Mr. Edens was Chief Executive Officer of Global Signal Inc. from February 2004 to April 2006. Mr. Edens serves in various capacities in the following five registered investment companies: Chairman, Chief Executive Officer and Trustee of Fortress Registered Investment Trust and Fortress Investment Trust II; Chairman and Chief Executive Officer of Fortress Brookdale Investment Fund LLC and Fortress Pinnacle Investment Fund LLC and Chief Executive Officer of RIC Coinvestment Fund GP LLC. Prior to forming Fortress, Mr. Edens was a partner and managing director of BlackRock Financial Management Inc., where he headed BlackRock Asset Investors, a private equity fund. In addition, Mr. Edens was formerly a partner and managing director of Lehman Brothers. Mr. Edens received a B.S. in Finance from Oregon State University.

Peter L. Briger, Jr. has been a principal and a member of the Management Committee of Fortress since March 2002. Mr. Briger is responsible for the hybrid hedge fund business which includes running the Drawbridge Special Opportunities Funds. Prior to joining Fortress, Mr. Briger spent 15 years at Goldman, Sachs & Co., or Goldman Sachs, where he became a partner in 1996. Over the course of his career at Goldman Sachs, he held the positions of co-head of the Whole Loan Sales and Trading business, co-head of the Fixed Income Principal Investments Group, co-head of the Asian Distressed Debt business, co-head of the Goldman Sachs Special Opportunities (Asia) Fund LLC and co-head of the Asian Real Estate Private Equity business. In addition, he was a member of the Goldman Sachs Global Control and Compliance Committee, a member of the Goldman Sachs Asian Management Committee and a member of the Goldman Sachs Japan Executive Committee. Mr. Briger received a B.A. from Princeton University and an M.B.A. from Wharton. Mr. Briger currently serves on the board of directors of the Princeton University Investment Company.

Robert I. Kauffman has been a principal and a member of the Management Committee of Fortress since co-founding the Company in 1998. Mr. Kauffman is responsible for the management of Fortress's European private equity investment operations. Mr. Kauffman is the Chairman of the Supervisory Board of GAGFAH S.A., which is listed on the Frankfurt Stock Exchange. Prior to joining Fortress, Mr. Kauffman was a managing director of UBS from May 1997 to May 1998, and prior to that, was a principal of BlackRock Financial Management Inc. Mr. Kauffman was with

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Lehman Brothers from 1986 to 1994 and served as executive director of Lehman Brothers International in London beginning in 1992. Mr. Kauffman received a B.S. in Business Administration from Northeastern University.

Randal A. Nardone has been a principal and a member of the Management Committee of Fortress since co-founding the Company in 1998. Mr. Nardone oversees Fortress's structured finance and legal matters. Mr. Nardone is a director of GAGFAH S.A., which is listed on the Frankfurt Stock Exchange, and Eurocastle Investment Limited, which is listed on the Euronext Amsterdam Exchange. Mr. Nardone was previously a managing director of UBS from May 1997 to May 1998. Prior to joining UBS in 1997, Mr. Nardone was a principal of BlackRock Financial Management, Inc. Prior to joining BlackRock, Mr. Nardone was a partner and a member of the executive committee at the law firm of Thacher Proffitt & Wood. Mr. Nardone received a B.A. in English and Biology from the University of Connecticut and a J.D. from Boston University School of Law.

Michael E. Novogratz has been a principal and a member of the Management Committee of Fortress since March 2002. Mr. Novogratz is responsible for the liquid hedge fund business which includes running the Drawbridge Global Macro Funds. Prior to joining Fortress, Mr. Novogratz spent 11 years at Goldman Sachs, where he became a partner in 1998. Mr. Novogratz held the positions of president of Goldman Sachs Latin America and the head of Fixed Income, Currencies and Commodities Risk in Asia, where he lived from 1992 to 1999. Mr. Novogratz received a B.A. from Princeton University, and served as a helicopter pilot in the U.S. Army.

Board of Directors

Our amended and restated limited liability company agreement provides that our board of directors will initially consist of eleven directors. Our board of directors is divided into three classes that are, as nearly as possible, of equal size. Each class of directors is elected for a three-year term of office, but the terms are staggered so that the term of only one class of directors expires at each annual general meeting. The current terms of the Class I, Class II and Class III directors will expire in 2008, 2009 and 2010, respectively. As of , 2007 Messrs. , , and served as a Class I director, Messrs. , , and served as a Class II director and Messrs. , , and served as a Class III director. All officers serve at the discretion of the board of directors. Under our shareholders agreement, the principals will be entitled to designate up to six directors for election to our board of directors, depending upon the level of ownership of the principals. We currently have directors, of whom we believe will be determinded to be ‘‘independent’’ as defined under the rules of the NYSE.

Committees of the Board of Directors

Prior to the consummation of this offering, we will establish the following committees of our board of directors:

Audit Committee

The audit committee:


	•	reviews the audit plans and findings of our independent registered public accounting firm and our internal audit and risk review staff, as well as the results of regulatory examinations, and tracks management's corrective action plans where necessary;


	•	reviews our financial statements, including any significant financial items and/or changes in accounting policies, with our senior management and independent registered public accounting firm;


	•	reviews our financial risk and control procedures, compliance programs and significant tax, legal and regulatory matters; and


	•	has the sole discretion to appoint annually our independent registered public accounting firm, evaluate its independence and performance and set clear hiring policies for employees or former employees of the independent registered public accounting firm.

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The members of the committee have not yet been appointed. We intend to appoint at least three members that are ‘‘independent’’ directors as defined under NYSE rules and Rule 10A-3 of the Securities Exchange Act of 1934, as amended.

Nominating and Corporate Governance Committee

The nominating and corporate governance committee:


	•	reviews the performance of our board of directors and makes recommendations to the board regarding the selection of candidates, qualification and competency requirements for service on the board and the suitability of proposed nominees as directors;


	•	advises the board with respect to the corporate governance principles applicable to us; and


	•	oversees the evaluation of the board and management.

The members of the committee have not yet been appointed. We intend to appoint at least three members that are ‘‘independent’’ directors as defined under the NYSE rules.

Compensation Committee

The compensation committee:


	•	reviews and recommends to the board the salaries, benefits and equity incentive grants for all employees, consultants, officers, directors and other individuals we compensate;


	•	reviews and approves corporate goals and objectives relevant to Chief Executive Officer compensation, evaluates the Chief Executive Officer's performance in light of those goals and objectives, and determines the Chief Executive Officer's compensation based on that evaluation; and


	•	oversees our compensation and employee benefit plans.

The members of the committee have not yet been appointed. We intend to appoint at least three members that are ‘‘independent’’ directors as defined under the NYSE rules, ‘‘non-employee’’ directors as defined in Rule 16b-3(b)(3) under the Exchange Act and ‘‘outside’’ directors within the meaning of Section 162(m)(4)(c)(i) of the Code.

Compensation Committee Interlocks and Insider Participation

Upon the effectiveness of the registration statement of which this prospectus forms a part, our board of directors will form a compensation committee as described above. Our principals have historically made all determinations regarding executive officer compensation, including compensation decisions during the year ended December 31, 2006.

Compensation Discussion and Analysis

A primary goal for many companies in designing executive compensation arrangements has been to align the interests of their top executives with the interests of the shareholders. Our fundamental philosophy is premised on alignment with our investors. That alignment has been and will continue to be evidenced by our significant capital investment in the funds we manage; similar alignment with our Class A shareholders will be evidenced by the continued significant ownership by our principals in the Fortress Operating Group.

Prior to completion of this offering, there were no formal compensation arrangements in effect for the principals. As they developed the Fortress Operating Group, they benefited only by the increased value of their ownership interests in the Fortress Operating Group and by distributions with respect to those interests.

Prior to completion of this offering, we expect to enter into a five-year employment, non-competition and non-solicitation agreement with each principal which will automatically renew for

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an additional year each year thereafter, unless either party gives notice of intention not to renew in accordance with the agreement. The agreements are more fully described below (see ‘‘Management— Employment, Non-Competition and Non-Solicitation Agreements’’). Each agreement will provide for a salary of $200,000. We believe that the salary provided is significantly below-market-rate compensation for the principals. The principals will receive distributions with respect to their ownership of Fortress Operating Group units, in the same amount per unit and at the same time as distribution is made to us in respect of the Fortress Operating Group units we hold, creating an alignment of interest with our Class A shareholders that is consistent with our fundamental philosophy. We expect to re-examine the concept of below-market-rate compensation as we approach the end of the initial term of the employment agreements. The agreements will require the principals to protect the confidential information of Fortress, both during and after employment, and to refrain from soliciting employees or interfering with Fortress's relationships with investors, both during and for a 24-month period after employment. These post-termination covenants survive any termination or expiration of the principal's agreement. Each principal will have the right to voluntarily terminate his employment with Fortress.

Under the agreements, if we terminate a principal's employment during the agreement's term without cause, we will pay the principal a separation payment equal to three times his then-current salary. There will be no special change-in-control provisions in the agreements. Our reasoning was that the principals, through their ownership of Class B shares, exercise control over matters requiring shareholder approval, and should not receive special benefits as the result of any change in control which they might approve as shareholders.

The agreements will require the principals to refrain from competing with us during employment. If we terminate an principal's employment for cause or if the principal terminates his own employment voluntarily the agreement will impose an eighteen-month post-termination covenant requiring the executive to refrain from competing with Fortress, whether or not the termination occurs during the term of the principal's agreement.

Executive Compensation

Prior to this offering, our business was conducted through the Fortress Operating Group. The following summary compensation table sets forth information concerning the compensation earned by, awarded to or paid to our principal executive officer, and our four other most highly compensated executive officers in 2006 for services rendered to the Fortress Operating Group. We refer to our five executive officers as our ‘‘principals’’ in other parts of this prospectus. Prior to this offering, our principals received their compensation in the form of participation in the earnings of our operating entities and did not receive any salary. We expect to enter into employment agreements with our principals upon consummation of this offering that will provide for a specified salary and other benefits. Please see ‘‘— Employment, Non-Competition and Non-solicitation Agreements’’ for a description of these agreements.

Summary Compensation Table

Name and Principal Position

Year

Participation in
Earnings of Pre-IPO
Fortress and
Manager's Fee

All Other
Compensation ($)

Total ($)

Peter Briger

2006

Wesley Edens

2006

Robert Kauffman

2006

Randal Nardone

2006

Michael Novogratz

2006

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Employment, Non-Competition and Non-Solicitation Agreements

Upon consummation of this offering, Fortress will enter into an employment, non-competition and non-solicitation agreement with each principal. The initial term of the agreement will be the first five years after the completion of this offering. The agreement's term will automatically renew for an additional year each year thereafter, unless notice of intention not to renew is given by either party in accordance with the agreement. Each principal will have the right to voluntarily terminate his employment with Fortress at any time.

Each principal will be entitled during his employment to an annual salary of $200,000, which may be increased, but not decreased, at the discretion of the board of directors, and the principal will be entitled to participate in all employee retirement and welfare benefit plans of Fortress. The agreement will also require the principal to protect the confidential information of Fortress both during and after employment. The agreement will also require the principal to refrain from soliciting employees or interfering with Fortress's relationships with investors both during and for a period of 24 months after termination of employment.

Any termination of the employment of the principal during the agreement's term will have certain consequences. If Fortress terminates a principal's employment without ‘‘cause’’ (as defined below) during the agreement's term, Fortress will pay the principal a separation payment equal to three times his then-current annual salary plus his accrued salary through the date of termination. Termination of a principal without ‘‘cause’’ is subject to approval of the holders of our Class B shares. If during the agreement's term the principal's employment is terminated by reason of death or disability, or if a principal terminates his employment voluntarily, the principal (or his estate) will be paid his accrued salary through the date of termination.

Without regard to whether the employment agreement has been terminated or has expired as a result of not having been renewed, if a principal terminates his employment agreement voluntarily or if Fortress terminates his employment with cause, the principal will be subject to an eighteen-month post-employment covenant requiring the principal to refrain from competing with Fortress. This covenant also applies while the principal is employed. The enforcement of this covenant and the non-solicitation, non-interference and confidentiality covenants will be the exclusive remedy of Fortress in the event of such terminations.

‘‘Cause’’ means:


	(i)	the willful engaging by the principal in illegal or fraudulent conduct or gross misconduct which, in each case, is materially and demonstrably injurious (x) to Fortress, (y) to the reputation of either the principal or Fortress or (z) to any of Fortress’s material funds or businesses, or


	(ii)	conviction of a felony or guilty or nolo contendere plea by the principal with respect thereto, or


	(iii)	a material breach by the principal of the non-competition or non-solicitation covenants contained in the agreement, if such breach is curable and is not cured within 30 business days following receipt of a notice of such breach.

For purposes of this provision, no act or failure to act on the part of the principal shall be considered ‘‘willful’’ unless it is done, or omitted to be done, by the principal in bad faith or without reasonable belief that the principal's action or omission was in the best interests of Fortress or was done or omitted to be done with reckless disregard to the consequences. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the board or based upon the advice of counsel for Fortress shall be conclusively presumed to be done, or omitted to be done, by the principal in good faith and in the best interests of Fortress. The cessation of employment of the principal shall not be deemed to be for cause unless and until there shall have been delivered to the principal a copy of a resolution duly adopted by the affirmative vote of a majority of the board at a meeting of the board called and held for such purpose (after reasonable notice is provided to the principal and the principal is given an opportunity, together with counsel, to be heard before the

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board), finding that in the good faith opinion of the board, the principal is guilty of the conduct constituting cause and specifying the particulars thereof in detail.

Compensation of Directors

We will pay an annual fee to each non-employee director equal to $ , payable semi-annually. In addition, an annual fee of $ will be paid to the chairs of each of the audit and compensation committees of the board of directors. We do not intend to separately compensate our directors who are also our employees or who are otherwise affiliated with us. Fees to independent directors may be paid in Class A shares, based on the value of such Class A shares, at the date of issuance, rather than in cash, provided that any such issuance does not prevent such director from being determined to be independent. All members of the board of directors will be reimbursed for reasonable costs and expenses incurred in attending meetings of our board of directors. Following the completion of this offering, as described in ‘‘Equity Incentive Plan,’’ each independent director will be eligible to receive awards of unvested Class A shares, which are anticipated to vest over years.

Equity Incentive Plan

A new equity incentive plan for our employees, the Fortress Investment Group LLC Equity Incentive Plan, or the Plan, will be adopted by our board of directors and approved by our shareholders prior to the consummation of this offering. The purposes of the Plan are to provide additional incentive to selected management employees and directors of, and consultants to, the company or its subsidiaries, to strengthen their commitment, motivate them to faithfully and diligently perform their responsibilities and to attract and retain competent and dedicated people or employees who are essential to the success of our business and whose efforts will result in our long-term growth and profitability. To accomplish such purposes, the Plan permits us to make grants of non-qualified share options, share appreciation rights, restricted shares, deferred shares, performance shares, dividend equivalent rights, unrestricted shares and other share-based awards, or any combination of the forgoing.

While we intend to issue restricted shares and other share-based awards in the future to employees as a recruiting and retention tool, we have not established specific parameters regarding future grants. Our board of directors (or the compensation committee of the board of directors, after it has been appointed) will determine the specific criteria surrounding other equity issuances under the Plan. A total of Class A shares and Class B shares has been initially reserved for issuance under the Plan. The number of shares reserved under our stock incentive plan is also subject to adjustment in the event of a stock split, stock dividend, or other change in our capitalization. Generally, employee shares that are forfeited or canceled from awards under our stock incentive plan will be available for future awards.

The Plan will initially be administered by our board of directors, although it may be administered by either our board of directors or any committee of our board of directors, including a committee that complies with the applicable requirements of Section 16 of the Exchange Act and any other applicable legal or stock exchange listing requirements (the board or committee being sometimes referred to as the ‘‘plan administrator’’). The plan administrator may interpret the Plan and may prescribe, amend and rescind rules and make all other determinations necessary or desirable for the administration of the Plan. The Plan permits the plan administrator to select the directors, management employees, and consultants who will receive awards, to determine the terms and conditions of those awards, including but not limited to the exercise price, the number of shares subject to awards, the term of the awards and the vesting schedule applicable to awards, and to amend the terms and conditions of outstanding awards. All full-time and part-time officers, employees, directors and other key persons (including consultants and prospective employees) are eligible to participate in our share incentive plan.

We may issue non-qualified share options under the Plan. The option exercise price of all share options granted under the Plan will be determined by the plan administrator. The term of all share options granted under the Plan will be determined by the plan administrator, but may not exceed ten

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years. Each share option will be exercisable at such time and pursuant to such terms and conditions as determined by the plan administrator in the applicable share option agreement.

Unless the applicable share option agreement provides otherwise, in the event of an optionee's termination of employment or service for any reason other than cause, retirement, disability or death, such optionee's share options (to the extent exercisable at the time of such termination) generally will remain exercisable until 90 days after such termination, and then expire. Unless the applicable share option agreement provides otherwise, in the event of an optionee's termination of employment or service due to retirement, disability or death, such optionee's share options (to the extent exercisable at the time of such termination) generally will remain exercisable until one year after such termination and will then expire. Share options that were not exercisable on the date of termination will expire at the close of business on the date of such termination. In the event of an optionee's termination of employment or service for cause, such optionee's outstanding share options will expire at the commencement of business on the date of such termination.

In the event of a change in control (as defined below), certain other corporate transactions, changes in corporate structure, special dividends and similar corporate events, the plan administrator has discretion to cancel outstanding awards (except fully vested restricted shares, deferred shares and performance shares) in exchange for payment in cash or other property. Unless otherwise determined by the plan administrator and evidenced in an award agreement, if a change in control transaction occurs that includes a continuation, assumption or substitution with respect to share options and other awards under the Plan, and a plan participant's employment is terminated by the employer other than for cause within the twelve months following the change in control, then the participant's outstanding and unvested options will become fully vested and exercisable as of the date of such termination and the restrictions will lapse (or performance goals will be deemed to be achieved) with respect to the shares covered by any other award. The term ‘‘change in control’’ generally means: (1) any person or entity (other than an affiliate of Fortress or any managing director, general partner, director, limited partner, officer or employee of any such affiliate of Fortress) becomes the beneficial owner of securities of the company representing 50% or more of the company's then outstanding voting power; (2) a change in the majority of the membership of the board of directors without approval of two-thirds of the directors who constituted the Board on , or whose election was previously so approved; (3) the consummation of a merger of the company or any subsidiary of the company with any other corporation, other than a merger immediately following which the board of directors of the company immediately prior to the merger constitute at least a majority of the board of directors of the company surviving the merger or, if the surviving company is a subsidiary, the ultimate parent thereof; or (4) the company's shareholders approve a plan of complete liquidation or dissolution of the company or there is consummated an agreement for the sale or disposition of all or substantially all of the company's assets, other than (a) a sale of such assets to an entity, at least 50% of the voting power of which is held by company shareholders following the transaction in substantially the same proportions as their ownership of the company immediately prior to the transaction or (b) a sale or disposition of such assets immediately following which the board of directors of the company immediately prior to such sale constitute at least a majority of the board of directors of the entity to which the assets are sold or disposed, or, if that entity is a subsidiary, the ultimate parent thereof.

Restricted shares, deferred shares, performance shares and other share-based awards may be granted under the Plan. The plan administrator will determine the purchase price and performance objectives, if any, with respect to the grant of restricted shares, deferred shares and performance shares. Participants with restricted shares and performance shares generally have all of the rights of a shareholder. Dividends on deferred shares during the restricted period may be credited with dividend equivalent rights, if the award agreement so provides. If the performance goals and other restrictions are not satisfied, the participant will forfeit his or her shares or restricted shares, deferred shares and/or performance shares. Subject to the provisions of the Plan and applicable award agreement, the plan administrator has sole discretion to provide for the lapse of restrictions in installments or the acceleration or waiver of restrictions (in whole or in part) under certain circumstances, including, but not limited to, the attainment of certain performance goals, a participant's termination of employment or service or a participant's death or disability.

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Dividend equivalent rights may also be granted under our share incentive plan. These rights entitle the participant to receive credits for dividends that would be paid if the participant had held a specified number of our Class A shares. Dividend equivalent rights may be granted as a component of another award or as a freestanding award.

Except as otherwise provided by the plan administrator, on the first business day after our annual meeting of shareholders in 2007 and each such annual meeting thereafter during the term of the Plan, each of our non-employee directors will automatically be granted under the Plan a number of unrestricted Class A shares having a fair market value of $ as of the date of grant. In the event of a merger, consolidation, reorganization, recapitalization, share dividend or other change in corporate structure affecting the Class A shares or Class B shares, the plan administrator may make an equitable substitution or proportionate adjustment in (1) the aggregate number of shares reserved for issuance under the Plan, (2) the maximum number of shares that may be subject to awards granted to any participant in any calendar year, (3) the kind, number and exercise price subject to outstanding share options granted under the Plan, and (4) the kind, number and purchase price of shares subject to outstanding awards of restricted shares, deferred shares, performance shares or other share-based awards granted under the Plan, provided that no such adjustment will cause any award under the Plan that is or becomes subject to section 409A of the Code to fail to comply with the requirements of that section. In addition, the plan administrator, in its discretion, may terminate all awards (other than fully vested restricted shares, deferred shares and performance shares) with the payment of cash or in-kind consideration.

Other share-based awards under our Plan will include awards that are valued in whole or in part by reference to our Class A shares, including awards valued by reference to book value, fair value or performance of a subsidiary, partner interests or units in the Fortress Operating Group units. We expect to make awards in the form of long-term incentive units, or ‘‘LTIP units.’’ LTIP units may be issued pursuant to a separate series of Fortress Operating Group units. LTIP units, which can be granted as free-standing awards or in tandem with other awards under the Plan, will be valued by reference to the value of our Class A shares, and will be subject to such conditions and restrictions as the Plan administrator may determine, including continued employment or service, computation of financial metrics and/or achievement of pre-established performance goals and objectives. If applicable conditions and/or restrictions are not attained, participants would forfeit their LTIP units. LTIP unit awards, whether vested or unvested, may entitle the participant to receive, currently or on a deferred or contingent basis, dividends or dividend equivalent payments with respect to the number of shares of our Class A shares corresponding to the LTIP award or other distributions from the Fortress Operating Group and the Plan administrator may provide that such amounts (if any) shall be deemed to have been reinvested in additional Class A shares or LTIP units. The Plan provides, that on terms and conditions determined by the plan administrator, including, but not limited to the conversion ratio, the LTIP units granted under those plans in the limited partnership units of the operating and investing entities may be converted into our Class A shares in the same manner as applicable to the Principals.

LTIP units will be structured as ‘‘profits interests’’ for federal income tax purposes, and we do not expect the grant, vesting or conversion of LTIP units to produce a tax deduction for us. As profits interests, LTIP units initially will not have full parity, on a per unit basis, with the Fortress Operating Group units with respect to liquidating distributions. Upon the occurrence of specified events, LTIP units can over time achieve full parity with the units and therefore accrete to an economic value for the participant equivalent of such units. Ordinarily, we anticipate that each LTIP unit awarded will be equivalent to an award of one Class A share reserved under our share incentive plan, thereby reducing the number of shares available for other equity awards on a one-for-one basis. However, the Plan Administrator has the authority under the plan to determine the number of shares underlying an award of LTIP units in light of all applicable circumstances, including performance-based vesting conditions, operating partnership ‘‘capital account allocations,’’ to the extent set forth in the partnership agreements for Fortress Operating Group, Code, or Treasury Regulations, value accretion factors and conversion ratios.

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The Plan provides that the board may amend, alter or terminate the Plan, but no such action may impair the rights of any participant with respect to outstanding awards without the participant's consent. The plan administrator may amend an award, prospectively or retroactively, but no such amendment may impair the rights of any participant without the participant's consent. Unless the board determines otherwise, shareholder approval of any such action will be obtained if required to comply with applicable law. The Plan will terminate on .

We intend to file with the SEC a registration statement on Form S-8 covering the shares issuable under the Plan.

Indemnification Agreements

Prior to completion of this offering, we intend to enter into separate indemnification agreements with our directors and officers. Each indemnification agreement will provide, among other things, for indemnification to the fullest extent permitted by law and our amended and restated operating agreement against any and all expenses, judgments, fines, penalties and amounts paid in settlement of any claim. The indemnification agreements will provide for the advancement or payment of all expenses to the indemnitee and for reimbursement to us if it is found that such indemnitee is not entitled to such indemnification under applicable law and our amended and restated operating agreement.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. We maintain directors' and officers' liability insurance for our officers and directors.

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Formation Transactions

Prior to or concurrently with the completion of this offering, we will engage in certain transactions related to this offering. Our principals and certain of our other officers and directors will be party to certain of those transactions. Please see the section entitled ‘‘Our Structure’’ for a complete description of such transactions.

Shareholders Agreement

Upon the consummation of this offering, we will enter into a shareholders agreement with our principals. The shareholders agreement provides the principals with certain rights with respect to the approval of certain matters and the designation of nominees to serve on our board of directors, as well as registration rights for our securities that they own.

Principals' Approval

The shareholders agreement provides that, so long as the principals and their permitted transferees collectively own securities representing more than 40% of the total voting power of all of our outstanding shares, our board shall not authorize, approve or ratify any action described below without the prior approval (which approval may be in the form of an action by written consent) of principals that are employed by the Fortress Operating Group holding our outstanding shares representing greater than 50% of the total voting power of all of our outstanding shares held by such principals, collectively:


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


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


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


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


	•	the adoption of a shareholder rights plan;


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


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

Board Representation

The shareholders agreement requires that we take all reasonably necessary action to effect the following:


	•	so long as the principals and their permitted transferees beneficially own (i) shares representing more than 50% of the total voting power of all our outstanding shares, our board

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		of directors shall nominate individuals designated by the principals such that the principals will have six designees on the board; (ii) shares representing more than 40% and less than 50% of the total voting power of all our outstanding shares, our board of directors shall nominate individuals designated by the principals such that the principals will have five designees on the board; (iii) shares representing more than 25% and less than 40% of the total voting power of our outstanding shares, our board of directors shall nominate individuals designated by the principals such that the principals will have four designees on the board; (iv) shares representing more than 10% and less than 25% of the total voting power of our outstanding shares, our board of directors shall nominate individuals designated by the principals such that the principals will have two designees on the board; and (v) shares representing less than 10% of the total voting power of our outstanding shares, the board shall have no obligation to nominate any individual that is designated by the principals.

Our amended and restated operating agreement provides that we may not expand the size of our board of directors without the approval of holders of our shares representing greater than 50% of the total voting power of our shares.

Transfer Restrictions

Each principal and his permitted transferee(s) (as defined below) may not, directly or indirectly, voluntarily effect cumulative transfers of over (i) 30% of their initial Fortress Operating Group units (and corresponding Class B shares), and all securities which such initial units (and corresponding Class B shares) are exchanged for (collectively, the ‘‘Equity Interests’’), during the first year after the completion of this offering, (ii) 44% of their Equity Interests during the two years after the completion of this offering, (iii) 58% of their Equity Interests during the three years after the completion of this offering, (iv) 72% of their Equity Interests during the four years after the completion of this offering, and (v) 86% of their Equity Interests during the five years after the completion of this offering, other than, in each case, with respect to transfers from one principal to another principal or to a permitted transferee of such principal. Any forfeitable interests received by a principal pursuant to the forfeiture provisions of the Principals Agreement will remain subject to the foregoing restrictions in the receiving principal's hands; provided, that each principal shall be permitted to sell without regard to the foregoing restrictions such number of forfeitable interests received by him as are required to pay taxes payable as a result of the receipt of such interests, calculated based on the maximum combined U.S. federal, New York State and New York City tax rate applicable to individuals. After five years, each principal and his Permitted Transferee(s) may transfer all of the Equity Interests of such principal to any person or entity in accordance with Rule 144, in a registered public offering or in a transaction exempt from the registration requirements of Securities Act. The above transfer restrictions shall lapse with respect to a principal if such principal dies or becomes disabled.

For the purposes of the shareholders agreement, the ‘‘permitted transferee’’ of a principal means (a) a principal's spouse or descendants where born, or certain trusts or family partnerships of which there are no principal beneficiaries or partners other than the principal and such described relatives or certain charitable institutions; (b) a legal or personal representative of such principal in the event of the death or disability of such principal; (c) an individual pursuant to a qualified domestic relations order; and (d) certain charitable institutions.

Registration Rights

Demand Rights. We have granted to the principals, for so long as any principal, together with his permitted transferees and their respective permitted transferees, beneficially owns an amount of shares representing at least 5% or more of the total voting power of our securities, based on the aggregate amount of shares issued and outstanding immediately after the consummation of this offering (a ‘‘Registrable Amount’’), ‘‘demand’’ registration rights that allow them at any time after six months following the consummation of this offering, to request that we register the resale under the Securities Act of 1933, of an amount of shares representing at least 2.5% of the total voting power of

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all our securities, based on the aggregate amount of shares issued and outstanding immediately after the consummation of this offering, that they own, subject to the transfer restrictions discussed above. Each principal is entitled to an aggregate of two demand registrations. We are not required to maintain the effectiveness of any resale registration statement for more than 60 days. We are also not required to effect any demand registration within six months of a ‘‘firm commitment’’ underwritten offering to which all principals which held ‘‘piggyback’’ rights (as described below) were given the opportunity to sell shares in such offering and which offering included at least 50% of the shares collectively requested by the principals with piggyback rights to be included. We are not obligated to grant a request for a demand registration within four months of any other demand registration, and may refuse a request for demand registration if, in our reasonable judgment, it is not feasible for us to proceed with the registration because of the unavailability of audited financial statements.

Piggyback Rights. For so long as a principal, together with his permitted transferees and their respective permitted transferees, beneficially owns an amount of shares representing at least 1% of the total voting power of all our securities, based on the aggregate amount of shares issued and outstanding immediately after the consummation of this offering (a ‘‘Piggyback Registrable Amount’’), the principal shall also have ‘‘piggyback’’ registration rights that allows him to include the shares that he owns in any public offering of equity securities initiated by us (other than those public offerings pursuant to registration statements on Forms S-4 or S-8 or any successor form thereto) or by any of our other holders of equity securities that have registration rights, subject to the transfer restrictions discussed above. The ‘‘piggyback’’ registration rights of these holders of equity securities are subject to proportional cutbacks based on the manner of such offering and the identity of the party initiating such offering.

Shelf Registration. We have granted each principal, for so long as each principal, together with his permitted transferees and their respective permitted transferees, beneficially owns a Registrable Amount, the right to request a shelf registration on Form S-3, providing for resales thereof to be made on a continuous basis, subject to a time limit on our efforts to keep the shelf registration statement continuously effective and our right to suspend the use of the shelf registration prospectus for a reasonable period of time (not exceeding 90 days in succession or 180 days in the aggregate in any 12 month period) if we determine that certain disclosures required by the shelf registration statement would be detrimental to us or our holders of equity securities, and also subject to the transfer restrictions discussed above. In addition, each principal that, together with his permitted transferees and their respective permitted transferees, beneficially owns a Piggyback Registrable Amount and which has not made a request for a shelf registration may elect to participate in such shelf registration within ten days after notice of the registration is given.

Indemnification; Expenses. We have agreed to indemnify each principal against any losses or damages resulting from any untrue statement or omission of material fact in any registration statement or prospectus pursuant to which they sell our shares, unless such liability arose from such principal's misstatement or omission, and each such principal has agreed to indemnify us against all losses caused by his misstatements or omissions. We will pay all expenses incident to our performance under the shareholders agreement, and the principals will pay their respective portions of all underwriting discounts, commissions and transfer taxes relating to the sale of their shares under the shareholders agreement.

Clawback Guaranty Indemnity Agreement

Incentive income from certain of the private equity funds may be distributed to us on a current basis generally subject to the obligation of the subsidiary of the Fortress Operating Group that acts as general partner of the fund to repay the amounts so distributed in the event certain specified return thresholds are not ultimately achieved. The principals have personally guaranteed, subject to certain limitations, the obligation of these subsidiaries in respect of this ‘‘clawback’’ obligation. The shareholders agreement contains our agreement to indemnify each of our principals against all amounts that are payable by the principal is required to pay pursuant to any of these personal guaranties (including costs and expenses related to investigating the basis for or objecting to any claims made in respect of the guaranties).

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Tax Receivable Agreement

As described in ‘‘Our Structure,’’ at any time and from time to time, each principal will have the right to exchange each of his Fortress Operating Group units for one of our Class A shares or, at our option, cash equal to the value of one Class A share. Certain Fortress Operating Group entities intend to make an election under Section 754 of the Code, which may result in an adjustment to the tax basis of the assets owned by the Fortress Operating Group at the time of the exchange. The exchanges may result in increases in the tax basis of the tangible and intangible assets of the Fortress Operating Group that otherwise would not have been available. These increases in tax basis would reduce the amount of tax that FIG Corp. or FIG Asset Co. LLC (on behalf of any affiliated corporation), as applicable, would otherwise be required to pay in the future.

FIG Corp. and FIG Asset Co. LLC (on behalf of any affiliated corporation) (the ‘‘corporate taxpayers’’) will enter into a tax receivable agreement with our principals that will provide for the payment by the corporate taxpayers, to an exchanging principal of 85% of the amount of cash savings, if any, in U.S. federal, state, and local income tax that the corporate taxpayers actually realize as a result of these increases in tax basis, and certain other tax benefits related to entering into the tax receivable agreement. The corporate taxpayers expect to benefit from the remaining 15% of cash savings, if any, in income tax savings that they realize. For purposes of the tax receivable agreement, cash savings in income tax will be computed by comparing our actual income tax liability to the amount of such taxes that the corporate taxpayers would have been required to pay had there been no increase to the tax basis of the tangible and intangible assets of the applicable Fortress Operating Group entity as a result of the exchange and had the corporate taxpayers not entered into the tax receivable agreement. The term of the tax receivable agreement will commence upon consummation of this offering (and will be applicable to the Transactions) and will continue until all such tax benefits have been utilized or expired, unless the corporate taxpayers exercise the right to terminate the tax receivable agreement for an amount based on the present value of payments remaining to be made under the agreement with respect to units which have been exchanged and units which have not yet been exchanged.

Decisions made by the principals in the course of running our business, in particular decisions made with respect of the sale or disposition of assets, may influence the timing and amount of payments that are received by an exchanging principal under the tax receivable agreement. In general, earlier dispositions of assets will tend to accelerate such payments and increase their present value.

Although we are not aware of any issue that would cause the IRS to challenge a tax basis increase, our principals will not reimburse the corporate taxpayers for any payments made by them under the tax receivable agreement. As a result, in certain circumstances, payments could be made to our principals under the tax receivable agreement in excess of the corporate taxpayers' cash tax savings. However, our principals receive 85% of our cash tax savings, leaving the corporate taxpayers with 15% of the benefits of the tax savings. While the actual increase in tax basis and the amount and timing of any payments under the tax receivable agreement will vary depending upon a number of factors, including the timing of exchanges, the price of our Class A shares at the time of the exchange, the extent to which such exchanges are taxable, and the amount and timing of our income, we expect that the payments that the corporate taxpayers may make to our principals could be material in amount.

Employment Agreements

Please see the section entitled ‘‘Management — Employment Agreements’’ for a description of these agreements.

Indemnification Agreements

Please see the section entitled ‘‘Management — Indemnification Agreements’’ for a description of these agreements.

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AGREEMENT AMONG PRINCIPALS

The principals have entered into an agreement among principals (the ‘‘Principals Agreement’’) which provides, that in the event a principal voluntarily terminates his employment with us for any reason prior to the fifth anniversary of the consummation of this offering, a portion of the Fortress Operating Group units (and corresponding Class B shares) held by that principal as of the completion of this offering (the ‘‘Initial Class B Shares’’ and ‘‘Initial Partnership Units,’’ respectively, and, together with all securities into which such initial Class B shares or partnership units are exchangeable, collectively, the ‘‘Forfeitable Interests’’) will be forfeited as of the Forfeiture Date (as defined below) to the principals (‘‘continuing principals’’) who continue to be employed by Fortress as of the date which is six months after the date such termination of employment is effective as follows:


	•	in the event such termination occurs prior to the first anniversary of the consummation of this offering, 70% of such principal's Forfeitable Interests shall be forfeited;


	•	in the event such termination occurs after the first but prior to the second anniversary of the consummation of this offering, 56% of such principal's Forfeitable Interests shall be forfeited;


	•	in the event such termination occurs after the second but prior to the third anniversary of the consummation of this offering, 42% of such principal's Forfeitable Interests shall be forfeited;


	•	in the event such termination occurs after the third but prior to the fourth anniversary of the consummation of this offering, 28% of such principal's Forfeitable Interests shall be forfeited; and


	•	in the event such termination occurs after the fourth but prior to the fifth anniversary of the consummation of this offering, 14% of such principal's Forfeitable Interests shall be forfeited.

The percentages set forth above with respect to Forfeitable Interests shall be adjusted, as appropriate, to take into account the effect of any split, subdivision, reclassification, distribution of securities or similar transaction involving the Forfeitable Interests. None of the forfeited Forfeitable Interests shall return to or benefit us or the Fortress Operating Group. Forfeitable Interests will be allocated among the continuing principals based on their and their permitted transferees' collective pro rata ownership of all Forfeitable Interests held by the continuing principals and their respective permitted transferees as of the Forfeiture Date; provided, that for purposes of the above allocation, each principal will be deemed to hold all Forfeitable Interests that he transfers to a charitable institution, even if such charitable institution subsequently transfers such Forfeitable Interests to any other person or entity. Any Forfeitable Interests received by a principal pursuant to the forfeiture provisions of the Principals Agreement will remain subject to the foregoing forfeiture provisions in the receiving principal's hands as if they had been Forfeitable Interests of such principal; provided, that each principal shall be permitted to sell without regard to the transfer restrictions set forth in the shareholder's agreement such number of Forfeitable Interests received by him as are required to pay taxes payable as a result of the receipt of such interests, calculated based on the maximum combined U.S. federal, New York State and New York City tax rate applicable to individuals.

The Principals Agreement may be amended and the terms and conditions of the Principals Agreement may be changed or modified upon the approval of a majority of the principals who remain employed by the Fortress Operating Group. We, our shareholders and the Fortress Operating Group have no ability to enforce any provision thereof or to prevent the principals from amending the Principals Agreement or waiving any forfeiture obligation.

For the purposes of the Principals Agreement, ‘‘Forfeiture Date’’ means, as to the Forfeitable Interests to be forfeited to any continuing principal, the date which is the earlier of (i) the date that is six months after the applicable date of termination of employment and (ii) the date that is six months after the date of the latest publicly-reported sale of our equity securities by such continuing principals, but only if as of such date the forfeiting principal has not resumed his employment with us.

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PRINCIPAL SHAREHOLDERS

The following table sets forth the beneficial ownership of our Class A shares and Fortress Operating Group units (and corresponding Class B shares), which at any time and from time to time are exchangeable for Class A shares or, at our option, cash equal to the value of one Class A share, upon consummation of this offering and related transactions by (1) each person known to us to beneficially own more than 5% of any class of the outstanding shares of Fortress Investment Group LLC, (2) each of our directors, (3) each of our executive officers and (4) all directors and executive officers as a group. Prior to this offering, our principals owned all of our outstanding Class B shares and there were no Class A shares outstanding. Our principals also owned all of the Fortress Operating Group units prior to this offering. See ‘‘Our Structure.’’

Beneficial ownership is determined in accordance with the rules of the SEC. To our knowledge, each person named in the table below has sole voting and investment power with respect to all of the Class B shares and Fortress Operating Group units shown as beneficially owned by such person, except as otherwise set forth in the notes to the table and pursuant to applicable community property laws. Unless otherwise indicated, the address of each person named in the table is c/o Fortress Investment Group LLC, 1345 Avenue of Americas, 46th Floor, New York, NY 10105.

Amount and Nature of Beneficial Ownership

Class A shares
Beneficially Owned

Class B shares
Beneficially Owned

Fortress Operating Group
Units Beneficially Owned

Number of
Shares

Percent⁽¹⁾

Number of
Shares

Percent⁽¹⁾

Percent of
Voting
Power

Number of
Units

Percent⁽¹⁾

Peter Briger

Wesley Edens

Robert Kauffman

Randal Nardone

Michael Novogratz

All directors and executive officers as a group ( persons)


(1)	Based on Class A shares, Class B shares and Fortress Operating Group units to be outstanding upon consummation of this offering and assumes no exchange of Fortress Operating Group units for our Class A shares, and no exercise of the underwriters' option to purchase an additional Class A shares to cover over-allotments, if any.

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DESCRIPTION OF INDEBTEDNESS

Senior Credit Agreement

General. Certain members of the Fortress Operating Group are borrowers under an amended and restated credit agreement, dated as of June 23, 2006, by and among the borrowers, certain affiliates of the borrowers as guarantors, Bank of America, N.A., as administrative agent, and certain financial institutions from time to time party thereto as lenders. The credit agreement provides for (i) a $150 million revolving credit facility and (ii) a $600 million term loan facility (including a term loan A-1, term loan A-2 and term loan B). The credit facility matures on June 23, 2011.

As of June 30, 2006, we had borrowed $65 million under the revolving credit facility and $600 million under the term loan facility. We will use $250 million of the net proceeds from this offering to prepay amounts under the term loan facility.

Security for the Credit Agreement. The credit agreement is secured by (i) a first priority lien on all assets of the borrowers and the guarantors and (ii) a pledge of the shares (or equivalent equity interests) of each of the borrowers and the guarantors, in each case, subject to customary carve-outs.

Interest Rate. Upon consummation of this offering, loans under the credit agreement accrue interest at a rate equal to with respect to (i) LIBOR loans, LIBOR plus 1.50% and (ii) base rate loans, base rate plus 0.50%.

Commitment Fee and Letter of Credit Fees. Upon consummation of this offering, the borrowers are required to pay a commitment fee of 0.25% and a letter of credit fee of 1.50%.

Payment Terms. Upon receipt of the net cash proceeds from this offering, the borrowers are required to prepay term loans under the credit agreement in the principal amount of $250 million. We are also required to make principal payments on principal on (i) the term loan A-1 as follows: $35 million on December 31, 2009, $15 million on December 31, 2010 and the remaining balance upon final maturity, (ii) the term loan A-2 as follows: $20 million on June 30, 2010 and the remaining balance upon final maturity and (iii) the term loan B in full upon final maturity. In addition, we are required to make payments of interest in arrears on each interest payment date (to be determined depending on interest period elections made by the borrowers).

Voluntary Prepayment. The borrowers may prepay loans under the credit agreement without penalty in whole or in part, without penalty or premium, subject to certain minimum amounts and increments.

Mandatory Prepayment. The borrowers are required to prepay loans under the credit agreement upon the occurrence of certain events, including asset sales and other dispositions, extraordinary receipts and the issuance of equity.

Affirmative and Negative Covenants. The credit agreement includes customary covenants. Among other things, the borrowers are prohibited from incurring additional indebtedness or further encumbering their assets, subject to certain exceptions. The credit facility also contains (i) a minimum management fee earning assets covenant, (ii) minimum EBITDA covenant, (iii) minimum investment assets covenant and (iv) a minimum collateral value covenant.

Events of Default. The credit agreement contains customary events of default, including, without limitation, payment and covenant defaults, cross-defaults to other material indebtedness and bankruptcy-related defaults. If any ‘‘event of default’’ occurs and is continuing, Bank of America, N.A. may, and at the request of the required lenders will, terminate the commitments and declare all of the amounts owed thereunder to be immediately due and payable and prevent the Fortress Operating Group from making any distribution to us.

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DESCRIPTION OF SHARES

The following descriptions of our shares and provisions of our amended and restated operating agreement, which will be in effect upon consummation of this offering, are summaries and are qualified by reference to our amended and restated operating agreement, a copy of which has been filed with the SEC as an exhibit to our registration statement, of which this prospectus forms a part.

Upon consummation of this offering, our authorized shares will consist of 500 million Class A shares, 750 million Class B shares and 250 million preferred shares.

Upon consummation of this offering, there will be Class A shares and Class B shares outstanding, assuming no exercise of the underwriters' option to purchase additional shares to cover any over-allotment.

Class A shares

Upon consummation of this offering, all of the outstanding Class A shares will be duly issued, fully paid and non-assessable. No holder of Class A shares will be entitled to preemptive, subscription, redemption or conversion rights.

Voting Rights

The holders of Class A shares will be entitled to one vote per share held of record on all matters submitted to a vote of our shareholders. Generally, all matters to be voted on by our shareholders must be approved by a majority (or, in the case of election of directors, by a plurality) of the votes entitled to be cast by all Class A shares and Class B shares present in person or represented by proxy, voting together as a single class.

Dividend Rights

Holders of Class A shares will share ratably (based on the number of Class A shares held) in any dividend declared by our board of directors out of funds legally available therefor, subject to any statutory or contractual restrictions on the payment of dividends and to any restrictions on the payment of dividends imposed by the terms of any outstanding preferred shares. Dividends consisting of Class A shares may be paid only as follows: (i) Class A shares may be paid only to holders of Class A shares; and (ii) shares shall be paid proportionally with respect to each outstanding Class A share.

Liquidation Rights

Upon our dissolution, liquidation or winding up, after payment in full of all amounts required to be paid to creditors and to the holders of preferred shares having liquidation preferences, if any, the holders of our Class A shares will be entitled to receive pro rata our remaining assets available for distribution.

Other Matters

In the event of our merger or consolidation with or into another entity in connection with which our Class A shares are converted into or exchangeable for shares of stock, other securities or property (including cash), all holders of Class A shares will thereafter be entitled to receive the same kind and amount of shares of stock and other securities and property (including cash).

Class B shares

All of the Class B shares have been duly issued and are fully paid and non-assessable and are held by our principals. No holder of Class B shares will be entitled to preemptive, subscription, redemption or conversion rights.

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Voting Rights

The holders of our Class B shares will be entitled to one vote per share held of record on all matters submitted to a vote of our shareholders. Generally, all matters to be voted on by our shareholders must be approved by a majority (or, in the case of election of directors, by a plurality) of the votes entitled to be cast by all Class A shares and Class B shares present in person or represented by proxy, voting together as a single class.

Dividend Rights

Holders of our Class B shares will not have any right to receive dividends other than dividends consisting of Class B shares paid proportionally with respect to each outstanding Class B share.

Liquidation Rights

Upon our liquidation, dissolution or winding up, no holder of Class B shares will have any right to receive dividends.

Preferred Shares

Our operating agreement authorizes our board of directors to establish one or more series of preferred shares. Unless required by law or by any stock exchange, the authorized preferred shares will be available for issuance without further action by Class A shareholders. Our board of directors is able to determine, with respect to any series of preferred shares, the holders of terms and rights of that series, including:


	•	the designation of the series;


	•	the amount of preferred shares of the series, which our board may, except where otherwise provided in the preferred shares designation, increase or decrease, but not below the number of preferred shares of the series then outstanding;


	•	whether dividends, if any, will be cumulative or non-cumulative and the dividend rate of the series;


	•	the dates at which dividends, if any, will be payable;

• the redemption rights and price or prices, if any, for preferred shares of the series;


	•	the terms and amounts of any sinking fund provided for the purchase or redemption of the preferred shares of the series;


	•	the amounts payable on preferred shares of the series in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the affairs of our Company;


	•	whether the preferred shares of the series will be convertible into or exchangeable for interests of any other class (other than Class B shares) or series, or any other security, of our company or any other entity, and, if so, the specification of the other class or series or other security, the conversion or exchange price or prices or rate or rates, any rate adjustments, the date or dates on which, the period or periods during which, the shares will be convertible or exchangeable and all other terms and conditions upon which the conversion or exchange may be made;


	•	restrictions on the issuance of preferred shares of the series or of any shares of any other class or series; and


	•	the voting rights, if any, of the holders of the preferred shares of the series.

We could issue a series of preferred shares that could, depending on the terms of the series, impede or discourage an acquisition attempt or other transaction that some, or a majority, of holders of Class A shares might believe to be in their best interests or in which holders of Class A shares might receive a premium for their Class A shares over the market price of the Class A shares.

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Listing

We intend to list our Class A shares on the New York Stock Exchange under the symbol ‘‘FIG’’.

Transfer Agent and Registrar

The transfer agent and registrar for our Class A shares and our Class B shares is .

Amended and Restated Operating Agreement

Organization and Duration

Our limited liability company was formed on November 6, 2006 as Fortress Investment Group Holdings LLC, and was subsequently renamed Fortress Investment Group LLC on, 2007, and will remain in existence until dissolved in accordance with our amended and restated operating agreement.

Purpose

Under our amended and restated operating agreement, we are permitted to engage in any business activity that lawfully may be conducted by a limited liability company organized under Delaware law and, in connection therewith, to exercise all of the rights and powers conferred upon us pursuant to the agreements relating to such business activity; provided, however, that our management shall not cause us to engage, directly or indirectly, in any business activity that our board of directors determines would cause us to be treated as an association taxable as a corporation or otherwise taxable as an entity for federal income tax purposes.

Agreement to be Bound by Operating Agreement; Power of Attorney

By purchasing a Class A share, you will be admitted as a member of our limited liability company and will be deemed to have agreed to be bound by the terms of our amended and restated operating agreement. Pursuant to this agreement, each shareholder and each person who acquires a Class A share or a Class B share from a shareholder grants to certain of our officers and our board of directors (and, if appointed, a liquidator) a power of attorney to, among other things, execute and file documents required for our qualification, continuance or dissolution. The power of attorney also grants certain of our officers and our board of directors the authority to make certain amendments to, and to make consents and waivers under and in accordance with, our amended and restated operating agreement.

Duties of Officers and Directors

Our amended and restated operating agreement provides that our business and affairs shall be managed under the direction of our board of directors, which shall have the power to appoint our officers. Our amended and restated operating agreement further provides that the authority and function of our board of directors and officers shall be identical to the authority and functions of a board of directors and officers of a corporation organized under the Delaware General Corporation Law, or DGCL, except as expressly modified by the terms of the amended and restated operating agreement. Finally, our amended and restated operating agreement provides that except as specifically provided therein, the fiduciary duties and obligations owed to our limited liability company and to our members shall be the same as the respective duties and obligations owed by officers and directors of a corporation organized under the DGCL to their corporation and stockholders, respectively.

Election of Members of Our Board of Directors

At our first annual meeting of shareholders following this offering, certain members of our board of directors will be re-elected by our shareholders on a staggered basis.

Removal of Members of Our Board of Directors

Any director may be removed, with or without cause, by holders of a majority of the total voting power of all of our outstanding shares then entitled to vote at an election of directors.

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Expansion of Board of Directors

Our amended and restated operating agreement provides that we may not expand the size of our board of directors without the approval of holders representing a majority of the total voting power of our outstanding shares.

Investing in FIG Asset Co. LLC

Our amended and restated operating agreement provides that we may not make, directly or indirectly, any equity or debt investment in FIG Asset Co. LLC without the unanimous approval of all holders of Class B shares when such Class B shareholder would otherwise be required to contribute funds, in order for us to make the investment.

Sharing of Costs and Expenses

Following completion of this offering, all of Fortress's expenses, including all expenses incurred by or attributable solely to Fortress Investment Group LLC, including expenses incurred in connection with this offering, will be accounted for as expenses of the Fortress Operating Group.

Limited Liability

The Delaware LLC Act provides that a member who receives a distribution from a Delaware limited liability company and knew at the time of the distribution that the distribution was in violation of the Delaware LLC Act shall be liable to the company for the amount of the distribution for three years. Under the Delaware LLC Act, a limited liability company may not make a distribution to a member if, after the distribution, all liabilities of the company, other than liabilities to members on account of their shares and liabilities for which the recourse of creditors is limited to specific property of the company, would exceed the fair value of the assets of the company. For the purpose of determining the fair value of the assets of a company, the Delaware LLC Act provides that the fair value of property subject to liability for which recourse of creditors is limited shall be included in the assets of the company only to the extent that the fair value of that property exceeds the nonrecourse liability. Under the Delaware LLC Act, an assignee who becomes a substituted member of a company is liable for the obligations of his assignor to make contributions to the company, except the assignee is not obligated for liabilities unknown to him at the time the assignee became a member and that could not be ascertained from the amended and restated operating agreement.

Limitations on Liability and Indemnification of Our Directors and Officers

Pursuant to the amended and restated operating agreement, we have agreed to indemnify each of our directors and officers, to the fullest extent permitted by law, against all expenses and liabilities (including judgments, fines, penalties, interest, amounts paid in settlement with the approval of the company and counsel fees and disbursements on a solicitor and client basis) arising from the performance of any of their obligations or duties in connection with their service to us or the amended and restated operating agreement, including in connection with any civil, criminal, administrative, investigative or other action, suit or proceeding to which any such person may hereafter be made party by reason of being or having been one of our directors or officers, except by reason of acts or omissions constituting fraud, willful misconduct or gross negligence.

Amendment of Our Amended and Restated Operating Agreement

Amendments to our amended and restated operating agreement may be proposed only by or with the consent of our board of directors. To adopt a proposed amendment, our board of directors is required to seek written approval of the holders of the number of shares required to approve the amendment or call a meeting of our shareholders to consider and vote upon the proposed amendment. An amendment must be approved by holders of a majority of the total voting power of our shares.

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Prohibited Amendments. No amendment may be made that would:


	•	enlarge the obligations of any shareholder without such shareholder's consent, unless approved by at least a majority of the type or class of shares so affected;


	•	provide that we are not dissolved upon an election to dissolve our limited liability company by our board of directors that is approved by holders of a majority of the total voting power of our shares;


	•	change the term of existence of our company; or


	•	give any person the right to dissolve our limited liability company other than our board of directors' right to dissolve our limited liability company with the approval of holders of a majority of the total voting power of our shares.

The provision of our amended and restated operating agreement preventing the amendments having the effects described in any of the clauses above can be amended upon the approval of holders of at least 75% of the total voting power of our shares, voting together as a single class.

No Shareholder Approval. Our board of directors may generally make amendments to our amended and restated operating agreement without the approval of any shareholder or assignee to reflect:


	•	a change in our name, the location of our principal place of our business, our registered agent or our registered office;


	•	the admission, substitution, withdrawal or removal of shareholders in accordance with our amended and restated operating agreement;


	•	the merger of our company or any of its subsidiaries into, or the conveyance of all of our assets to, a newly-formed entity if the sole purpose of that merger or conveyance is to effect a mere change in our legal form into another limited liability entity;


	•	a change that our board of directors determines to be necessary or appropriate for us to qualify or continue our qualification as a company in which our members have limited liability under the laws of any state or to ensure that neither we, our operating subsidiaries nor any of their respective subsidiaries will be treated as an association taxable as a corporation or otherwise taxed as an entity for U.S. federal income tax purposes other than as we specifically so designate;


	•	an amendment that is necessary, in the opinion of our board of directors, based upon the advice of counsel, to prevent us, members of our board, or our officers, agents or trustees from in any manner being subjected to the provisions of the Investment Company Act of 1940, the Investment Advisers Act of 1940, or ‘‘plan asset’’ regulations adopted under the Employee Retirement Income Security Act of 1974, or ERISA, whether or not substantially similar to plan asset regulations currently applied or proposed;


	•	an amendment that our board of directors determines to be necessary or appropriate for the authorization of additional securities or rights to acquire securities;


	•	any amendment expressly permitted in our amended and restated operating agreement to be made by our board of directors acting alone;


	•	an amendment effected, necessitated or contemplated by a merger agreement that has been approved under the terms of our amended and restated operating agreement;


	•	any amendment that our board of directors determines to be necessary or appropriate for the formation by us of, or our investment in, any corporation, partnership or other entity, as otherwise permitted by our amended and restated operating agreement;


	•	a change in our fiscal year or taxable year and related changes;


	•	the designation of a new tax matters partner;

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	•	a merger, conversion or conveyance effected in accordance with our amended and restated operating agreement; and


	•	any other amendments substantially similar to any of the matters described in the clauses above.

In addition, our board of directors may make amendments to our amended and restated operating agreement without the approval of any shareholder or assignee if our board of directors determines that those amendments:


	•	do not adversely affect the shareholders (including any particular class of shares as compared to other classes of shares) in any material respect;


	•	are necessary or appropriate to satisfy any requirements, conditions or guidelines contained in any opinion, directive, order, ruling or regulation of any federal or state agency or judicial authority or contained in any federal or state statute;


	•	are necessary or appropriate to facilitate the trading of shares or to comply with any rule, regulation, guideline or requirement of any securities exchange on which the shares are or will be listed for trading, compliance with any of which our board of directors deems to be in the best interests of us and our shareholders;


	•	are necessary or appropriate for any action taken by our board of directors relating to splits or combinations of shares under the provisions of our amended and restated operating agreement; or


	•	are required to effect the intent expressed in this prospectus or the intent of the provisions of our amended and restated operating agreement or are otherwise contemplated by our amended and restated operating agreement.

Merger, Sale or Other Disposition of Assets

Our board of directors is generally prohibited, without the prior approval of holders of a majority of the total voting power of all of our outstanding shares, from causing us to, among other things, sell, exchange or otherwise dispose of all or substantially all of our assets in a single transaction or a series of related transactions, including by way of merger, consolidation or other combination, or approving on our behalf the sale, exchange or other disposition of all or substantially all of the assets of our subsidiaries, provided that our board of directors may mortgage, pledge, hypothecate or grant a security interest in all or substantially all of our assets without that approval. Our board of directors may also sell all or substantially all of our assets under a foreclosure or other realization upon the encumbrances above without that approval.

If the conditions specified in the amended and restated operating agreement are satisfied, our board of directors may merge our company or any of its subsidiaries into, or convey all of our assets to, a newly-formed entity if the sole purpose of that merger or conveyance is to effect a mere change in our legal form into another limited liability entity, in each case without any approval of our shareholders. The shareholders are not entitled to dissenters' rights of appraisal under the amended and restated operating agreement or applicable Delaware law in the event of a merger or consolidation, a sale of all or substantially all of our assets or any other similar transaction or event.

Grantor Trust

In the future, our board of directors may consider implementing a reorganization whereby a Delaware statutory trust (the ‘‘Trust’’) would hold all of our outstanding Class A shares and each holder of Class A shares would receive common shares of the Trust in exchange for its shares. The board will have the power to decide in its sole discretion to implement such a trust structure. Our Trust would be treated as a grantor trust for U.S. federal income tax purposes. As such, for U.S. federal income tax purposes, each investor would be treated as the beneficial owner of a pro rata portion of the shares held by the Trust and shareholders would receive annual tax information relating

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to their investment on IRS Forms 1099 (or substantially similar forms as required by law), rather than on IRS Schedules K-1. Our board will not implement such a trust structure if, in its sole discretion, the reorganization would be taxable or otherwise alter the benefits or burdens of ownership of the shares, including, without limitation, a shareholder's allocation of items of income, gain, loss, deduction or credit or the treatment of such items for U.S. federal income tax purposes. A reorganization to a trust structure will have no material effect on the voting and economic rights of Class A shares and Class B shares.

The IRS could challenge the Trust's manner of reporting to investors (e.g., if the IRS asserts that the Trust constitutes a partnership or is ignored for U.S. federal income tax purposes). In addition, the Trust could be subject to penalties if it were determined that the Trust did not satisfy applicable reporting requirements.

Termination and Dissolution

We will continue as a limited liability company until terminated under our amended and restated operating agreement. We will dissolve upon: (1) the election of our board of directors to dissolve us, if approved by holders of a majority of the total voting power of all of our outstanding shares; (2) the sale, exchange or other disposition of all or substantially all of our assets; or (3) the entry of a decree of judicial dissolution of our limited liability company.

Books and Reports

We are required to keep appropriate books of our business at our principal offices. The books will be maintained for both tax and financial reporting purposes on an accrual basis. For tax and financial reporting purposes, our fiscal year is the calendar year. We have agreed to use reasonable efforts to furnish to you tax information (including Schedule K-1) as promptly as possible, which describes your allocable share of our income, gain, loss and deduction for our preceding taxable year. In preparing this information, we will use various accounting and reporting conventions to determine your allocable share of income, gain, loss and deduction. Delivery of this information by us will be subject to delay in the event of, among other reasons, the late receipt of any necessary tax information from an investment in which we hold an interest. It is therefore possible that, in any taxable year, our shareholders will need to apply for extensions of time to file their tax returns.

Anti-Takeover Effects, Our Amended and Restated Operating Agreement

The following is a summary of certain provisions of our amended and restated operating agreement that may be deemed to have an anti-takeover effect and may delay, deter or prevent a tender offer or takeover attempt that a shareholder might consider to be in its best interest, including those attempts that might result in a premium over the market price for the interests held by shareholders.

Authorized but Unissued Shares

Our amended and restated operating agreement authorizes us to issue an unlimited number of additional Class A shares and other equity securities for the consideration and on the terms and conditions established by our board of directors without the approval of any holders of our shares. However, the listing requirements of the New York Stock Exchange, which would apply so long as the Class A shares remain listed on the New York Stock Exchange, require approval by shareholders of certain issuances equal to or exceeding 20% of the then outstanding voting power or then outstanding number of Class A shares. These additional Class A shares or equity securities may be utilized for a variety of purposes, including future public offerings to raise additional capital, acquisitions and employee benefit plans. Our ability to issue additional Class A shares and other equity securities could render more difficult or discourage an attempt to obtain control over us by means of a proxy contest, tender offer, merger or otherwise.

Delaware Business Combination Statute — Section 203

We are a limited liability company organized under Delaware law. Some provisions of Delaware law may delay or prevent a transaction that would cause a change in our control.

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Section 203 of the Delaware General Corporation Law, which restricts certain business combinations with interested stockholders in certain situations, does not apply to limited liability companies unless they elect to utilize it. Our amended and restated operating agreement does not currently elect to have Section 203 of the DGCL apply to us. In general, this statute prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder for a period of three years after the date of the transaction by which that person became an interested stockholder, unless the business combination is approved in a prescribed manner. For purposes of Section 203, a business combination includes a merger, asset sale or other transaction resulting in a financial benefit to the interested stockholder, and an interested stockholder is a person who, together with affiliates and associates, owns, or within three years prior, did own, 15% or more of voting stock.

Other Provisions of Our Amended and Restated Operating Agreement

Certain provisions of our amended and restated operating agreement may make a change in control of our company more difficult to effect. Our amended and restated operating agreement provides for a staggered board of directors consisting of three classes of directors. Directors of each class are chosen for three-year terms upon the expiration of their current terms and each year one class of our directors will be elected by our shareholders. The terms of the first, second and third classes will expire in , and , respectively. We believe that classification of our board of directors will help to assure the continuity and stability of our business strategies and policies as determined by our board of directors. Additionally, there is no cumulative voting in the election of directors, which means that the holders of a majority of our outstanding Class A and Class B shares can elect all of the directors then standing for election currently, and the holders of the Class A shares will not be able to elect any directors. The classified board provision could have the effect of making the replacement of incumbent directors more time consuming and difficult. At least two annual meetings of shareholders, instead of one, generally will be required to effect a change in a majority of our board of directors. Thus, the classified board provision could increase the likelihood that incumbent directors will retain their positions. The staggered terms of directors may delay, defer or prevent a tender offer or an attempt to change control of us, even though a tender offer or change in control might be in the best interest of our shareholders. In addition, our amended and restated operating agreement provides that directors may be removed with or without cause by holders of a majority of the total voting power of our outstanding shares then entitled to vote at an election of directors.

Our amended and restated operating agreement also provides that our shareholders (with the exception of our principals if they collectively own shares representing at least 50% of the total voting power of all of our shares) are specifically denied the ability to call a special meeting of the shareholders. Advance notice must be provided by our shareholders to nominate persons for election to our board of directors as well as to propose actions to be taken at an annual meeting.

Partner Units

Fortress Operating Group consists of the entities owned by the principals prior to the consummation of this offering; each such entity has an identical number of limited partner interests which number, in turn, is equal to the number of our outstanding Class A and Class B shares. The term ‘‘Fortress Operating Group unit’’ refers to the aggregate of interests consisting of one limited partner interest in each Fortress Operating Group entity.

Upon consummation of this offering, there will beFortress Operating Group units issued and outstanding, of which will be general partner units beneficially owned by our intermediate holding companies,of which will be voting limited partnership units beneficially owned by our intermediate holding companies and of which will be non-voting limited partner interests beneficially owned by our principals in the aggregate. The general partner units and voting limited partnership units owned by our intermediate holding companies will represent 100% of the voting interests in the Fortress Operating Group. One Fortress Operating Group unit represents one limited partnership

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interest in each entity comprising the Fortress Operating Group. The net cash proceeds received by us from any issuance of Class A shares will be concurrently transferred to our intermediate holding companies which will, in turn, then contribute the cash proceeds to the Fortress Operating Group entities in exchange for voting limited partnership interests which collectively equal a number of units equal to such number of Class A shares issued by us.

The voting limited partner units, held by the intermediate holding companies, will have certain voting rights associated with them, including the exclusive right to (1) elect, remove and replace the general partner of each of the Fortress Operating Group entities, (2) dissolve any of the Fortress Operating Group entities, and (3) other traditional voting rights. The non-voting limited partnership interests, held by the principals, would only have certain negative rights enumerated in the amended and restated partnership agreements of the Fortress Operating Group entities, such as protection against passage of amendments to such limited partnership agreements that would adversely affect the holders of non-voting limited partner interests without their consent.

Pursuant to the terms of the amended and restated partnership agreements or trust agreements for the Fortress Operating Group entities, each limited partnership unit not owned by us is effectively exchangeable on a one-for-one basis for Class A shares, or at our option, cash equal to the value of one Class A share.

Shareholders Agreement

Upon consummation of this offering, we will enter into a shareholders agreement with our principals regarding voting, transfer and registration rights, among other things. See ‘‘Certain Relationships and Related Party Transactions — Shareholders Agreements.’’

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SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has not been a public market for our Class A shares. Future sales of substantial amounts of our Class A shares in the public market, or the possibility of these sales, could adversely affect the trading price of our Class A shares and could impair our future ability to raise capital through the sale of our equity at a time and price we deem appropriate.

Upon consummation of this offering, we will have outstanding Class A shares (for a maximum of Class A shares if the underwriters exercise their option to purchase additional shares to cover any over-allotment in full), all of which will have been sold in this offering. These Class A shares will be freely tradable without restriction or further registration under the Securities Act, except for any Class A shares held by our ‘‘affiliates,’’ as defined in Rule 144 under the Securities Act, which would be subject to the limitations and restrictions described below.

In addition, upon consummation of this offering, our principals will beneficially own Fortress Operating Group units and corresponding Class B shares. Pursuant to the terms of our amended and restated operating agreement, our principals could from time to time exchange their limited partnership units in the Fortress Operating Group for our Class A shares on a one-for-one basis. These Class A shares would be ‘‘restricted securities,’’ as defined in Rule 144. Upon expiration of the lock-up agreements described in ‘‘Underwriting’’ and the applicable holding period under Rule 144, the Class A shares issued in exchange for limited partnership units in the Fortress Operating Group would be eligible for sale in the public market pursuant to Rule 144, subject to contractual restrictions on transfer.

Lock-Up of our Class A Shares

We and our principals, executive officers, employees who are receiving Class A shares and Fortress Operating Group units in connection with this offering and directors and participants in our directed share program have agreed with the underwriters, subject to certain exceptions described below, not to (i) offer, pledge, announce the intention to sell, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer, dispose of or hedge, directly or indirectly, our Class A shares (including, without limitation, Class A shares which may be deemed to be beneficially owned by such principals, executive officers, employees, directors and participants in accordance with the rules and regulations of the SEC and securities which may be issued upon exercise of a share option or warrant) and Fortress Operating Group units or any securities convertible into or exercisable or exchangeable for our Class A shares or Fortress Operating Group units or (ii) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of our Class A shares or Fortress Operating Group units, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Class A shares, Fortress Operating Group units or such other securities, in cash or otherwise during the period from the date of this prospectus continuing through the date 120 days after the date of this prospectus, except with the prior written consent of the representatives. The underwriters may waive these restrictions in their discretion. Currently, the underwriters have no intention to release the aforementioned holders of our Class A shares or Fortress Operating Group units from the lock-up restrictions described above.

The 120-day restricted period described in the preceding paragraph will be automatically extended if (i) during the last 17 days of the 120-day restricted period we issue an earnings release or announce material news or a material event relating to us occurs or (ii) prior to the expiration of the 120-day restricted period, we announce that we will release earnings results during the 15-day period beginning on the last day of the 120-day restricted period, in which case the restrictions described in the preceding paragraph will continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the announcement of the material news or material event.

Our lock-up agreement will provide exceptions for, among other things:


	•	the grant of awards pursuant to employee benefit plans or arrangements including in connection with the settlement of restricted share units;

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	•	the exercise of an option or upon conversion or exchange of convertible or exchangeable securities outstanding;


	•	the issuance of securities to be registered pursuant to any registration statement on Form S-8 pursuant to any benefit plans or arrangements; and


	•	the issuance of up to% of our outstanding Class A shares in connection with the acquisition of the assets of, or a majority or controlling portion of the equity of, or a joint venture with, another entity.

The shareholder lock-up agreements will provide exceptions for, among other things:


	•	sales under any Rule 10b5-1 plan;


	•	any bona fide gift or gifts, provided that the donee or donees thereof agree to be bound in writing by the restrictions set forth in the shareholder lock-up agreement;


	•	transfers by will or by intestacy provided that such transferee agrees to be bound in writing by the restrictions set forth in the shareholder lock-up agreement;


	•	transfer to any trust for the direct or indirect benefit of the shareholder or the immediate family of the shareholder, provided that the trustee of the trust agrees to be bound in writing by the restrictions set forth in the shareholder lock-up agreement, and provided further that any such transfer shall not involve a disposition for value;


	•	any distribution to partners or members of the shareholder (including upon any liquidation and dissolution of the shareholder pursuant to a plan of liquidation approved by the shareholder's partners or members), provided that the partners or members of the shareholder agree to be bound in writing by the restrictions set forth in the shareholder lock-up agreement;


	•	transfers in connection with a sale of 100% of the outstanding shares of our Class A shares or by way of merger of Fortress with another person to a third party or group of third parties that are not affiliates of Fortress;


	•	transfer of Class A shares by the shareholder to us deemed to occur upon the cashless exercise of options granted pursuant to our employee benefit plans;


	•	transfer to the shareholder's affiliates or to any investment fund or other entity controlled or managed by the shareholder, provided that such affiliate, investment fund or other entity controlled or managed by the shareholder agrees to be bound in writing by the restrictions set forth in the shareholder lock-up agreement; or


	•	transactions relating to Class A shares or other securities acquired in open market transactions after the completion of this offering.

Rule 144

In general, under Rule 144 as currently in effect, beginning days after this offering, a person (or persons whose Class A shares are required to be aggregated), including an affiliate, who has beneficially owned our Class A shares for at least one year is entitled to sell in any three-month period a number of shares that does not exceed the greater of


	•	1% of then outstanding Class A shares, which will equal Class A shares immediately after consummation of this offering; or


	•	the average weekly trading volume in the Class A shares on the New York Stock Exchange during the four calendar weeks preceding the date on which notice of sale is filed, subject to restrictions.

Sales under Rule 144 are also subject to manner of sale provisions and notice requirements and to the availability of current public information about us. An ‘‘affiliate’’ is a person that directly, or indirectly though one or more intermediaries, controls or is controlled by, or is under common control with an issuer.

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Rule 144(k)

Under Rule 144(k), a person (or persons whose shares are agregrated) who is not deemed to have been an affiliate of ours at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years (including the holding period of any prior owner other than an affiliate), would be entitled to sell those shares without regard to the manner of sale, public information, volume limitation or notice requirements of Rule 144. To the extent that our affiliates sell their Class A shares, other than pursuant to Rule 144 or a registration statement, the purchaser's holding period for the purpose of effecting a sale under Rule 144 commences on the date of transfer from the affiliate.

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MATERIAL U.S. FEDERAL TAX CONSIDERATIONS

The following discussion summarizes certain U.S. federal income tax considerations relating to an investment in Class A shares. For purposes of this section, under the heading ‘‘Material U.S. Federal Tax Considerations,’’ references to ‘‘Fortress,’’ ‘‘we,’’ ‘‘our,’’ and ‘‘us’’ mean only Fortress Investment Group LLC and not its subsidiaries, except as otherwise indicated. This discussion is based on the Internal Revenue Code of 1986, as amended (the ‘‘Code’’), Treasury Regulations promulgated thereunder, administrative rulings and pronouncements of the Internal Revenue Service, which we refer to as the IRS, and judicial decisions, all as in effect on the date hereof and which are subject to change or differing interpretations, possibly with retroactive effect.

This discussion does not purport to be a comprehensive discussion of all of the U.S. federal income tax considerations applicable to us or that may be relevant to a particular holder of our Class A shares in view of such holder's particular circumstances and, except to the extent provided below, is not directed to holders of our Class A shares subject to special treatment under the U.S. federal income tax laws, such as banks or other financial institutions, dealers in securities or currencies, tax-exempt entities, regulated investment companies, REITs, non-U.S. persons (as defined below), insurance companies, mutual funds, persons holding shares as part of a hedging, integrated or conversion transaction or a straddle, traders in securities that elect to use a mark-to-market method of accounting for their securities holdings, charitable remainder unit trusts, common trust funds, or persons liable for the alternative minimum tax. In addition, except to the extent provided below, this discussion does not address any aspect of state, local or non-U.S. tax law and assumes that holders of our Class A shares will hold their Class A shares as capital assets within the meaning of Section 1221 of the Code. The tax treatment of holders in a partnership (including an entity treated as a partnership for U.S. federal income tax purposes) that is a holder of our Class A shares generally depends on the status of the partner, rather than the partnership, and is not specifically addressed herein. Partners in partnerships purchasing the Class A shares should consult their tax advisors.

No statutory, administrative or judicial authority directly addresses the treatment of certain aspects of the Class A shares or instruments similar to the shares for U.S. federal income tax purposes. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax aspects set forth below. Moreover, no advance rulings have been or will be sought from the IRS regarding any matter discussed in this prospectus. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax aspects set forth below. Accordingly, prospective holders of our Class A shares are urged to consult their own tax advisors to determine the U.S. federal income tax consequences to them of acquiring, holding and disposing of Class A shares, as well as the effects of the state, local and non-U.S. tax laws.

For purposes of the following discussion, a U.S. person is a person that is (i) a citizen or resident of the United States, (ii) a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized under the laws of the United States or any state thereof, or the District of Columbia, (iii) an estate, the income of which is subject to U.S. federal income taxation regardless of its source, or (iv) a trust (a) the administration over which a U.S. court can exercise primary supervision and (b) all of the substantial decisions of which one or more U.S. persons have the authority to control. A ‘‘non-U.S. person’’ is a person that is neither a U.S. person nor an entity treated as a partnership for U.S. federal income tax purposes.

Taxation of the Company

Taxation of Fortress. Skadden, Arps, Slate, Meagher & Flom LLP has acted as our counsel in connection with this offering. We expect to receive the opinion of Skadden, Arps, Slate, Meagher & Flom LLP that we will be treated, for U.S. federal income tax purposes, as a partnership and not as an association or publicly traded partnership taxable as a corporation. It must be emphasized that the opinion of Skadden, Arps, Slate, Meagher & Flom LLP will, if issued, be based on various assumptions and representations relating to our organization, operation, assets, activities and income, including that all factual representations set forth in the relevant documents, records and instruments

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are true and correct, all actions described in this offering are completed in a timely fashion and that we will at all times operate in accordance with the method of operation described in our organizational documents and this offering, and such opinion is conditioned upon representations and covenants made by our management regarding our organization, assets, activities, income, and present and future conduct of our business operations, and assumes that such representations and covenants are accurate and complete.

While we believe that we are organized and intend to operate so that we will qualify to be treated for U.S. federal income tax purposes as a partnership, and not as an association or a publicly traded partnership taxable as a corporation, given the highly complex nature of the rules governing partnerships, the ongoing importance of factual determinations, and the possibility of future changes in our circumstances, no assurance can be given by Skadden, Arps, Slate, Meagher & Flom LLP or us that we will so qualify for any particular year. Skadden, Arps, Slate, Meagher & Flom LLP will have no obligation to advise us or the holders of our Class A shares of any subsequent change in the matters stated, represented or assumed, or of any subsequent change in, or differing IRS interpretation of, the applicable law. Our taxation as a partnership that is not a publicly traded partnership taxable as a corporation will depend on our ability to meet, on a continuing basis, through actual operating results, the ‘‘qualifying income exception’’ (as described below), the compliance with which will not be reviewed by Skadden, Arps, Slate, Meagher & Flom LLP on an ongoing basis. Accordingly, no assurance can be given that the actual results of our operations for any taxable year will satisfy the qualifying income exception. You should be aware that opinions of counsel are not binding on the IRS, and no assurance can be given that the IRS will not challenge the conclusions set forth in such opinions.

If, for any reason (including our failure to meet the qualifying income exception), we were treated as an association or publicly traded partnership taxable as a corporation for U.S. federal income tax purposes, we would be subject to U.S. federal income tax on our taxable income at regular corporate income tax rates, without deduction for any distributions to holders, thereby materially reducing the amount of any cash available for distribution to holders. The net effect of such treatment would be, among other things, to subject the income from FIG Asset Co. LLC to corporate level taxation.

Under Section 7704 of the Code, unless certain exceptions apply, if an entity that would otherwise be classified as a partnership for U.S. federal income tax purposes is a ‘‘publicly traded partnership’’ (as defined in the Code) it will be treated and taxed as a corporation for U.S. federal income tax purposes. An entity that would otherwise be classified as a partnership is a publicly traded partnership if (i) interests in the entity are traded on an established securities market or (ii) interests in the entity are readily tradable on a secondary market or the substantial equivalent thereof. We expect that we will be treated as a publicly traded partnership.

A publicly traded partnership will, however, be treated as a partnership, and not as a corporation for U.S. federal income tax purposes, if 90% or more of its gross income during each taxable year consists of ‘‘qualifying income’’ within the meaning of Section 7704 of the Code and it is not required to register as an investment company under the Investment Company Act of 1940. We refer to this exception as the ‘‘qualifying income exception.’’ Qualifying income generally includes dividends, interest, capital gains from the sale or other disposition of stocks and securities and certain other forms of investment income. We expect that our investments generally will earn interest, dividends, capital gains and other types of qualifying income. No assurance can be given as to the types of income that will be earned in any given year.

While we anticipate that we will be treated as a publicly traded partnership, we expect to manage our investments so that we will satisfy the qualifying income exception. There can be no assurance, however, that we will do so or that the IRS would not challenge our compliance with the qualifying income requirements and, therefore, assert that we should be taxable as a corporation for U.S. federal income tax purposes. In such event, the amount of cash available for distribution to holders would be reduced materially.

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The remainder of the discussion assumes that we will be treated as a partnership that is not a taxable as a corporation for U.S. federal income tax purposes. Despite that classification, a significant portion of our income will be derived through FIG Corp., which will be subject to corporate income taxes.

Taxation of FIG Corp. FIG Corp., our wholly-owned subsidiary, is taxable as a corporation for U.S. federal income tax purposes and therefore we, as the holder of FIG Corp.'s common stock, will not be taxed directly on the earnings of the operating entities. Distributions of cash or other property that FIG Corp. pays to us will constitute dividends for U.S. federal income tax purposes to the extent paid from its current or accumulated earnings and profits (as determined under U.S. federal income tax principles). If the amount of a distribution by FIG Corp. exceeds its current and accumulated earnings and profits, such excess will be treated as a tax-free return of capital to the extent of our tax basis in FIG Corp.'s common stock, and thereafter will be treated as a capital gain.

As general partner of the Fortress Operating Group entities (other than Principal Holdings), FIG Corp. will incur U.S. federal income taxes on its proportionate share of any net taxable income of such entities. In accordance with the applicable partnership agreement, we will cause the applicable Fortress Operating Group entities to continue to distribute cash on a pro rata basis to holders of Fortress Operating Group units, to the extent necessary to cover such unitholders' maximum tax liabilities from their ownership of such units, if any.

Taxation of FIG Asset Co. LLC. FIG Asset Co. LLC is our wholly-owned limited liability company. Single member limited liability companies that have not elected to be treated as corporations for U.S. federal income tax purposes are generally disregarded as separate entities for U.S. federal income tax purposes. FIG Asset Co. LLC will be treated as an entity disregarded as a separate entity from us. Accordingly, all the assets, liabilities, and items of income, deduction, and credit of FIG Asset Co. LLC will be treated as our assets, liabilities, and items of income, deduction, and credit.

Nature of FIG Asset Co. LLC's Business Activities. We anticipate that FIG Asset Co. LLC will invest directly or indirectly in a variety of assets and otherwise engage in activities and derive income that is consistent with the qualifying income exception discussed above.

Personal Holding Companies. FIG Corp. could be subject to additional U.S. federal income tax on a portion of its income if it is determined to be a personal holding company, or PHC, for U.S. federal income tax purposes. A U.S. corporation generally will be classified as a PHC for U.S. federal income tax purposes in a given taxable year if (i) at any time during the last half of such taxable year, five or fewer individuals (without regard to their citizenship or residency and including as individuals for this purpose certain entities such as certain tax-exempt organizations and pension funds) own or are deemed to own (pursuant to certain constructive ownership rules) more than 50% of the stock of the corporation by value and (ii) at least 60% of the corporation's adjusted ordinary gross income, as determined for U.S. federal income tax purposes, for such taxable year consists of PHC income (which includes, among other things, dividends, interest, royalties, annuities and, under certain circumstances, rents). The PHC rules do not apply to non-U.S. corporations.

We believe that five or fewer individuals or tax-exempt organizations will be treated as owning more than 50% of the value of our Class A shares. Consequently, FIG Corp. could be or become a PHC, depending on whether it satisfies the PHC gross income test. We believe, however, that FIG Corp.'s income will not satisfy the PHC gross income test and, therefore, it is not currently a PHC. We also do not expect it to become a PHC. No assurance can be given, however, that FIG Corp. will not become a PHC following this offering or in the future.

If FIG Corp. is or were to become a PHC in a given taxable year, it would be subject to an additional 15% PHC tax on its undistributed PHC income, which generally includes the company's taxable income, subject to certain adjustments. For taxable years beginning after December 31, 2010, the PHC tax rate on undistributed PHC income will be equal to the highest marginal rate on ordinary income applicable to individuals (currently 35%). Based upon the nature of our expected income, even if FIG Corp. were a PHC, we do not expect it to be subject to the PHC tax on undistributed PHC

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income. If, however, FIG Corp. were to become a PHC and had significant amounts of undistributed PHC income, the amount of PHC tax could be material.

Certain State, Local and Non-U.S. Tax Matters. We and our subsidiaries may be subject to state, local or non-U.S. taxation in various jurisdictions, including those in which we or they transact business, own property, or reside. We may be required to file tax returns in some or all of those jurisdictions. The state, local or non-U.S. tax treatment of us and our holders may not conform to the U.S. federal income tax treatment discussed herein. We will pay non-U.S. taxes, and dispositions of foreign property or operations involving, or investments in, foreign property may give rise to non-U.S. income or other tax liability in amounts that could be substantial. Any non-U.S. taxes incurred by us may not pass through to holders of our Class A shares as a credit against their federal income tax liability.

Taxation of Holders of Class A Shares

Taxation of Holders of Class A Shares on Our Profits and Losses. As a partnership for tax purposes, we are not a taxable entity and incur no U.S federal income tax liability. Instead, each holder in computing such holder's U.S. federal income tax liability for a taxable year will be required to take into account its allocable share of items of our income, gain, loss, deduction and credit (including those items of FIG Asset Co. LLC as an entity disregarded as a separate entity from us for U.S. federal income tax purposes) for each of our taxable years ending with or within the taxable year of such holder, regardless whether the holder has received any distributions. The characterization of an item of our income, gain, loss, deduction or credit generally will be determined at our (rather than at the holder's) level.

Distributions we receive from FIG Corp. that are taxable as dividend income to the extent of FIG Corp.'s current and accumulated earnings and profits that are allocable to individual holders of Class A shares should be eligible for a reduced rate of tax of 15% on such dividend income or qualified dividend income through 2010, provided that certain holding period requirements are satisfied.

Allocation of Profits and Losses. For each of our fiscal years, items of income, gain, loss, deduction or credit recognized by us (including those items of FIG Asset Co. LLC as an entity disregarded as a separate entity from us for U.S. federal income tax purposes) will be allocated among the holders of Class A shares in accordance with their allocable shares of our items of income, gain, loss, deduction and credit. A holder's allocable share of such items will be determined by the amended and restated operating agreement, provided such allocations either have ‘‘substantial economic effect’’ or are determined to be in accordance with the holder's interest in us. If the allocations provided by our agreement were successfully challenged by the IRS, the redetermination of the allocations to a particular holder for U.S. federal income tax purposes could be less favorable than the allocations set forth in our agreement.

We may derive taxable income from an investment that is not matched by a corresponding distribution of cash. This could occur, for example, if we used cash to make an investment or to reduce debt instead of distributing profits. Some of the investment practices authorized by our amended and restated operating agreement could be subject to special provisions under the Code that, among other things, may affect the timing and character of the gains or losses recognized by us. These provisions may also require us to accrue original issue discount or be treated as having sold securities for their fair market value, both of which may cause us to recognize income without receiving cash with which to make distributions. In general, we expect that to the extent that there is a discrepancy between our recognition of income and our receipt of the related cash payment with respect to such income, that income likely will be recognized prior to our receipt and distribution of cash. Accordingly, it is possible that the U.S. federal income tax liability of a holder with respect to its allocable share of our earnings in a particular taxable year could exceed the cash distributions to the holder for the year, thus giving rise to an out-of-pocket payment by the holder.

Section 706 of the Code generally provides that items of partnership income and deductions must be allocated between transferors and transferees of Class A shares. We will apply certain assumptions

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and conventions in an attempt to comply with applicable rules and to report income, gain, loss, deduction and credit to holders in a manner that reflects such holders' beneficial shares of our items. These conventions are designed to more closely align the receipt of cash and the allocation of income between holders of Class A shares, but these assumptions and conventions may not be in compliance with all aspects of applicable tax requirements. In addition, as a result of such allocation method, you may be allocated taxable income even if you do not receive any distributions.

If our conventions are not allowed by the Regulations (or only apply to transfers of less than all of a holder's shares) or if the IRS otherwise does not accept our conventions, the IRS may contend that our taxable income or losses must be reallocated among the holders of Class A shares. If such a contention were sustained, certain holders' respective tax liabilities would be adjusted to the possible detriment of certain other holders. The Board of Directors is authorized to revise our method of allocation between transferors and transferees (as well as among holders whose interests otherwise could vary during a taxable period).

Adjusted Tax Basis of Class A Shares. A holder's adjusted tax basis in its Class A shares generally will equal the amount paid for the shares and will be increased by the holder's allocable share of (i) items of our income and gain and (ii) our liabilities, if any. A holder's adjusted tax basis generally will be decreased, but not below zero, by (i) distributions from us, (ii) the holder's allocable share of items of our deductions and losses, and (iii) the holder's allocable share of the reduction in our liabilities, if any.

A holder is allowed to deduct its allocable share of our losses (if any) only to the extent of such holder's adjusted tax basis in the Class A shares it is treated as holding at the end of the taxable year in which the losses occur. If the recognition of a holder's allocable share of our losses would reduce its adjusted tax basis for its Class A share below zero, the recognition of such losses by such holder would be deferred to subsequent taxable years and will be allowed if and when such holder had sufficient tax basis so that such losses would not reduce such holder's adjusted tax basis below zero.

Holders who purchase Class A shares in separate transactions must combine the basis of those Class A shares and maintain a single adjusted tax basis for all of those Class A shares. Upon a sale or other disposition of less than all of the Class A shares, a portion of that tax basis must be allocated to the Class A shares sold.

Treatment of Distributions. Distributions of cash by us generally will not be taxable to a holder to the extent of such holder's adjusted tax basis (described above) in its Class A shares. Any cash distributions in excess of a holder's adjusted tax basis generally will be considered to be gain from the sale or exchange of Class A shares (as described below). Such amount would be treated as gain from the sale or exchange of its interest in us. Such gain would generally be treated as capital gain and would be long-term capital gain if the holder's holding period for its interest exceeds one year. A reduction in a holder's allocable share of our liabilities, and certain distributions of marketable securities by us, are treated similar to cash distributions for U.S. federal income tax purposes.

Disposition of Interest. A sale or other taxable disposition of all or a portion of a holder's interest in its Class A shares will result in the recognition of gain or loss in an amount equal to the difference, if any, between the amount realized on the disposition (including actual and deemed cash distributions from us, as described above) and the holder's adjusted tax basis in its Class A shares. A holder's adjusted tax basis will be adjusted for this purpose by its allocable share of our income or loss for the year of such sale or other disposition. Any gain or loss recognized with respect to such sale or other disposition generally will be treated as capital gain or loss and will be long-term capital gain or loss if the holder's holding period for its interest exceeds one year. A portion of such gain may be treated as ordinary income under the Code to the extent attributable to the holder's allocable share of unrealized gain or loss in our assets to the extent described in Section 751 of the Code.

Holders who purchase Class A shares at different times and intend to sell all or a portion of the shares within a year of their most recent purchase are urged to consult their tax advisors regarding the application of certain ‘‘split holding period’’ rules to them and the treatment of any gain or loss as long-term or short term capital gain or loss. For example, a selling holder may use the actual holding

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period of the portion of his transferred shares, provided his shares are divided into identifiable shares with ascertainable holding periods, the selling holder can identify the portion of the shares transferred, and the selling holder elects to use the identification method for all sales or exchanges of our shares.

Holders should review carefully the discussions below under the subheadings titled ‘‘PFICs’’ and ‘‘CFCs’’.

Non-U.S. Persons should review carefully the discussion below under the subheading titled ‘‘Non-U.S. Persons’’ regarding the tax treatment of interests in REITS or U.S. Real Property Holding Corporations (as defined below).

Limitation on Deductibility of Capital Losses. Any capital losses generated by us generally will be deductible by holders who are individuals only to the extent of such holders' capital gains for the taxable year plus up to $3,000 of ordinary income ($1,500 in the case of a married individual filing a separate return). Excess capital losses may be carried forward by individuals indefinitely. Any capital losses generated by us generally will be deductible by corporate holders to the extent of such holders' capital gains for the taxable year. Corporations may carry capital losses back three years and forward five years. Prospective holders should consult their tax advisors regarding the deductibility of capital losses.

Limitation on Deductibility of Our Losses. A holder will be restricted from taking into account for U.S. federal income tax purposes its allocable share of any loss incurred by us in excess of the adjusted tax basis of such holder's Class A shares. In addition, the Code restricts individuals, certain non-corporate taxpayers and certain closely held corporations from taking into account for U.S. federal income tax purposes any of our net losses in excess of the amounts for which such holder is ‘‘at risk’’ with respect to its interest as of the end of our taxable year in which such loss occurred. The amount for which a holder is ‘‘at risk’’ with respect to its interest generally is equal to its adjusted tax basis for such interest, less any amounts borrowed (i) in connection with its acquisition of such interest for which it is not personally liable and for which it has pledged no property other than its interest; (ii) from persons who have a proprietary interest in us and from certain persons related to such persons; and (iii) for which the holder is protected against loss through nonrecourse financing, guarantees or similar arrangements. To the extent that a holder's allocable share of our losses is not allowed because the holder has an insufficient amount at risk in us, such disallowed losses may be carried over by the holder to subsequent taxable years and will be allowed if and to the extent of the holder's at risk amount in subsequent years.

It is not expected that we will generate any material amount of income or losses from ‘‘passive activities’’ for purposes of Section 469 of the Code. Accordingly, income allocated by us to a holder generally may not be offset by the passive losses of such holder and losses allocated to a holder generally may not be used to offset passive income of such holder. In addition, other provisions of the Code may limit or disallow any deduction for losses by a holder of Class A shares or deductions associated with certain assets of the partnership in certain cases, including potentially Section 470 of the Code. Holders should consult with their tax advisors regarding their limitations on the deductibility of losses under applicable sections of the Code.

Limitation on Interest Deductions. The deductibility of an individual and other non-corporate holder's ‘‘investment interest expense’’ is generally limited to the amount of that holder's ‘‘net investment income.’’ Investment interest expense would generally include the holder's allocable share of interest expense incurred by us, if any, and investment interest expense incurred by the holder on any loan incurred to purchase or carry Class A shares. Net investment income includes gross income from property held for investment and amounts treated as portfolio income, such as dividends and interest, under the passive activity loss rules, less deductible expenses, other than interest, directly connected with the production of investment income. For this purpose, any long-term capital gain or qualifying dividend income that is taxable at long-term capital gains rates is excluded from net investment income, unless the U.S. holder elects to pay tax on such gain or dividend income at ordinary income rates.

Limitation on Deduction of Certain Other Expenses. For individuals, estates and trusts, certain miscellaneous itemized deductions are deductible only to the extent that they exceed 2% of the

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adjusted gross income of the taxpayer. We may have a significant amount of expenses that will be treated as miscellaneous itemized deductions. Moreover, an individual whose adjusted gross income exceeds specified threshold amounts is required to further reduce the amount of allowable itemized deductions. In addition, miscellaneous itemized deductions are not deductible for purposes of computing a taxpayer's alternative minimum tax liability. See ‘‘Alternative Minimum Tax’’ for a discussion of potential alternative minimum tax liability.

In general, neither we nor any holder may deduct organizational or syndication expenses. While an election may be made by a partnership to amortize organizational expenses over a 15-year period, we do not intend to make such an election. Syndication fees (i.e., expenditures made in connection with the marketing and issuance of the Class A shares) must be capitalized and cannot be amortized or otherwise deducted.

Prospective holders are urged to consult their tax advisors regarding the deductibility of itemized expenses incurred by us.

Mutual Fund Holders. U.S. mutual funds that are treated as regulated investment companies, or RICs, for U.S. federal income tax purposes are required, among other things, to meet an annual 90% gross income and a quarterly 50% asset value test under Section 851(b) of the Code to maintain their favorable U.S. federal income tax status. The treatment of an investment by a RIC in Class A shares for purposes of these tests will depend on whether our partnership will be treated as a ‘‘qualifying publicly traded partnership.’’ If our partnership is so treated, then the Class A shares themselves are the relevant assets for purposes of the 50% asset value test and the net income from the Class A shares is relevant gross income for purposes of the 90% gross income test. If, however, our partnership is not so treated, then the relevant assets are the RIC's allocable share of the underlying assets held by our partnership and the relevant gross income is the RIC's allocable share of the underlying gross income earned by our partnership. Whether our partnership will qualify as a ‘‘qualifying publicly traded partnership’’ depends on the exact nature of its future investments, but we do not anticipate that our partnership will be treated as a ‘‘qualifying publicly traded partnership.’’ However, we expect that at least 90% of our gross income from the underlying assets held by our partnership will constitute cash and property that generates dividends, interest and gains from the sale of securities or other income that qualifies for the RIC gross income test described above. RICs should consult their own tax advisors about the U.S. tax consequences of an investment in Class A shares.

Tax-Exempt Holders. A holder of our Class A shares that is a tax-exempt organization for U.S. federal income tax purposes and, therefore, generally exempt from U.S. federal income taxation, may nevertheless be subject to ‘‘unrelated business income tax’’ to the extent, if any, that its allocable share of our income consists of unrelated business taxable income (‘‘UBTI’’). A tax-exempt partner of a partnership that regularly engages in a trade or business which is unrelated to the exempt function of the tax-exempt partner must include in computing its UBTI, its pro rata share (whether or not distributed) of such partnership's gross income derived from such unrelated trade or business. Moreover, a tax-exempt partner of a partnership could be treated as earning UBTI to the extent that such partnership derives income from ‘‘debt-financed property,’’ or if the partnership interest itself is debt financed. Debt-financed property means property held to produce income with respect to which there is ‘‘acquisition indebtedness’’ (i.e., indebtedness incurred in acquiring or holding property).

We expect to manage our activities so as to avoid a determination that we are engaged in a trade or business, thereby limiting the amount of UBTI that is realized by tax-exempt holders of our Class A shares. However, we do not anticipate making investments through taxable U.S. corporations solely for the purpose of limiting UBTI from ‘‘debt-financed’’ property and, thus, an investment in Class A share may give rise to UBTI, in particular from ‘‘debt-financed’’ property, to certain tax-exempt holders from time to time. For example, it is possible FIG Asset Co. LLC may borrow funds from FIG Corp. or third parties from time to time to make investments. FIG Asset Co. LLC may also invest in entities that are treated as partnerships, or are otherwise subject to tax on a flow through basis, that may borrow to make investments. These investments may give rise to UBTI from ‘‘debt-financed’’ property. Thus, no assurance can be given that no portion of our income will be treated as UBTI.

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Prospective tax-exempt holders are urged to consult their tax advisors regarding the tax consequences of an investment in Class A shares.

Passive Foreign Investment Companies. A non-U.S. entity will be treated as a passive foreign investment company (‘‘PFIC’’) for U.S. federal income tax purposes if (i) such entity is treated as a corporation for U.S. federal income tax purposes and (ii) either 75% or more of the gross income of such entity for the taxable year is ‘‘passive income’’ (as defined in Section 1297 of the Code and the Treasury Regulations promulgated thereunder) or the average percentage of assets held by such entity during the taxable year which produce passive income or which are held for the production of passive income is at least 50%. A U.S. holder will be subject to the PFIC rules for an investment in a PFIC without regard to its percentage ownership. When making investment or other decisions, FIG Asset Co. LLC will consider whether an investment will be a PFIC and the tax consequences related thereto. It is possible, however, that FIG Asset Co. LLC will acquire or otherwise own interests in PFICs.

We intend, where possible, to make an election (a ‘‘QEF Election’’) with respect to each entity treated as a PFIC to treat such non-U.S. entity as a qualified electing fund (‘‘QEF’’) in the first year we hold shares in such entity. A QEF Election is effective for our taxable year for which the election is made and all subsequent taxable years and may not be revoked without the consent of the IRS.

As a result of a QEF Election, we will be required to include in our gross income each year our pro rata share of such non-U.S. entity's ordinary earnings and net capital gains (such inclusions in gross income, ‘‘QEF Inclusions’’). for each year in which the non-U.S. entity owned directly or indirectly by us is a PFIC, whether or not we receive cash in respect of its income. Thus, holders may be required to report taxable income as a result of QEF Inclusions without corresponding receipts of cash. A holder may, however, elect to defer, until the occurrence of certain events, payment of the U.S. federal income tax attributable to QEF Inclusions for which no current distributions are received, but will be required to pay interest on the deferred tax computed by using the statutory rate of interest applicable to an extension of time for payment of tax. Net losses (if any) of a non-U.S. entity owned through FIG Asset Co. LLC that is treated as a PFIC will not, however, pass through to us or to holders and may not be carried back or forward in computing such PFIC's ordinary earnings and net capital gain in other taxable years. Consequently, holders may, over time, be taxed on amounts that, as an economic matter, exceed our net profits. Our tax basis in the shares of such non-U.S. entities, and a holder's basis in our Class A shares, will be increased to reflect QEF Inclusions. No portion of the QEF Inclusion attributable to ordinary income will be eligible for the favorable tax rate applicable to ‘‘qualified dividend income’’ for individual U.S. persons. Amounts included as QEF Inclusions with respect to direct and indirect investments generally will not be taxed again when actually distributed.

In certain cases, we may be unable to make a QEF Election with respect to a PFIC. This could occur if we are unable to obtain the information necessary to make a QEF Election because, for example, such entity is not an affiliate of ours or because such entity itself invests in underlying investment vehicles over which we have no control. If we do not make a QEF Election with respect to a PFIC, Section 1291 of the Code will treat all gain on a disposition by us of shares of such entity, gain on the disposition of the Class A shares by a holder at a time when we own shares of such entity, as well as certain other defined ‘‘excess distributions,’’ as if the gain or excess distribution were ordinary income earned ratably over the shorter of the period during which the holder held its Class A shares or the period during which we held our shares in such entity. For gain and excess distributions allocated to prior years, (i) the tax rate will be the highest in effect for that taxable year and (ii) the tax will be payable generally without regard to offsets from deductions, losses and expenses. Holders will also be subject to an interest charge for any deferred tax. No portion of this ordinary income will be eligible for the favorable tax rate applicable to ‘‘qualified dividend income’’ for individual U.S. persons.

Controlled Foreign Corporations. A non-U.S. entity will be treated as a controlled foreign corporation (‘‘CFC’’) if it is treated as a corporation for U.S. federal income tax purposes and if more than 50% of (i) the total combined voting power of all classes of stock of the non-U.S. entity entitled

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to vote or (ii) the total value of the stock of the non-U.S. entity is owned by U.S. Shareholders on any day during the taxable year of such non-U.S. entity. For purposes of this discussion, a ‘‘U.S. Shareholder’’ with respect to a non-U.S. entity means a U.S. person that owns 10% or more of the total combined voting power of all classes of stock of the non-U.S. entity entitled to vote.

When making investment or other decisions, FIG Asset Co. LLC will consider whether an investment will be a CFC and the consequences related thereto. If we are a U.S. Shareholder in a non-U.S. entity that is treated as a CFC, each holder of our Class A shares generally may be required to include in income its allocable share of the CFC's ‘‘Subpart F’’ income reported by us. Subpart F income generally includes dividends, interest, net gain from the sale or disposition of securities, non-actively managed rents and certain other generally passive types of income. The aggregate Subpart F income inclusions in any taxable year relating to a particular CFC are limited to such entity's current earnings and profits. These inclusions are treated as ordinary income (whether or not such inclusions are attributable to net capital gains). Thus, an investor may be required to report as ordinary income its allocable share of the CFC's Subpart F income reported by us without corresponding receipts of cash and may not benefit from capital gain treatment with respect to the portion of our earnings (if any) attributable to net capital gains of the CFC.

The tax basis of our shares of such non-U.S. entity, and a holder's tax basis in its Class A shares, will be increased to reflect any required Subpart F income inclusions. Such income will be treated as income from sources within the United States, for certain foreign tax credit purposes, to the extent derived by the CFC from U.S. sources. Such income will not be eligible for the favorable 15% tax rate applicable to ‘‘qualified dividend income’’ for individual U.S. persons. See ‘‘Taxation of Holders of Class A shares on Our Profits and Losses.’’ Amounts included as such income with respect to direct and indirect investments generally will not be taxable again when actually distributed.

Regardless of whether any CFC has Subpart F income, any gain allocated to a holder of our Class A shares from our disposition of stock in a CFC will be treated as ordinary income to the extent of the holder's allocable share of the current and/or accumulated earnings and profits of the CFC. In this regard, earnings would not include any amounts previously taxed pursuant to the CFC rules. However, net losses (if any) of a non-U.S. entity owned by us that is treated as a CFC will not pass through to our holders.

If a non-U.S. entity held by us is classified as both a CFC and a PFIC during the time we are a U.S. Shareholder of such non-U.S. entity, a holder will be required to include amounts in income with respect to such non-U.S. entity pursuant to this subheading, and the consequences described under the subheading ‘‘Passive Foreign Investment Companies’’ above will not apply. If our ownership percentage in a non-U.S. entity changes such that we are not a U.S. Shareholder with respect to such non-U.S. entity, then holders of our Class A shares may be subject to the PFIC rules. The interaction of these rules is complex, and prospective holders are urged to consult their tax advisors in this regard.

Alternative Minimum Tax. Individual and corporate taxpayers have potential liability for alternative minimum tax. Since such liability is dependent upon each holder's particular circumstances, holders of Class A shares should consult their tax advisors concerning the alternative minimum tax consequences of being a holder of Class A shares.

U.S. Federal Estate Taxes for U.S. Persons. If Class A shares are included in the gross estate of a U.S. citizen or resident for U.S. federal estate tax purposes, then U.S. federal estate tax may be payable in connection with the death of such person. Prospective individual holders should consult their own tax advisors concerning the potential U.S. federal estate tax consequences with regard to our Class A shares.

Taxation of Non-U.S. Persons

Non-U.S. Persons. Special rules apply to a holder of our Class A shares that is a non-U.S. person. Non-U.S. persons are generally subject to U.S. withholding tax at a 30% rate on the gross amount of interest, dividends and other fixed or determinable annual or periodical income received

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from sources within the United States if such income is not treated as effectively connected with a trade or business within the United States. The 30% rate may be reduced or eliminated under the provisions of an applicable income tax treaty between the United States and the country in which the non-U.S. person resides or is organized. Whether a non-U.S. person is eligible for such treaty benefits will depend upon the provisions of the applicable treaty as well as the treatment of us under the laws of the non-U.S. person's jurisdiction. The 30% withholding tax rate does not apply to certain portfolio interest on obligations of U.S. persons allocable to certain non-U.S. persons. Moreover, non-U.S. persons generally are not subject to U.S. federal income tax on capital gains if (i) such gains are not effectively connected with the conduct of a U.S. trade or business of such non-U.S. person; (ii) a tax treaty is applicable and such gains are not attributable to a permanent establishment in the United States maintained by such non-U.S. person; or (iii) such non-U.S. person is an individual and is not present in the United States for 183 or more days during the taxable year (assuming certain other conditions are met).

Non-U.S. persons treated as engaged in a U.S. trade or business are generally subject to U.S. federal income tax at the graduated rates applicable to U.S. persons on their net income that is considered to be effectively connected with such U.S. trade or business. Non-U.S. persons that are corporations may also be subject to a 30% branch profits tax on such effectively connected income. The 30% rate applicable to branch profits may be reduced or eliminated under the provisions of an applicable income tax treaty between the United States and the country in which the non-U.S. person resides or is organized.

While it is expected that our method of operation through FIG Asset Co. LLC will not result in a determination that we are engaged in a U.S. trade or business, there can be no assurance that the IRS will not assert successfully that we are engaged in a U.S. trade or business, with the result that some portion of our income is properly treated as effectively connected income with respect to non-U.S. holders. If a holder who is a non-U.S. person were treated as being engaged in a U.S. trade or business in any year because of an investment in our Class A shares in such year, such holder generally would be (i) subject to withholding by us on its distributive share of our income effectively connected with such U.S. trade or business, (ii) required to file a U.S. federal income tax return for such year reporting its allocable share, if any, of income or loss effectively connected with such trade or business and (iii) required to pay U.S. federal income tax at regular U.S. federal income tax rates on any such income. Moreover, a holder who is a corporate non-U.S. person might be subject to a U.S. branch profits tax on its allocable share of its effectively connected income. Any amount so withheld would be creditable against such non-U.S. person's U.S. federal income tax liability, and such non-U.S. person could claim a refund to the extent that the amount withheld exceeded such non-U.S. person's U.S. federal income tax liability for the taxable year. Finally, if we were treated as being engaged in a U.S. trade or business, a portion of any gain recognized by a holder who is a non-U.S. person on the sale or exchange of its Class A shares could be treated for U.S. federal income tax purposes as effectively connected income, and hence such non-U.S. person could be subject to U.S. federal income tax on the sale or exchange.

Generally, under the Foreign Investment in Real Property Tax Act of 1980 (‘‘FIRPTA’’) provisions of the Code, non-U.S. persons are subject to U.S. tax in the same manner as U.S. persons on any gain realized on the disposition of an interest, other than an interest solely as a creditor, in U.S. real property. An interest in U.S. real property includes stock in a U.S. corporation (except for certain stock of publicly-traded U.S. corporations) if interests in U.S. real property constitute 50% or more by value of the sum of the corporation's assets used in a trade or business, its U.S. real property interests and its interests in real property located outside the United States (a ‘‘United States Real Property Holding Corporation’’ or ‘‘USRPHC’’). Consequently, a non-U.S. person who invests directly in U.S. real estate, or indirectly by owning the stock of a USRPHC, will be subject to tax under FIRPTA on the disposition of such investment. The FIRPTA tax will also apply if the non-U.S. person is a holder of an interest in a partnership that owns an interest in U.S. real property or an interest in a USRPHC. We anticipate that we may, from time to time, make certain investments through FIG Asset Co. LLC that could constitute investments in U.S. real property or USRPHCs, including dividends from REIT investments that are attributable to gains from the sale of U.S. real

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property. If we make such investments, each non-U.S. person will be subject to U.S. tax under FIRPTA on such holder's allocable share of any gain realized on the disposition of a FIRPTA interest and will be subject to the filing requirements discussed above.

In general, different rules from those described above apply in the case of non-U.S. persons subject to special treatment under U.S. federal income tax law, including a non-U.S. person (i) who has an office or fixed place of business in the United States or is otherwise carrying on a U.S. trade or business; (ii) who is an individual present in the United States for 183 or more days or has a ‘‘tax home’’ in the United States for U.S. federal income tax purposes; or (iii) who is a former citizen or resident of the United States.

Prospective holders who are non-U.S. persons are urged to consult their tax advisors with regard to the U.S. federal income tax consequences to them of acquiring, holding and disposing of Class A shares, as well as the effects of state, local and non-U.S. tax laws, as well as eligibility for any reduced withholding benefits.

U.S. Federal Estate Taxes for Non-U.S. Persons. Holders who are individual non-U.S. persons generally will be subject to U.S. federal estate tax on the value of U.S.-situs property owned at the time of their death. It is unclear whether partner interests (such as the Class A shares) will be considered U.S.-situs property. Accordingly, holders who are non-U.S. holders may be subject to U.S. federal estate tax on all or a portion of the value of the Class A shares owned at the time of their death. Prospective individual holders who are non-U.S. persons are urged to consult their tax advisors concerning the potential U.S. federal estate tax consequences with regard to our Class A shares.

Administrative Matters

Tax Matters Partner. One of our principals will act as our ‘‘tax matters partner.’’ Our Board of Directors will have the authority, subject to certain restrictions, to appoint another principal or Class A shareholder to act on our behalf in connection with an administrative or judicial review of our items of income, gain, loss, deduction or credit.

Tax Elections. Under Section 754 of the Code, we may elect to have the basis of our assets adjusted in the event of a distribution of property to a holder or in the event of a transfer of a Class A share by sale or exchange, or as a result of the death of a holder. Pursuant to the terms of the amended and restated operating agreement, the Board of Directors, in its sole discretion, is authorized to direct us to make such an election. Such an election, if made, can be revoked only with the consent of the IRS. We currently intend to make the election permitted by Section 754 of the Code.

The calculations under Section 754 of the Code are complex, and there is little legal authority concerning the mechanics of the calculations, particularly in the context of publicly traded partnerships. To help reduce the complexity of those calculations and the resulting administrative costs to us, we will apply certain conventions in determining and allocating basis adjustments. Nevertheless, the use of such conventions may result in basis adjustments that do not exactly reflect a holder's purchase price for its Class A shares. It is also possible that the IRS will successfully assert that the conventions we utilize do not satisfy the technical requirements of the Code or the Treasury Regulations and, thus, will require different basis adjustments to be made.

Constructive Termination. Subject to the electing large partnership rules described below, we will be considered to have been terminated for U.S. federal income tax purposes if there is a sale or exchange of 50% or more of the total interests in our capital and profits within a 12-month period. Our termination would result in the closing of our taxable year for all holders of Class A shares. In the case of a holder reporting on a taxable year other than a fiscal year ending December 31, the closing of our taxable year may result in more than 12 months of our taxable income or loss being includable in the holder's taxable income for the year of termination. We would be required to make new tax elections after a termination, including a new tax election under Section 754 of the Code. A termination could also result in penalties if we were unable to determine that the termination had occurred. Moreover, a termination might either accelerate the application of, or subject us to, any tax legislation enacted before the termination.

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Information Returns. We have agreed to use reasonable efforts to furnish to you tax information (including Schedule K-1) as promptly as possible, which describes your allocable share of our income, gain, loss and deduction for our preceding taxable year. In preparing this information, we will use various accounting and reporting conventions to determine your allocable share of income, gain, loss and deduction. Delivery of this information by us will be subject to delay in the event of, among other reasons, the late receipt of any necessary tax information from an investment in which we hold an interest. It is therefore possible that, in any taxable year, our shareholders will need to apply for extensions of time to file their tax returns. The IRS may successfully contend that certain of these reporting conventions are impermissible, which could result in an adjustment to your income or loss. If you are not a U.S. person there can be no assurance that this information will meet your jurisdiction's compliance requirements.

It is possible that we may engage in transactions that subject our partnership and, potentially, the holders of our Class A shares to other information reporting requirements with respect to an investment in us. You may be subject to substantial penalties if you fail to comply with such information reporting requirements. You should consult with your tax advisors regarding such information reporting requirements.

We may be audited by the IRS. Adjustments resulting from an IRS audit may require you to adjust a prior year's tax liability, and possibly may result in an audit of your own tax return. Any audit of your tax return could result in adjustments not related to our tax returns as well as those related to our tax returns.

Nominee Reporting. Persons who hold our Class A shares as nominees for another person are required to furnish to us (i) the name, address and taxpayer identification number of the beneficial owner and the nominee; (ii) whether the beneficial owner is (1) a person that is not a U.S. person, (2) a foreign government, an international organization or any wholly-owned agency or instrumentality of either of the foregoing, or (3) a tax exempt entity; (iii) the amount and description of Class A shares held, acquired or transferred for the beneficial owner; and (iv) specific information including the dates of acquisitions and transfers, means of acquisitions and transfers, and acquisition costs for purchases, as well as the amount of net proceeds from sales.

Brokers and financial institutions are required to furnish additional information, including whether they are U.S. persons and specific information on Class A shares they acquire, hold or transfer for their own account. A penalty of $50 per failure, up to a maximum of $100,000 per calendar year, is imposed by the Code for failure to report that information to us. The nominee is required to supply the beneficial owner of the Class A shares with the information furnished to us.

Elective Procedures for Large Partnerships. The Code allows large partnerships to elect streamlined procedures for income tax reporting. This election, if made, would reduce the number of items that must be separately stated on the Schedule K-1 that are issued to the holders of the Class A shares, and such Schedules K-1 would have to be provided on or before the first March 15 following the close of each taxable year. In addition, this election would prevent us from suffering a ‘‘technical termination’’ (which would close our taxable year) if, within a 12-month period, there is a sale or exchange of 50% or more of our total interests. If an election is made, IRS audit adjustments generally will flow through to the holders of the Class A shares for the year in which the adjustments take effect, rather than the holders of the Class A shares in the year to which the adjustment relates. In addition, we, rather than the holders of the Class A shares individually, generally will be liable for any interest and penalties that result from an audit adjustment. It is possible we might make such an election, if eligible.

Treatment of Amounts Withheld. If we are required to withhold any U.S. tax on distributions made to any holder of Class A shares, we will pay such withheld amount to the IRS. That payment, if made, will be treated as a distribution of cash to the holder of Class A shares with respect to whom the payment was made and will reduce the amount of cash to which such holder would otherwise be entitled.

Backup Withholding. For each calendar year, we will report to you and to the IRS the amount of distributions that we pay, and the amount of tax (if any) that we withhold on these distributions.

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Under the backup withholding rules, you may be subject to backup withholding tax (at the applicable rate, currently 28%) with respect to distributions paid unless (i) you are a corporation or fall within another exempt category and demonstrate this fact when required or (ii) you provide a taxpayer identification number, certify as to no loss of exemption from backup withholding tax and otherwise comply with the applicable requirements of the backup withholding tax rules. If you are an exempt holder, you should indicate your exempt status on a properly completed IRS Form W-8BEN. Backup withholding is not an additional tax; the amount of any backup withholding from a payment to you will be allowed as a credit against your U.S. federal income tax liability and may entitle you to a refund.

If you do not timely provide us with IRS Form W-8 or W-9, as applicable, or such form is not properly completed, we may become subject to U.S. backup withholding taxes in excess of what would have been imposed had we received certifications from all holders. Such excess U.S. backup withholding taxes may be treated by us as an expense that will be borne by all holders on a pro rata basis (where we are or may be unable to cost efficiently allocate any such excess withholding tax cost specifically to the holders that failed to timely provide the proper U.S. tax certifications).

Tax Shelter Regulations. If we were to engage in a ‘‘reportable transaction,’’ we (and possibly you and others) would be required to make a detailed disclosure of the transaction to the IRS in accordance with recently issued regulations governing tax shelters and other potentially tax-motivated transactions. A transaction may be a reportable transaction based upon any of several factors, including the fact that it is a type of tax avoidance transaction publicly identified by the IRS as a ‘‘listed transaction’’ or that it produces certain kinds of losses in excess of $2 million. An investment in us may be considered a ‘‘reportable transaction’’ if, for example, we recognize certain significant losses in the future. In certain circumstances, a holder of our Class A shares who disposes of an interest in a transaction resulting in the recognition by such holder of significant losses in excess of certain threshold amounts may be obligated to disclose its participation in such transaction. Our participation in a reportable transaction also could increase the likelihood that our U.S. federal income tax information return (and possibly your tax return) would be audited by the IRS. Certain of these rules are currently unclear and it is possible that they may be applicable in situations other than significant loss transactions.

Moreover, if we were to participate in a reportable transaction with a significant purpose to avoid or evade tax, or in any listed transaction, you may be subject to (i) significant accuracy-related penalties with a broad scope, (ii) for those persons otherwise entitled to deduct interest on federal tax deficiencies, nondeductibility of interest on any resulting tax liability, and (iii) in the case of a listed transaction, an extended statute of limitations.

Holders of our Class A shares should consult their tax advisors concerning any possible disclosure obligation under the regulations governing tax shelters with respect to the dispositions of their interests in us.

New Legislation or Administrative or Judicial Action

The rules dealing with U.S. federal income taxation are constantly under review by persons involved in the legislative process, the IRS and the U.S. Treasury Department, frequently resulting in revised interpretations of established concepts, statutory changes, revisions to regulations and other modifications and interpretations. No assurance can be given as to whether, or in what form, any proposals affecting us or our shareholders will be enacted. The IRS pays close attention to the proper application of tax laws to partnerships. The present U.S. federal income tax treatment of an investment in the Class A shares may be modified by administrative, legislative or judicial interpretation at any time, and any such action may affect investments and commitments previously made. Changes to the U.S. federal income tax laws and interpretations thereof could, for example, make it more difficult or impossible to meet the qualifying income exception for us to be treated as a partnership that is not taxable as a corporation for U.S. federal income tax purposes. We and holders of the Class A shares could be adversely affected by any such change in, or any new, tax law, regulation or interpretation. Our organizational documents and agreements permit the Board of

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Directors to modify the amended and restated operating agreement from time to time, without the consent of the holders of Class A shares, in order to address certain changes in U.S. federal income tax regulations, legislation or interpretation. In some circumstances, such revisions could have a material adverse impact on some or all of the holders of our Class A shares.

THE FOREGOING DISCUSSION IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX PLANNING. THE TAX MATTERS RELATING TO FORTRESS AND HOLDERS OF CLASS A SHARES ARE COMPLEX AND ARE SUBJECT TO VARYING INTERPRETATIONS. MOREOVER, THE EFFECT OF EXISTING INCOME TAX LAWS, THE MEANING AND IMPACT OF WHICH IS UNCERTAIN AND OF PROPOSED CHANGES IN INCOME TAX LAWS WILL VARY WITH THE PARTICULAR CIRCUMSTANCES OF EACH PROSPECTIVE HOLDER AND, IN REVIEWING THIS PROSPECTUS, THESE MATTERS SHOULD BE CONSIDERED. PROSPECTIVE HOLDERS OF CLASS A SHARES SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE FEDERAL, STATE, LOCAL AND OTHER TAX CONSEQUENCES OF ANY INVESTMENT IN CLASS A SHARES.

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UNDERWRITING

Goldman, Sachs & Co., Banc of America Securities LLC, Citigroup Global Markets Inc., Deutsche Bank Securities Inc. and Lehman Brothers Inc. are acting as underwriters of this offering.

We and the underwriters named below have entered into an underwriting agreement covering the Class A shares to be sold in this offering. Subject to the terms and conditions of the underwriting agreement, we have agreed to sell to the underwriters, and each underwriter has severally agreed to purchase, at the public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus, the number of Class A shares listed next to its name in the following table:


Underwriters			Number of Class A Shares
Goldman, Sachs & Co.
Banc of America Securities LLC
Citigroup Global Markets Inc.
Deutsche Bank Securities Inc.
Lehman Brothers Inc.
Total

The underwriters are committed to purchase all the Class A shares offered by us if they purchase any shares. If an underwriter defaults, the purchase commitments of non-defaulting underwriters may be increased or this offering may be terminated. The underwriting agreement also provides that the obligations of the underwriters are subject to certain conditions precedent, including the absence of any material adverse change in our business and the receipt of certain certificates, opinions and letters from us, our counsel and our independent auditors.

The underwriters have an option to buy up toadditional Class A shares from us to cover sales of shares by the underwriters which exceed the number of shares specified in the table above. The underwriters have 30 days from the date of this prospectus to exercise this option to purchase additional shares. If any shares are purchased with this option to purchase additional shares, the underwriters will purchase shares in approximately the same proportion as shown in the table above. If any additional Class A shares are purchased, the underwriters will offer the additional shares on the same terms as those on which the shares are being offered.

The following table shows the per share and total underwriting discounts and commissions to be paid to the underwriters assuming both no exercise and full exercise of the underwriters’ option to purchase additional shares.

No Exercise

Full Exercise

Per Share

Total

The underwriters propose to offer the Class A shares directly to the public at the initial public offering price set forth on the cover page of this prospectus and to certain dealers at that price less a concession of up to $per share. Any such dealers may resell shares to certain other brokers or dealers at a discount of up to $per share from the initial public offering price. After the initial public offering of the shares, the offering price and other selling terms may be changed by the underwriters. The underwriters do not expect sales to discretionary accounts to exceed five percent of the total number of shares offered.

We estimate that the total expenses of this offering, including registration, filing and listing fees, printing fees and legal and accounting expenses, but excluding the underwriting discounts and commissions, will be approximately $million.

A prospectus in electronic format may be made available on the websites maintained by one or more underwriters, or selling group members, if any, participating in this offering. The underwriters may agree to allocate a number of shares to underwriters and selling group members for sale to their

166

online brokerage account holders. Internet distributions will be allocated by the representatives to underwriters and selling group members that may make Internet distributions on the same basis as other allocations. The information on any such website is not part of this prospectus.

We have agreed, subject to certain exceptions, that we will not offer, pledge, announce the intention to sell, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer, dispose of or hedge, directly or indirectly, or enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of our Class A shares or relating to our Class A shares or any securities convertible into or exercisable or exchangeable for our Class A shares, without the prior written consent of the representatives for a period of 120 days after the date of this prospectus. Notwithstanding the foregoing, if (i) during the last 17 days of the 120-day restricted period, we issue an earnings release or material news or a material event relating to us occurs; or (ii) prior to the expiration of the 120-day restricted period, we announce that we will release earnings results during the 15-day period following the last day of the 120-day period, the restrictions described above shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event.

Additionally, our principals, executive officers, employees who are receiving Class A shares and Fortress Operating Group units in connection with this offering, directors and participants in our directed share program have entered into lock-up agreements with the underwriters pursuant to which we and each of these persons or entities, subject to certain exceptions, for a period of 120 days after the date of this prospectus, may not, without the prior written consent of the representatives, directly or indirectly (i) offer, pledge, announce the intention to sell, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer, dispose of or hedge, directly or indirectly, our Class A shares (including, without limitation, Class A shares which may be deemed to be beneficially owned by such principals, executive officers, employees, directors and participants in accordance with the rules and regulations of the SEC and securities which may be issued upon exercise of a share option or warrant) and Fortress Operating Group units or any securities convertible into or exercisable or exchangeable for our Class A shares and Fortress Operating Group units; or (ii) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the Class A shares and Fortress Operating Group units, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Class A shares and Fortress Operating Group units or such other securities, in cash or otherwise. In addition, each of such principals, executive officers, directors, employees and participants has agreed that, without the prior written consent of the representatives, it will not, during the 120-day restricted period, make any demand for or exercise any right with respect to the registration of our Class A shares and Fortress Operating Group units or any securities convertible into or exercisable or exchangeable for our Class A shares and Fortress Operating Group units. Notwithstanding the foregoing, if (i) during the last 17 days of the 120-day restricted period, we issue an earnings release or material news or a material event relating to us occurs; or (ii) prior to the expiration of the 120-day restricted period, we announce that we will release earnings results during the 15-day period following the last day of the 120-day period, the restrictions described above shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event.

We may issue Class A shares or securities convertible into or exercisable or exchangeable for Class A shares for the benefit of our employees, directors and officers under incentive plans described in this prospectus, provided that recipients are subject to the lock-up described above.

At our request, the underwriters have reserved for sale, at the initial public offering price, up to% of the shares offered hereby to be sold to certain principals, executive officers, employees and persons having relationships with us pursuant to a directed share program. The number of Class A shares available for sale to the general public will be reduced to the extent such persons purchase such reserved shares under this program. Any reserved shares which are not confirmed for purchase via our directed share program website or orally by telephone by midnight New York City time on the

167

business day immediately prior to the first day of trading will be sold by the underwriters to the general public on the same terms as the other shares offered hereby.

We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act.

We intend to apply to list our Class A shares on the NYSE under the symbol ‘‘FIG’’. The underwriters intend to sell our Class A shares to a minimum of 2,000 beneficial owners in lots of 100 or more so as to meet the distribution requirements of the NYSE.

In connection with this offering, the underwriters may engage in stabilizing transactions, which involves making bids for, purchasing and selling Class A shares in the open market for the purpose of preventing or retarding a decline in the market price of the Class A shares while this offering is in progress. These stabilizing transactions may include making short sales of the Class A shares, which involves the sale by the underwriters of a greater number of Class A shares than they are required to purchase in this offering, and purchasing Class A shares on the open market to cover positions created by short sales. Short sales may be ‘‘covered’’ shorts, which are short positions in an amount not greater than the underwriters’ option to purchase additional shares referred to above, or may be ‘‘naked’’ shorts, which are short positions in excess of that amount. The underwriters may close out any covered short position either by exercising their option to purchase additional shares, in whole or in part, or by purchasing shares in the open market. In making this determination, the underwriters will consider, among other things, the price of shares available for purchase in the open market compared to the price at which the underwriters may purchase shares through the option to purchase additional shares. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the Class A shares in the open market that could adversely affect investors who purchase in this offering. To the extent that the underwriters create a naked short position, they will purchase shares in the open market to cover the position.

The underwriters have advised us that, pursuant to Regulation M of the Securities Act, they may also engage in other activities that stabilize, maintain or otherwise affect the price of the Class A shares, including the imposition of penalty bids. This means that if the representatives of the underwriters purchase Class A shares in the open market in stabilizing transactions or to cover short sales, the representatives can require the underwriters that sold those shares as part of this offering to repay the underwriting discount received by them.

These activities may have the effect of raising or maintaining the market price of the Class A shares or preventing or retarding a decline in the market price of the Class A shares, and, as a result, the price of the Class A shares may be higher than the price that otherwise might exist in the open market. If the underwriters commence these activities, they may discontinue them at any time. The underwriters may carry out these transactions on the NYSE, in the over-the-counter market or otherwise.

Prior to this offering, there has been no public market for our Class A shares. The initial public offering price will be determined by negotiations between us and the representatives of the underwriters. In determining the initial public offering price, we and the representatives of the underwriters expect to consider a number of factors, including:


	•	the information set forth in this prospectus and otherwise available to the representatives;


	•	our prospects and the history and prospects for the industry in which we compete;


	•	an assessment of our management;


	•	our historical financial statements;


	•	our prospects for future earnings and cash flows;


	•	our revenues, earnings and operating information in recent periods;


	•	the general condition of the securities markets at the time of this offering;

168


	•	the market valuations of, and demand for, publicly traded common stock of generally comparable companies; and


	•	the present state of our development.

Neither we nor the underwriters can assure investors that an active trading market will develop for our Class A shares, or that the shares will trade in the public market at or above the initial public offering price.

Certain of the underwriters and their affiliates have provided in the past to us and our affiliates and may provide from time to time in the future certain commercial banking, financial advisory, investment banking and other services for us and such affiliates in the ordinary course of their business, for which they have received and may continue to receive customary fees and commissions.

Affiliates of , are lenders under the credit agreement. Certain of the underwriters or their affiliates may receive more than 10% of the proceeds of this offering. Generally, in an offering in which this is the case, Rule 2710(h) of the NASD Conduct Rules mandates that the initial public offering price can be no higher than that recommended by a ‘‘qualified independent underwriter’’ meeting certain standards. Accordingly, has assumed the responsibilities of acting as a qualified independent underwriter and will recommend a price in compliance with the requirements of Rule 2720. , in its role as qualified independent underwriter, has performed due diligence investigations and reviewed and participated in the preparation of this prospectus and the registration statement of which this prospectus is a part. We have agreed to indemnify , for acting as a qualified independent underwriter against specified liabilities under the Securities Act.

169

LEGAL MATTERS

Certain legal matters will be passed upon for us by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York. Sidley Austin LLP, New York, New York, will act as counsel to the underwriters. Sidley Austin LLP has represented us in the past and continues to represent us on a regular basis on a variety of legal matters.

EXPERTS

The combined financial statements of Fortress Operating Group as of December 31, 2005 and 2004, and for each of the three years in the period ended December 31, 2005, appearing in this prospectus and registration statement have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

We have filed a registration statement, of which this prospectus is a part, on Form S-1 with the SEC relating to this offering. This prospectus does not contain all of the information in the registration statement and the exhibits and financial statements included with the registration statement. References in this prospectus to any of our contracts, agreements or other documents are not necessarily complete, and you should refer to the exhibits attached to the registration statement for copies of the actual contracts, agreements or documents. You may read and copy the registration statement, the related exhibits and other material we file with the SEC at the SEC's public reference room in Washington, D.C. at 100 F Street, Room 1580, N.E., Washington, D.C. 20549. You can also request copies of those documents, upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference rooms. The SEC also maintains an internet site that contains reports, proxy and information statements and other information regarding issuers that file with the SEC. The website address is http://www.sec.gov. You may also request a copy of these filings, at no cost, by writing us at Fortress Investment Group LLC, 1345 Avenue of the Americas, New York, New York 10105 or telephoning us at (212) 798-6100.

Upon the effectiveness of the registration statement, we will be subject to the informational requirements of the Securities Exchange Act and, in accordance with the Securities Exchange Act, will file reports, proxy and information statements and other information with the SEC. Such annual, quarterly and special reports, proxy and information statements and other information can be inspected and copied at the locations set forth above. We will report our financial statements on a year ended December 31. We intend to furnish our shareholders with annual reports containing consolidated financial statements audited by our independent certified public accountants and with quarterly reports containing unaudited consolidated financial statements for each of the first three quarters of each fiscal year.

170

FORTRESS OPERATING GROUP

(Limited Liability Companies)

TABLE OF CONTENTS


	Page
Report of Independent Registered Public Accounting Firm		F-2
Combined Financial Statements – December 31, 2005, 2004 and 2003:
Combined Balance Sheets as of December 31, 2005 and 2004		F-3
Combined Income Statements for the Years Ended December 31, 2005, 2004 and 2003		F-4
Combined Statements of Changes in Members’ Equity for the Years Ended December 31, 2005, 2004 and 2003		F-5
Combined Statements of Cash Flows for the Years Ended December 31, 2005, 2004 and 2003		F-6
Notes to Combined Financial Statements		F-7
Unaudited Combined Financial Statements – June 30, 2006 and 2005:
Combined Balance Sheets as of June 30, 2006 and December 31, 2005		F-48
Combined Income Statements for the Six Months Ended June 30, 2006 and 2005		F-49
Combined Statements of Changes in Members’ Equity for the Six Months Ended June 30, 2006 and 2005		F-50
Combined Statements of Cash Flows for the Six Months Ended June 30, 2006 and 2005		F-51
Notes to Combined Financial Statements		F-52

F-1

Report of Independent Registered Public Accounting Firm

To The Members of

Fortress Investment Holdings LLC, Fortress Principal Investment Holdings II LLC, Fortress Principal Investment Holdings III LLC, Fortress Principal Investment Holdings IV LLC, Fortress Canada Management Trust, FIG Partners Pool (P) LLC, FIG Partners Pool (P2) LLC, and FIG Partners Pool (A) LLC

We have audited the accompanying combined balance sheets of the companies listed above, (hereinafter referred to as the ‘‘Companies’’), as of December 31, 2005 and 2004, and the related combined statements of income, members' equity, and cash flows for each of the three years in the period ended December 31, 2005. These financial statements are the responsibility of the Companies' management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Companies' internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companies' internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the combined financial statements referred to above present fairly, in all material respects, the combined financial position of the Companies at December 31, 2005 and 2004, and the combined results of their operations and their cash flows for each of the three years in the period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles.

/s/ Ernst & Young LLP

New York, New York

October 20, 2006

F-2

FORTRESS OPERATING GROUP

(Limited Liability Companies)

COMBINED BALANCE SHEETS

(dollars in thousands)


	December 31,
	2005				2004
Assets
Cash and cash equivalents		$	36,229			$	10,205
Cash held at consolidated subsidiaries and restricted cash			252,134				169,522
Due from affiliates			365,843				128,680
Receivables from brokers and counterparties			35,367				37,344
Investment company holdings, at fair value
Loans and securities			3,597,958				2,116,623
Investments in affiliates			6,972,857				3,230,844
Derivatives			11,294				17,842
Other investments
Loans and securities			389,978				—
Equity method investees			37,601				32,225
Options in affiliates			23,910				16,219
Other assets			140,767				37,229
		$	11,863,938			$	5,796,733
Liabilities and Members' Equity
Liabilities
Due to affiliates		$	58,077			$	19,885
Due to brokers and counterparties			124,597				26,240
Accrued compensation and benefits			102,132				42,182
Other liabilities			176,007				42,287
Deferred incentive income			585,864				141,277
Securities sold not yet purchased, at fair value			45,219				75,548
Derivative liabilities, at fair value			933				30,098
Investment company debt obligations payable			1,820,149				841,383
Other debt obligations payable			430,284				87,121
			3,343,262				1,306,021
Commitments and Contingencies
Non-controlling Interests in Consolidated Subsidiaries			8,397,167				4,405,835
Members' Equity
Members' equity			123,704				80,849
Accumulated other comprehensive income (loss)			(195	)			4,028
			123,509				84,877
		$	11,863,938			$	5,796,733

See notes to combined financial statements.

F-3

FORTRESS OPERATING GROUP

(Limited Liability Companies)

COMBINED INCOME STATEMENTS

(dollars in thousands)


	Year Ended December 31,
	2005				2004				2003
Revenues
Management fees from affiliates		$	81,356			$	51,993			$	17,193
Incentive income from affiliates			172,623				54,251				26,055
Other revenues			30,334				22,427				4,309
Interest and dividend income – investment company holdings
Interest income			529,916				128,882				43,936
Interest income from controlled affiliate investments			58,539				31,189				37,062
Dividend income			7,691				125				—
Dividend income from controlled affiliate investments			163,635				62,511				91,761
			1,044,094				351,378				220,316
Expenses
Interest expense
Investment company holdings			318,705				21,492				7,984
Other			11,682				5,521				2,841
Compensation and benefits			259,216				123,084				57,521
General, administrative and other			94,054				47,313				12,953
Depreciation and amortization			2,267				993				328
			685,924				198,403				81,627
Other Income
Gains (losses) from investments
Investment company holdings
Net realized gains			184,644				69,802				36,208
Net realized gains from controlled affiliate investments			396,062				101,318				73,371
Net unrealized gains			46,727				20,571				5,437
Net unrealized gains from controlled affiliate investments			2,276,545				689,967				8,260
Other investments
Net realized gains (losses)			3,750				(880	)			(47	)
Net realized gains from affiliate investments			120				4,749				8,102
Net unrealized gains (losses)			232				(2,105	)			(473	)
Net unrealized gains from affiliate investments			33,079				18,748				1,538
Earnings from equity method investees			10,465				14,616				4,762
			2,951,624				916,786				137,158
Income Before Deferred Incentive Income, Non-Controlling Interests in Income of Consolidated Subsidiaries and Income Taxes			3,309,794				1,069,761				275,847
Deferred incentive income			(444,567	)			(104,558	)			(17,487	)
Non-controlling interests in income of consolidated subsidiaries			(2,662,926	)			(847,365	)			(216,594	)
Income Before Income Taxes			202,301				117,838				41,766
Income tax expense			(9,625	)			(3,388	)			(1,495	)
Net Income		$	192,676			$	114,450			$	40,271

See notes to combined financial statements

F-4

FORTRESS OPERATING GROUP

(Limited Liability Companies)

COMBINED STATEMENTS OF CHANGES IN MEMBERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003

(dollars in thousands)


	Members' Equity				Accumulated Other Comprehensive Income (Deficit)				Total Members' Equity
Members' equity – December 31, 2002		$	38,338			$	1,037			$	39,375
Capital distributions			(44,522	)							(44,522	)
Comprehensive income
Net income			40,271								40,271
Foreign currency translation							456				456
Net unrealized gain on derivatives designated as cash flow hedges							444				444
Comprehensive income from equity method investees							1,346				1,346
Total comprehensive income											42,517
Members' equity – December 31, 2003			34,087				3,283				37,370
Capital distributions			(67,688	)							(67,688	)
Comprehensive income
Net income			114,450								114,450
Foreign currency translation							1,449				1,449
Net unrealized gain on derivatives designated as cash flow hedges							34				34
Comprehensive income (loss) from equity method investees							(738	)			(738	)
Total comprehensive income											115,195
Members' equity – December 31, 2004			80,849				4,028				84,877
Capital contributions			8,000								8,000
Capital distributions			(157,821	)							(157,821	)
Comprehensive income
Net income			192,676								192,676
Net unrealized gain on securities available for sale							92				92
Foreign currency translation							(1,700	)			(1,700	)
Net unrealized gain on derivatives designated as cash flow hedges							72				72
Comprehensive income (loss) from equity method investees							(2,687	)			(2,687	)
Total comprehensive income											188,453
Members' equity – December 31, 2005		$	123,704			$	(195	)		$	123,509

See notes to combined financial statements.

F-5

FORTRESS OPERATING GROUP

(Limited Liability Companies)

COMBINED STATEMENTS OF CASH FLOWS

(dollars in thousands)


	Year Ended December 31,
	2005				2004				2003
Cash Flows From Operating Activities
Net income		$	192,676			$	114,450			$	40,271
Adjustments to reconcile net income to net cash used in operating activities
Depreciation and amortization			2,267				993				328
Other amortization and accretion			(3,670	)			(3,384	)			461
Undistributed earnings from equity method investees			(2,158	)			(8,851	)			—
Gains from investments			(2,941,159	)			(902,170	)			(132,395	)
Deferred incentive income			444,567				104,558				17,487
Non-controlling interests in income of consolidated entities			2,662,926				847,365				216,594
Deferred tax expense			5,099				2,892				1,172
Other non-cash amounts included in net income			(3,159	)			3,615				(1,423	)
Cash flows due to changes in
Cash held at consolidated subsidiaries and restricted cash			(81,460	)			(132,611	)			(24,806	)
Due from affiliates			(210,711	)			(75,188	)			(30,829	)
Receivables from brokers and counterparties and other assets			(40,671	)			(31,950	)			8,411
Due to affiliates			4,752				6,399				2,357
Accrued compensation and benefits			108,499				47,324				24,831
Due to brokers and counterparties and other liabilities			149,145				33,064				13,344
Investment company holdings
Purchases of investments			(7,583,665	)			(5,345,472	)			(2,012,745	)
Proceeds from sale of investments			5,217,675				2,982,236				1,172,728
Net cash used in operating activities			(2,079,047	)			(2,356,730	)			(704,214	)
Cash Flows From Investing Activities
Purchase of other loan and security investments			(495,380	)			—				—
Proceeds from sale of other loan and security investments			126,197				—				—
Purchase of interests in equity method investees			(17,985	)			(8,846	)			(7,955	)
Distributions of capital from equity method investees			—				—				478
Cash received (paid) on settlement of derivatives			2,328				(1,561	)			—
Purchase of fixed assets			(28,531	)			(2,031	)			(973	)
Net cash used in investing activities			(413,371	)			(12,438	)			(8,450	)
Cash Flows From Financing Activities
Borrowings under debt obligations			2,749,589				1,180,336				236,254
Repayments of debt obligations			(1,434,393	)			(475,092	)			(47,032	)
Payment of deferred financing costs			(34,446	)			(12,026	)			(3,153	)
Capital contributions			8,000				—				—
Capital distributions			(146,878	)			(30,559	)			(32,105	)
Non-controlling interests in consolidated subsidiaries – contributions			2,865,922				2,479,052				822,455
Non-controlling interests in consolidated subsidiaries – distributions			(1,489,352	)			(767,088	)			(262,807	)
Net cash provided by financing activities			2,518,442				2,374,623				713,612
Net Increase in Cash and Cash Equivalents			26,024				5,455				948
Cash and Cash Equivalents, Beginning of Period			10,205				4,750				3,802
Cash and Cash Equivalents, End of Period		$	36,229			$	10,205			$	4,750
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest (excluding interest paid by master funds of $193.1 million, $6.8 million, and $4.8 million, respectively)		$	60,940			$	11,037			$	3,324
Cash paid during the period for income taxes		$	7,183			$	124			$	211
Supplemental Schedule of Non-cash Investing and Financing Activities
Distribution of shares and options, net of a $6.2 million receivable from an employee in 2003		$	10,943			$	37,129			$	12,416
Investment of amounts payable to employees into Fortress Funds		$	48,549			$	28,209			$	13,025

See notes to combined financial statements.

F-6

FORTRESS OPERATING GROUP
(Limited Liability Companies)

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2005
(dollar amounts in tables shown in thousands)


1.	ORGANIZATION AND BASIS OF PRESENTATION

Fortress Operating Group is a global alternative asset management firm founded in 1998. Its primary business is to sponsor the formation of, and provide investment management services for, various investment funds and companies (the ‘‘Fortress Funds’’). Fortress generally makes principal investments in these funds, which typically range from less than 1% to approximately 5% of the equity of the entities.

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


	1)	Private equity funds, which invest in debt and equity securities of public or privately held entities.


	2)	Liquid hedge funds, which invest in the global fixed income, commodities, currency and equity markets, and their related derivatives.


	3)	Hybrid hedge funds, which invest in undervalued, distressed and other less liquid investments.


	4)	Publicly traded alternative investment vehicles that Fortress refers to as the ‘‘Castles,’’ which are companies that invest in operating real estate and real estate related loans and securities (debt and equity).

The accompanying combined financial statements include the accounts of eight affiliated entities under common control and management (‘‘Fortress Operating Group’’) and their respective consolidated subsidiaries (collectively, ‘‘Fortress’’ or the ‘‘Company’’). Each of the eight entities is owned either directly or indirectly by its members, Peter Briger, Wesley Edens, Robert Kauffman, Randal Nardone, and Michael Novogratz (the ‘‘Principals’’). The operating agreements provide that each of these entities will continue indefinitely unless terminated by the Principals or through an event of dissolution, as defined.

Certain of the Fortress Funds are consolidated into Fortress, notwithstanding the fact that Fortress has only a minority economic interest in these funds, pursuant to generally accepted accounting principles as described in Note 2. Consequently, Fortress’s financial statements reflect the assets, liabilities, revenues, expenses and cash flows of the consolidated Fortress Funds on a gross basis. The majority ownership interests in these funds, which are not owned by Fortress, are reflected as non-controlling interests in consolidated subsidiaries in the accompanying financial statements. The management fees and incentive income earned by Fortress from the consolidated Fortress Funds are eliminated in consolidation; however, Fortress’s allocated share of the net income from these funds is increased by the amount of these eliminated fees. Accordingly, the consolidation of these Fortress Funds has no net effect on Fortress’s earnings from the Fortress Funds. For a reconciliation between the financial statements and the segment-based financial data that management uses for making operating decisions and assessing performance, see Note 10.


2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General

Basis of Accounting – The accompanying combined financial statements are prepared in accordance with U.S. generally accepted accounting principles (‘‘GAAP’’). The combined entities are under the

F-7

FORTRESS OPERATING GROUP
(Limited Liability Companies)

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2005
(dollar amounts in tables shown in thousands)

common ownership and control of the Principals. The accompanying financial statements include the accounts of Fortress and its consolidated subsidiaries, which are comprised of (i) those entities in which it has an investment of 50% or more and has control over significant operating, financial and investing decisions of the entity, and (ii) the consolidated Fortress Funds, which are those entities in which it has a substantive, controlling general partner or managing member interest or in which it is the primary beneficiary of a variable interest entity (‘‘VIE’’) as described below. With respect to the consolidated Fortress Funds, Fortress generally has operational discretion and control, and the limited partners/members have no substantive rights to impact ongoing governance and operating activities. All significant intercompany transactions and balances have been eliminated.

VIEs are defined as entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. A VIE must be consolidated only by its primary beneficiary, which is defined as the party who, along with its affiliates and agents, will absorb a majority of the VIE's expected losses or receive a majority of the expected residual returns as a result of holding variable interests. Fortress’s investment company subsidiaries are not subject to these consolidation provisions with respect to the Portfolio Companies (as defined below) pursuant to their specialized accounting.

Non-controlling interests in consolidated subsidiaries represent the ownership interests in certain consolidated subsidiaries, including the consolidated Fortress Funds, held by entities or persons other than Fortress. Non-controlling interest holders in consolidated Fortress Funds (the ‘‘Investors’’) own a substantial portion (approximately 98% as of December 31, 2005) of Fortress’s consolidated net assets. Non-controlling interests related to hedge funds are redeemable: (i) quarterly at the request of the Investor, subject to a one-year lockup, in the case of liquid hedge funds ($280.4 million), or (ii) annually at the request of the Investor, as liquid assets become available, in the case of hybrid hedge funds ($2,631.7 million). Non-controlling interests related to limited-lived private equity funds ($5,167.7 million) will be settled at the end of each respective fund’s life, which could occur under certain circumstances in advance of that fund’s scheduled termination date. When redeemed amounts become legally payable to Investors on a current basis, they are reclassified to a liability account.

All but one of the consolidated Fortress Funds are, for GAAP purposes, investment companies under the AICPA Audit and Accounting Guide – Investment Companies. Fortress has retained the specialized accounting of these funds pursuant to Emerging Issues Task Force (‘‘EITF’’) No. 85-12 ‘‘Retention of Specialized Accounting for Investments in Consolidation.’’ Accordingly, the accompanying financial statements reflect different accounting policies for similar investments depending on whether or not they are held through an investment company subsidiary. The consolidated Fortress Funds that are investment companies reflect their investments on the balance sheet at their estimated fair value, with unrealized gains (losses) resulting from changes in fair value reflected as a component of current income. Additionally, these funds do not consolidate their majority-owned and controlled investments (the ‘‘Portfolio Companies’’), except to the extent that the Portfolio Companies act as operating subsidiaries by providing services to these funds. Four of the consolidated Fortress Funds (the ‘‘Feeder Funds’’ ) invest primarily through unconsolidated subsidiaries (the ‘‘Master Funds’’). Pursuant to their specialized accounting, which has been retained by Fortress, these consolidated Feeder Funds reflect their pro-rata share of the individual income statement line items of their related Master Funds similar to a proportionate consolidation. However, for balance sheet purposes, Fortress records its investments in the Master Funds on one line at estimated fair value.

F-8

FORTRESS OPERATING GROUP
(Limited Liability Companies)

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2005
(dollar amounts in tables shown in thousands)

Distributions by Fortress and its subsidiaries are recognized when declared.

For entities over which Fortress may exercise significant influence but which do not meet the requirements for consolidation, Fortress uses the equity method of accounting whereby it records its share of the underlying income of these entities.

Use of Estimates – The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.

Revenue Recognition

Management Fees – Management fees are recognized in the periods during which the related services are performed and the amounts have been contractually earned.

Incentive Income – Incentive income is calculated as a percentage of the profits earned by the Fortress Funds subject, in certain cases, to the achievement of performance criteria. Incentive income from certain funds is subject to contingent repayment based on the applicable Fortress Fund achieving earnings in excess of a specified minimum. Incentive income that is not subject to contingent repayment is recognized as contractually earned. Incentive income subject to contingent repayment may be paid to Fortress as particular investments made by the funds are realized. However, if upon liquidation of each fund the aggregate amount paid to Fortress as incentive income exceeds the amount actually due to Fortress based upon the aggregate performance of each fund, the excess is required to be repaid by Fortress (i.e. ‘‘clawed back’’) to that fund. Fortress has elected to adopt the preferred method of recording incentive income subject to contingencies, Method 1 of EITF Topic D-96 ‘‘Accounting for Management Fees Based on a Formula.’’ Under Method 1, Fortress does not recognize incentive income subject to contingent repayment until all of the related contingencies have been resolved. Recognition of incentive income allocated or paid to Fortress prior to that date is deferred and recorded as deferred incentive income liability.

Incentive income from consolidated Fortress Funds entitles Fortress to a greater allocable share of these funds’ earnings, and correspondingly reduces the non-controlling interests’ allocable share thereof. However, to the extent that incentive income is subject to contingent repayment, Fortress defers the recognition of this income by eliminating it from the income statement through the caption deferred incentive income and recording a corresponding liability on the balance sheet called deferred incentive income. When the related contingencies are resolved, the deferred incentive income liability is reversed and reflected in earnings under the caption deferred incentive income.

In connection with incentive income from unconsolidated Fortress Funds, Fortress only records its allocable share of the funds’ earnings to the extent that this income is not subject to contingent repayment. Incentive income that is paid to Fortress from these funds and that is subject to contingent repayment is recorded as deferred incentive income liability until the related contingencies are resolved.

The deferred incentive income liability on the accompanying balance sheet represents the cumulative deferral of allocated incentive income, distributed and undistributed, from the consolidated Fortress Funds, as well as the cumulative distributions of incentive income from the unconsolidated Fortress Funds that are, in each case, subject to contingent repayment.

Incentive income from certain Fortress Funds is earned based on achieving annual performance criteria. Accordingly, this incentive income is recorded as revenue at year end (in the fourth quarter of each year).

F-9

FORTRESS OPERATING GROUP
(Limited Liability Companies)

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2005
(dollar amounts in tables shown in thousands)

Stock Options Received – Fully vested stock options are issued to Fortress by certain of the Castles as compensation for services performed in raising capital for these entities. These options are recognized by Fortress as management fees at their estimated fair value at the time of issuance. Fair value was estimated using a binomial option pricing model for North American companies and a Monte Carlo option pricing model for European companies. Since the Castles’ option plans have characteristics significantly different from those of traded options, and since the assumptions used in such models, particularly the volatility assumption, are subject to significant judgment and variability, the actual value of the options could vary materially from this estimate.

After receipt, stock options that meet the characteristics of derivatives are measured at fair value with changes in fair value recognized in current income as unrealized gains or losses. Stock options that do not meet the characteristics of derivatives because, among other things, they cannot be effectively settled for cash are held at cost (which is equal to the initial estimated value), subject to impairment review. No impairment has been recorded in respect of these options through December 31, 2005.

Security Transactions, Interest and Dividend Income and Other Income – Fortress recognizes security transactions on the trade date. Discounts and premiums on loans and securities purchased, as well as origination fees received, are amortized over the life of the respective securities using the effective interest method. Realized gains and losses are recorded based on the specific identification method. Dividend income is recognized by consolidated Fortress Funds that are investment companies on the ex-dividend date, or in the absence of a formal declaration, on the date it is received. Interest income is recognized as earned on an accrual basis. Fixed rate preferred dividends are recognized as earned.

Fortress does not accrue interest on loans that are past due more than 90 days, or less when the probability of collection of interest is deemed insufficient to warrant further accrual. Upon such a determination, those loans are considered to be nonperforming.

Balance Sheet Measurement

Cash and Cash Equivalents – Fortress considers all highly liquid short term investments with maturities of 90 days or less when purchased to be cash equivalents. Substantially all amounts on deposit with major financial institutions exceed insured limits.

Cash Held at Consolidated Subsidiaries and Restricted Cash – Restricted cash of $20.1 million as of December 31, 2005 represented funds held in securitization trustee accounts at consolidated Fortress Funds. Restricted cash of $11.0 million as of December 31, 2004 represented derivative margin accounts held at consolidated Fortress Funds. Cash held at consolidated subsidiaries of $232.0 million and $158.5 million as of December 31, 2005 and 2004, respectively, although not legally restricted, is not available to fund general liquidity needs of Fortress.

Due from/to Affiliates – For purposes of classifying amounts, Fortress considers its principals, employees, all of the Fortress Funds, and the Portfolio Companies to be affiliates. Receivables from affiliates are recorded at their current settlement amount.

Investment Company Holdings, at Fair Value – Included in this caption are loans, securities and derivatives held by the consolidated Fortress Funds that are investment companies, which are stated at estimated fair value. Unrealized gains or losses on these investments are recorded through current income each period.

Investments in securities traded on a national securities exchange (or reported on the NASDAQ national market) are stated at the last reported sales price on the day of valuation; other securities

F-10

FORTRESS OPERATING GROUP
(Limited Liability Companies)

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2005
(dollar amounts in tables shown in thousands)

traded in the over-the-counter market and listed securities for which no sale was reported on that date are stated at the last quoted bid price, except for short positions and call options written, if any, for which the last quoted asked price is used. Short-term notes, due to their limited duration, are stated at amortized cost, which approximates fair value.

Investments that are not listed on an exchange may be valued using the ‘‘bid’’ quotations for long positions and ‘‘asked’’ quotations for short positions obtained from unaffiliated market makers, brokers, or other financial institutions that trade similar investments. For investments where broker quotes are not available, independent valuation agents, including Fortress’s counterparties in the case of derivatives owned, may be used to help determine estimated fair value. Independent valuation agents determine values by using their own proprietary valuation models. For all other investments, the fair value of the investments is estimated based on proprietary models developed by Fortress, which include discounted cash flow analyses and other techniques. However, these values may be adjusted if a more accurate value can be obtained from recent trading activity or by incorporating other relevant information that may not have been reflected in pricing obtained from external sources or models.

Investments in entities whose functional currency is other than the U.S. dollar are valued based on the spot rate of their respective currency at the end of the respective reporting period. Purchases and sales of investments and other transactions denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of the transactions.

Other Investments – Loans and Securities – Included in this caption are investments held by the one consolidated Fortress Fund which is not an investment company, known as Northcastle. The loans are presented net of any unamortized discount or fees (or gross of any premium) and net of any allowance for loan losses. An allowance for loss is established to bring the carrying amount of a loan to its estimated realizable amount when the loan is considered impaired. Loans are considered impaired when it is probable that Fortress will be unable to collect all principal or interest when due.

The securities are marketable equity securities classified as available for sale. As such, they are carried at fair value with the net unrealized gains or losses reported as a component of accumulated other comprehensive income. Unrealized losses on securities are charged to income if they reflect a decline in value that is other than temporary. A decline in value is considered other than temporary if either (a) it is deemed probable that Fortress will be unable to collect all amounts anticipated to be collected at acquisition, or (b) Fortress does not have the ability and intent to hold the investment until a forecasted market price recovery.

F-11

FORTRESS OPERATING GROUP
(Limited Liability Companies)

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2005
(dollar amounts in tables shown in thousands)

Other Assets and Other Liabilities:

Other assets and liabilities are comprised of the following:


	Other Assets
	December 31,
	2005				2004
Deferred tax asset		$	3,096			$	328
Fixed assets			35,097				6,786
Accumulated depreciation			(3,812	)			(1,583	)
Deferred charges			47,241				13,327
Accumulated amortization			(10,019	)			(4,108	)
Miscellaneous receivables			58,906				17,274
Other assets			10,258				5,205
		$	140,767			$	37,229


	Other Liabilities
	December 31,
	2005			2004
Current taxes payable		$	5,726		$	2,469
Deferred taxes payable			13,380			4,631
Note payable			3,219			3,219
Interest payable			18,623			1,350
Redemptions payable			92,027			14,642
Accounts payable			5,956			1,162
Accrued expenses			22,065			5,083
Other liabilities			15,011			9,731
		$	176,007		$	42,287

Fixed Assets, Depreciation and Amortization – Fixed assets consist primarily of leasehold improvements, furniture, fixtures and equipment, computer hardware and software, and fractional shares in corporate aircraft, and are recorded at cost less accumulated depreciation. Depreciation and amortization are calculated using the straight-line method over the assets’ estimated useful lives, which are the life of the related lease for leasehold improvements, twenty years for an interest in an aircraft, and three to seven years for other fixed assets.

Deferred Charges – Deferred charges consist of costs incurred in obtaining financing which are amortized over the term of the financing using the effective interest method.

Deferred Tax Asset and Taxes Payable – See Note 7.

Securities Sold Not Yet Purchased, At Fair Value – These are securities that the consolidated Fortress Funds that are investment companies have sold but did not own prior to the sale. In order to facilitate the short sale, the fund had to borrow the securities from another party and deliver them to the buyer. The fund will be required to ‘‘cover’’ its short sale in the future through the purchase of the security in the market at the prevailing market price and deliver it to the counterparty from which it borrowed. The fund is exposed to a loss to the extent that the security price increases during the time from when the fund borrowed the security to when it purchases it in the market to cover the short. Changes in the value of these securities are reflected as unrealized gains (losses) in the accompanying income statements.

Debt Obligations and related Interest Expense – Debt is presented net of any unamortized discounts or gross of any unamortized premiums. Discounts and premiums are amortized into interest expense on the effective interest (or level yield) method through the expected maturity date of the related financing.

Derivatives and Hedging Activities – All derivatives are recognized as either assets or liabilities in the balance sheet and measured at fair value.

Any unrealized gains or losses on derivatives not designated as hedges are recorded currently in income, either in Investment Company Holdings – Net Unrealized Gains from Non-affiliate Investments, or in Other Investments – Net Unrealized Gains from Non-affiliate Investments, as applicable. Net payments under these derivatives are similarly recorded, but as realized.

F-12

FORTRESS OPERATING GROUP
(Limited Liability Companies)

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2005
(dollar amounts in tables shown in thousands)

Cash Flow Hedges

In order to reduce interest rate risk, Fortress has and may enter into interest rate swap agreements whereby Fortress would receive floating rate payments in exchange for fixed rate payments, effectively converting a floating rate borrowing to fixed rate. Fortress intends to hedge only the risk related to changes in the benchmark interest rate (LIBOR).

To qualify for cash flow hedge accounting, interest rate swaps must meet certain criteria, including (1) the items to be hedged expose Fortress to interest rate risk, (2) the interest rate swaps or caps are highly effective in reducing Fortress’s exposure to interest rate risk, and (3) with respect to an anticipated transaction, the transaction is probable. In addition, the hedging relationship must be properly documented. Effectiveness is periodically assessed based upon a comparison of the relative changes in the fair values or cash flows of the interest rate swaps and the items being hedged.

The effective portion of any gain or loss, and of net payments received or made, is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The ineffective portion of any gain or loss, and of net payments received or made, is recognized in current earnings.

Foreign Currency Hedges

To qualify for hedge accounting with respect to a net investment in a foreign operation, the hedging instrument must be highly effective in reducing Fortress’s exposure to the risk of changes in foreign currency exchange rates with respect to the investment. In addition, the hedging relationship must be properly documented. Effectiveness is periodically assessed based upon a comparison of the relative changes in the fair values of the hedge and the item being hedged (with respect to changes in foreign currency exchange rates).

The effective portion of any gain or loss, and of net payments received or made, on a hedge of a net investment in a foreign operation is reported as a component of other comprehensive income and reclassified into earnings in the period the net investment is sold. The ineffective portion of any gain or loss, and of net payments received or made, is recognized in current earnings.

Fortress has entered into foreign currency forward contracts to economically hedge the risk of fluctuations in foreign currency exchange rates with respect to its foreign investments; however, these derivatives did not qualify as hedges for accounting purposes during the years ended December 31, 2005, 2004 or 2003.

Other

Fortress’s derivative financial instruments contain credit risk to the extent that its bank counterparties may be unable to meet the terms of the agreements. Fortress minimizes this risk by limiting its counterparties to highly rated major financial institutions with good credit ratings. Management does not expect any material losses as a result of default by other parties. Fortress does not require collateral.

Comprehensive Income – Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances, excluding those resulting from investments by and distributions to owners. For Fortress’s purposes, comprehensive income represents net income, as presented in the accompanying income statements, adjusted for unrealized gains or losses on securities available for sale and on derivatives designated as cash flow hedges, as well as net foreign currency translation adjustments, including Fortress’s relative share of these items from its equity method investees.

F-13

FORTRESS OPERATING GROUP
(Limited Liability Companies)

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2005
(dollar amounts in tables shown in thousands)

The following table summarizes Fortress’s accumulated other comprehensive income:


	December 31,
	2005				2004
Direct
Net unrealized gains on securities available for sale		$	92			$	—
Net unrealized gains (losses) on derivatives designated as cash flow hedges			6				(66	)
Net foreign currency translation adjustments			157				1,857
Through equity method investees
Net unrealized gains on securities available for sale			8,276				11,487
Net unrealized gains (losses) on derivatives designated as cash flow hedges			(8,835	)			(9,483	)
Net foreign currency translation adjustments			109				233
Accumulated other comprehensive income (loss)		$	(195	)		$	4,028

Foreign Currency – Foreign currency denominated assets, liabilities and operations are primarily held through consolidated Fortress Funds. Assets and liabilities relating to foreign investments are translated using the exchange rates prevailing at the end of each reporting period. Results of foreign operations are translated at the weighted average exchange rate for each reporting period. Translation adjustments are included in current income to the extent that unrealized gains and losses on the related investment are included in income, otherwise they are included as a component of accumulated other comprehensive income until realized. Foreign currency gains or losses resulting from transactions outside of the functional currency of a consolidated entity are recorded in income as incurred and were not material during the years ended December 31, 2005, 2004 and 2003.

Profit Sharing Arrangements – Pursuant to employment arrangements, certain of Fortress’s employees are granted profit sharing interests and are thereby entitled to a portion of the incentive income earned from certain Fortress Funds. Amounts payable under these profit-sharing plans are recorded as compensation expense when they become probable and reasonably estimable. Generally, this occurs when incentive income becomes payable from the funds. Approximately $130.3 million, $50.5 million and $23.5 million was recorded as compensation expense in connection with these arrangements during the years ended December 31, 2005, 2004 and 2003, respectively. Fortress may withhold a portion of the incentive income distributed by these funds to which employees are entitled as a reserve against contingent repayment obligations to the funds. Employees may opt to have these withheld amounts invested in either a money market account or in one of a limited group of Fortress Funds.

Income Taxes – No federal income taxes have been provided for by Fortress Operating Group in the accompanying financial statements as each Principal is individually responsible for reporting income or loss based upon their respective share of Fortress Operating Group’s income and expenses as reported for income tax purposes.

However, certain consolidated subsidiaries of Fortress are subject to New York City unincorporated business tax (UBT) on their trade and business activities conducted in New York City. Additionally, one consolidated subsidiary is subject to U.S. federal corporate income tax. Fortress accounts for these taxes using the asset and liability method under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. A valuation allowance is established when management believes it is probable that a deferred tax asset will not be realized.

F-14

FORTRESS OPERATING GROUP
(Limited Liability Companies)

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2005
(dollar amounts in tables shown in thousands)

Recent Accounting Pronouncements – In June 2006, the Financial Accounting Standards Board (‘‘FASB’’) issued Interpretation No. 48, ‘‘Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109’’ (‘‘FIN 48’’). FIN 48 requires companies to recognize the tax benefits of uncertain tax positions only where the position is ‘‘more likely than not’’ to be sustained assuming examination by tax authorities. The tax benefit recognized is the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. FIN 48 is effective for fiscal years beginning after December 15, 2006. The adoption of FIN 48 is not expected to have a material impact on Fortress’s financial statements.

In February 2006, the FASB issued Statement of Financial Accounting Standards (‘‘SFAS’’) No. 155, ‘‘Accounting for Certain Hybrid Financial Instruments’’, which amends SFAS 133, ‘‘Accounting for Derivative Instruments and Hedging Activities,’’ and SFAS 140, ‘‘Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities’’. SFAS 155 provides, among other things, that (i) for embedded derivatives which would otherwise be required to be bifurcated from their host contracts and accounted for at fair value in accordance with SFAS 133 an entity may make an irrevocable election, on an instrument-by-instrument basis, to measure the hybrid financial instrument at fair value in its entirety, with changes in fair value recognized in earnings and (ii) concentrations of credit risk in the form of subordination are not considered embedded derivatives. SFAS 155 is effective for all financial instruments acquired, issued or subject to remeasurement after the beginning of an entity’s first fiscal year that begins after September 15, 2006. Upon adoption, differences between the total carrying amount of the individual components of an existing bifurcated hybrid financial instrument and the fair value of the combined hybrid financial instrument should be recognized as a cumulative effect adjustment to beginning retained earnings. Prior periods are not restated. The adoption of SFAS 155 is not expected to have a material impact on Fortress’s financial statements.

In December 2004, the FASB issued SFAS No. 123 (R), ‘‘Share-Based Payment’’, which requires all equity-based payments to employees to be recognized using a fair value based method. To date, Fortress has not issued any equity-based compensation awards. On January 1, 2006, Fortress adopted SFAS No. 123 (R) using the modified prospective method and therefore prior period amounts will not be restated. The adoption of SFAS 123 (R) did not have a material impact on Fortress’s financial statements.

In September 2006, the FASB issued SFAS No. 157, ‘‘Fair Value Measurements’’. SFAS 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 applies to reporting periods beginning after November 15, 2007. The adoption of SFAS 157 is not expected to have a material impact on Fortress’s financial statements.

F-15

FORTRESS OPERATING GROUP
(Limited Liability Companies)

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2005
(dollar amounts in tables shown in thousands)


3.	MANAGEMENT AGREEMENTS AND THE FORTRESS FUNDS

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

The Principals and certain executive officers of Fortress may also serve as directors and/or officers of each of the Castles and of certain Portfolio Companies and may have investments in these entities.

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

Private Equity Funds

The following table presents certain information with respect to Fortress’s management agreements with the private equity funds as of December 31, 2005.


	Total Capital Commit- ments			Fortress Capital Commit- ments			Fortress and Affiliates Capital Commit- ments (A)			Percent of Capital Commitments Drawn			Longest Capital Commitment Period Ends (B)	Longest Fund Termination Date (C)	Annual Management Fee (D)	Incentive Income (E)			Incentive Income Threshold Return (E)
Consolidated		$	7,369,477		$	77,926		$	375,919		47.9	%	Nov-2008	Nov-2030	1.0% - 1.5%		20	%	6% - 10%
Unconsolidated		$	40,500	None			None				100.0	%	Ended	Apr-2010 (B)	None		25	%	None


	(A) Affiliate commitments are comprised of:


Employees			Principals			NIH			Total Affiliates			Fortress			Total
	$	59,843		$	145,000		$	93,150		$	297,993		$	77,926		$	375,919


	(B) Subsequent to the end of the capital commitment periods, the respective capital commitments may not be drawn to fund new investments, but are available to maintain ongoing business of the funds. NIH (one of Fortress's equity method investees) does not have capital commitments. It is a privately traded company owned through membership interests. It has an indefinite life.


	(C) Including all available extensions. Only $0.5 billion of the total commitments extend beyond April 2015.


	(D) Expressed as a percent. This percent is generally applied to the capital commitment amount during the capital commitment periods and to invested capital (as defined) thereafter. In some funds, management fee rates vary depending on the size of commitments. Affiliate commitments are not charged management fees.

(E) Expressed as a percent of the total returns of the funds. The incentive income is subject to: (i) the achievement of a cumulative incentive income threshold return payable to the third party investors in the funds, and (ii) a contingent repayment or clawback provision which requires amounts previously distributed as incentive income to be returned to each fund if, upon liquidation of such fund, such amounts exceeded the actual amount of incentive income due. Affiliate commitments are not subject to incentive income. Funds representing approximately $0.5 billion of total commitments have a 6% threshold, the rest have a 10% threshold. Some of the private equity funds do not have an incentive income provision; the capital commitments of such funds aggregate less than $200 million. There is no clawback provision with respect to NIH. Due to prior return of capital distributions, NIH essentially has a zero incentive income threshold.

F-16

FORTRESS OPERATING GROUP
(Limited Liability Companies)

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2005
(dollar amounts in tables shown in thousands)

Pursuant to profit sharing arrangements, certain of Fortress’s employees are entitled to a portion, approximately 37% as of December 31, 2005 based on a weighted average by total capital commitments, of the incentive income received from the private equity funds.

Two of the consolidated private equity funds are Feeder Funds that make their investments primarily through Master Funds. Summary financial information regarding the Master Funds is presented in Note 4.

Fortress manages one of the consolidated private equity funds with approximately $0.9 billion of capital commitments (‘‘Fund I’’) pursuant to certain agreements which provide that Fortress is entitled to 50% of the Fund I incentive income and NIH, a Fortress Fund which is a private equity fund and an equity method investee of Fortress, is entitled to the other 50%.

Deferred incentive income allocated from the consolidated private equity funds, subject to contingent repayment (Note 2), was comprised of the following:


	December 31,
	2005			2004
Distributed		$	123,426		$	39,681
Undistributed			462,438			101,596
Total		$	585,864		$	141,277

To date, no incentive income subject to contingent repayment has been recognized as income.

Liquid Hedge Funds

The following table presents certain information with respect to the liquid hedge funds as of December 31, 2005.


	Net Asset Value (NAV)			Fortress Share of NAV (A)			Annual Management Fee (B)			Incentive Income (C)
Consolidated		$	305,727		$	21,699		2.0	%		20	%
Unconsolidated		$	2,825,917	None				2.0	%		20	%


	(A) Net of employee amounts.


	(B) Expressed as a percent of NAV (as defined).


	(C) Expressed as a percent of the total returns of the funds. The incentive income is earned on a calendar year (annual) basis.

All of the liquid hedge funds are structured as Feeder Funds that make their investments primarily through Master Funds. Summary financial information regarding the Master Funds is presented in Note 4.

Pursuant to the provisions of deferred fee arrangements, Fortress may elect to defer receipt of all or a portion of the management fee and incentive income from each of the unconsolidated liquid hedge funds earned with respect to a particular fiscal year, and may elect to have a portion or all of these deferred amounts indexed either in the same manner as the fund’s other assets, or in another manner approved by the independent members of the board of directors of the fund. The value of these deferred amounts is a liability of the applicable fund to Fortress. Any amounts invested by the fund pursuant to these deferred fee arrangements are part of the general assets of the fund for all purposes, and Fortress has no proprietary interest in any of these assets. Fortress elected to defer receipt of its management fees and incentive income from these funds for the years ended December 31, 2005, 2004 and 2003.

F-17

FORTRESS OPERATING GROUP
(Limited Liability Companies)

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2005
(dollar amounts in tables shown in thousands)

Hybrid Hedge Funds

The following table presents certain information with respect to the hybrid hedge funds as of December 31, 2005.


Fund	Net Asset Value (NAV)			Fortress Share of NAV (A)			Annual Management Fee (B)	Incentive Income (C)
Consolidated		$	2,702,143		$	38,481	2.0%		20	%
Unconsolidated		$	535,974		$	356	1.0% - 2.0%		20	%


	(A) Net of employee amounts.


	(B) Expressed as a percent of NAV (as defined).


	(C) Expressed as a percent of the total returns of the funds. The incentive income is earned on a calendar year (annual) basis. The unconsolidated hybrid hedge funds include two managed accounts with less than $80 million of NAV as of December 31, 2005 which do not have an incentive income provision.

Fortress and the offshore hybrid hedge fund (the unconsolidated hybrid hedge funds excluding the managed accounts mentioned above) have entered into a deferred fee arrangement under substantially the same terms as the unconsolidated liquid hedge funds. Fortress elected to defer receipt of its management fees and incentive income from this fund for the years ended December 31, 2005, 2004 and 2003.

Castles

The following table presents certain information with respect to the Castles as of December 31, 2005:


Fund	Annual Management Fee (A)			Incentive Income (B)			Incentive Income Threshold Return (B)
Consolidated		1.5	%		25	%	8%
Unconsolidated		1.5	%		25	%	8% - 10%


	(A) Expressed as a percent of gross equity, as defined.


	(B) The incentive income is earned on a cumulative basis equal to the product of (1) the incentive income percent (shown above) multiplied by (2) the difference by which (i) a specified measure of earnings (as defined) exceeds (ii) the company's gross equity (as defined) multiplied by the incentive income threshold return (shown above).

The management agreements between Fortress and the Castles provide for initial terms of one to ten years, subject to certain termination rights, and automatic extensions of one to three years, subject to the approval of the independent members of the Castles’ boards of directors.

F-18

FORTRESS OPERATING GROUP
(Limited Liability Companies)

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2005
(dollar amounts in tables shown in thousands)


4.	INVESTMENTS

A) INVESTMENT COMPANY HOLDINGS, AT FAIR VALUE

Investment company holdings, at fair value, consist primarily of financial instruments held by consolidated Fortress Funds that are investment companies.

These holdings are presented as a percentage of Investment Company Holdings, at Fair Value.


	Amount						Percentage of Investment Company Holdings
	December 31,						December 31,
	2005			2004			2005			2004
Investment company holdings, at fair value
Loans and securities		$	3,597,958		$	2,116,623		34.0	%		39.5	%
Investments in affiliates			6,972,857			3,230,844		65.9	%		60.2	%
Derivatives			11,294			17,842		0.1	%		0.3	%
		$	10,582,109		$	5,365,309		100.0	%		100.0	%

F-19

FORTRESS OPERATING GROUP
(Limited Liability Companies)

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2005
(dollar amounts in tables shown in thousands)

Loans and Securities

The following table presents Fortress’s loans and securities held through consolidated Fortress Funds that are investment companies.


	Cost				Fair Value				% of Investment Company Holdings
Country / Instrument Type / Industry Description	December 31,
Country / Instrument Type / Industry Description	2005		2004		2005		2004		2005	2004
Asia
Debt Securities		$ —		$5,708		$—		$5,979	< .05%	0.1%
Equity Instruments		1,436		559		6,615		536	0.1%	< .05%
Loans		—		34,353		—		34,427	< .05%	0.6%
Total Asia		1,436		40,620		6,615		40,942	0.1%	0.8%
Europe
Debt Securities		2,745		23,096		2,611		24,775	< .05%	0.5%
Equity Instruments		113,578		—		121,323		—	1.1%	< .05%
Loans		27,134		20,321		27,786		20,658	0.3%	0.4%
Total Europe		143,457		43,417		151,720		45,433	1.4%	0.8%
Latin America
Debt Securities		—		2,165		—		2,247	< .05%	< .05%
Total Latin America		—		2,165		—		2,247	< .05%	< .05%
United States
Debt Securities
Accommodation and Food Services		167,340		174,899		168,389		175,031	1.6%	3.3%
Arts, Entertainment and Recreation		218,668		135,923		207,966		134,997	2.0%	2.5%
Finance and Insurance		313,234		78,588		313,136		79,209	3.0%	1.5%
Health Care and Social Assistance		111,408		54,791		110,383		54,324	1.0%	1.0%
Information		261,172		183,416		257,023		183,250	2.4%	3.4%
Manufacturing		130,923		89,780		126,238		88,901	1.2%	1.7%
Real Estate and Rental and Leasing		366,305		131,660		361,197		124,429	3.4%	2.3%
Retail Trade		256,985		63,140		250,809		61,668	2.4%	1.1%
Transportation and Warehousing		120,178		71,103		120,050		71,148	1.1%	1.3%
Utilities		123,581		82,842		128,038		85,650	1.2%	1.6%
Other		99,292		111,301		99,532		93,817	0.9%	1.7%
Total Debt Securities		2,169,086		1,177,443		2,142,761		1,152,424	20.2%	21.5%
Equity Instruments
Accommodation and Food Services		106,430		38,333		120,613		41,755	1.1%	0.8%
Finance and Insurance		33,931		143,003		38,458		153,669	0.4%	2.9%
Manufacturing		147,184		16,513		139,660		16,941	1.3%	0.3%
Real Estate and Rental and Leasing		208,892		142,012		236,460		156,583	2.2%	2.9%
Utilities		102,277		25,241		114,292		29,901	1.1%	0.6%
Other		88,551		43,300		91,695		57,240	0.9%	1.1%
Total Equity Instruments		687,265		408,402		741,178		456,089	7.0%	8.5%
Investment Funds		11,550		10,800		12,264		11,568	0.1%	0.2%
Loans
Real Estate and Rental and Leasing		181,528		172,384		172,988		168,907	1.6%	3.1%
Utilities		63,005		86,868		69,278		89,746	0.7%	1.7%
Other		334,252		158,506		301,154		149,267	2.8%	2.8%
Total Loans		578,785		417,758		543,420		407,920	5.1%	7.6%
Total United States		3,446,686		2,014,403		3,439,623		2,028,001	32.5%	37.8%
Total – Loans and Securities		$3,591,579		$2,100,605		$3,597,958		$2,116,623	34.0%	39.5%

F-20

FORTRESS OPERATING GROUP
(Limited Liability Companies)

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2005
(dollar amounts in tables shown in thousands)

Investments in Affiliates

The following tables present Fortress’s investments in affiliated entities held through consolidated Fortress Funds that are investment companies. The first table contains information regarding all of Fortress’s directly held investments in affiliates including significant individual investments, which are investments that constitute more than 5% of Fortress’s Investment Company Holdings or more than 5% of Fortress’s gross investment assets.


Country / Industry Description / Significant Investment (if applicable)
	Cost				Fair Value				% of Investment Company Holdings
	December 31,
	2005		2004		2005		2004		2005	2004
United States – Master Funds Finance and Insurance
Fortress Registered Investment Trust		$—		$439,493		$1,234,018		$964,370	11.7%	18.0%
Fortress Investment Trust II		897,742		778,282		2,118,664		951,418	20.0%	17.7%
Drawbridge Global Macro Master Fund Ltd		181,297		196,993		235,712		211,529	2.2%	3.9%
Drawbridge RV Plus Master Fund Ltd		48,677		—		50,998		—	0.5%	< .05%
Total United States – Master Funds		1,127,716		1,414,768		3,639,392		2,127,317	34.4%	39.6%
Europe
Finance and Insurance		462,655		10,636		482,319		19,864	4.6%	0.4%
Information		21,281		—		21,604		—	0.2%	< .05%
Real Estate and Rental and Leasing
GAGFAH S.A.		845,513		785,300		1,283,859		806,322	12.1%	15.0%
Other		459,369		—		462,117		—	4.4%	< .05%
Total Europe		1,788,818		795,936		2,249,899		826,186	21.3%	15.4%
United States
Finance and Insurance		401,361		118,161		506,413		186,462	4.8%	3.5%
Healthcare and Social Assistance		2,019		—		3,167		—	< .05%	< .05%
Information		221,579		—		221,579		—	2.1%	< .05%
Real Estate and Rental and Leasing		343,276		90,238		352,407		90,879	3.3%	1.7%
Total United States		968,235		208,399		1,083,566		277,341	10.2%	5.2%
Total – Investments in Affiliates		$3,884,769		$2,419,103		$6,972,857		$3,230,844	65.9%	60.2%

In addition, Fortress has indirect, significant investments in individual investments that are held in whole or in part through unconsolidated Fortress Funds, Master Funds and Portfolio Companies. Fortress’s share of investments held through unconsolidated entities is reflected in Fortress’s assets on a net basis; non-recourse financing on these investments at the unconsolidated entity level reduces Fortress’s net exposure to these investments. The following table reflects Fortress’s direct and indirect share of these investments.

F-21

FORTRESS OPERATING GROUP
(Limited Liability Companies)

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2005
(dollar amounts in tables shown in thousands)


	Cost								Fair Value								% of Investment Company Holdings
Significant Investment	December 31,
Significant Investment	2005				2004				2005				2004				2005			2004
Affiliates
Global Signal Inc.		$	277,061			$	—			$	1,069,952			$	549,130
Mapeley Ltd.			309,696				277,196				717,123				365,083
Nonrecourse financing at the subsidiary level			(692,701	)			—				(692,701	)			—
Net Global Signal Inc. and Mapeley Ltd. (A)		$	(105,944	)		$	277,196			$	1,094,374			$	914,213			10.3	%		17.0	%
Brookdale Senior Living Inc.		$	295,002			$	33,718			$	1,265,322			$	62,476			12.0	%		1.2	%
Green Tree Servicing LLC		$	291,268			$	381,178			$	492,423			$	525,313			4.7	%		9.8	%
Non-affiliates
U.S. Government treasury securities		$	8,840,068			$	2,695,796			$	8,852,456			$	2,695,396
Securities sold, not yet purchased (liabilities)			(5,090,541	)			(422,396	)			(5,103,788	)			(422,933	)
Nonrecourse financing at the subsidiary level			(4,215,410	)			(2,345,278	)			(4,215,410	)			(2,345,278	)
Net U.S. Government treasury securities		$	(465,883	)		$	(71,878	)		$	(466,742	)		$	(72,815	)		(4.4	)%		(1.4	)%


	(A) The nonrecourse financing shown above is cross-collateralized by these two investments.

Summarized Financial Information for Master Funds

Four of Fortress’s consolidated funds are Feeder Funds that make their investments primarily through Master Funds. The Master Funds are not consolidated by the Feeder Funds or Fortress. The following tables present summarized financial information for the two Master Funds related to two of Fortress’s private equity funds and the two Master Funds related to Fortress’s liquid hedge funds. Fortress’s investment in the Master Funds is equal to its proportional share of the Master Funds’ net assets; as a result, the gross investments of the Master Funds reflected below exceed the net investment which Fortress has recorded.

F-22

FORTRESS OPERATING GROUP
(Limited Liability Companies)

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2005
(dollar amounts in tables shown in thousands)

Summary Statements of Assets and Liabilities and Statements of Operations of the Master Funds


	December 31 (or Year then Ended)
	2005				2004				2003				2005				2004				2003
	Master Private Equity Funds
	Fortress Registered Investment Trust												Fortress Investment Trust II
Investments, at fair value		$	1,639,450			$	813,491							$	2,214,806			$	998,980
Other assets			81,080				160,827								160,171				76,374
Liabilities			(486,512	)			(9,948	)							(256,313	)			(123,936	)
Net assets		$	1,234,018			$	964,370							$	2,118,664			$	951,418
Net investment income		$	42,060			$	26,864			$	34,278			$	128,631			$	28,384			$	67,210
Net gain on investments			878,324				550,911				(2,254	)			1,293,136				180,000				85,726
Net income		$	920,384			$	577,775			$	32,024			$	1,421,767			$	208,384			$	152,936
	Master Hedge Funds
	Drawbridge Global Macro Master Fund Ltd												Drawbridge RV Plus Master Fund Ltd
Investments, at fair value		$	25,326,700			$	7,220,618							$	22,499,813
Securities purchased under agreements to resell			19,992,314				3,986,017								20,098,758
Other assets			3,967,371				1,216,566								1,569,153
Liabilities			(46,539,593	)			(10,037,118	)							(43,782,786	)
Net assets		$	2,746,792			$	2,386,083							$	384,938
Net investment income		$	(87,876	)		$	(8,604	)		$	(2,411	)		$	(53,097	)
Net gain on investments			700,592				115,288				57,871				72,787
Net income		$	612,716			$	106,684			$	55,460			$	19,690

F-23

FORTRESS OPERATING GROUP
(Limited Liability Companies)

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2005
(dollar amounts in tables shown in thousands)

Summary Schedules of Investments of the Master Funds


	Master Private Equity Funds
	December 31,
	2005						2004
Investments	Fair Value			Cost			Fair Value			Cost
	Fortress Registered Investment Trust
Fortress Brookdale Acquisition LLC		$	273,629		$	36,740		$	62,476		$	33,718
Fortress UK Acquisition Company			321,784			83,375			158,578			80,007
FRIT PINN LLC			844,617			152,619			393,145			—
Ital Investment Holdings II LLC and Ital Tre Investors LP			52,741			—			106,454			105,817
Other			146,679			66,261			92,838			69,071
		$	1,639,450		$	338,995		$	813,491		$	288,613
	Fortress Investment Trust II
FIT CFN Holdings LLC (A)		$	492,423		$	291,268		$	525,313		$	381,178
FIT GSL LLC			203,106			120,000			—			—
FIT Mapeley Holdings Ltd			367,180			188,425			210,718			197,189
FIT ALT Investor LLC			397,634			61,199			25,585			25,585
Brookdale Senior Living Inc.			596,200			194,885			—			—
Other			158,263			138,107			237,364			221,892
		$	2,214,806		$	993,884		$	998,980		$	825,844


(A)	2004 amounts represent assets held by the predecessors of FIT CFN Holdings LLC.

F-24

FORTRESS OPERATING GROUP
(Limited Liability Companies)

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2005
(dollar amounts in tables shown in thousands)


	Master Hedge Funds
	Drawbrige Global Macro Master Fund Ltd												Drawbridge RV Plus Master Fund Ltd
	December 31,
	2005						2004						2005
Investment Type	Fair Value			Cost			Fair Value			Cost			Fair Value			Cost
U.S. government bonds		$	22,377,672		$	22,327,470		$	4,035,319		$	4,028,304		$	22,140,685		$	22,085,131
Common stocks
Consumer			620,047						809,195						6,136
Financial			427,346						412,950						—
Communications			321,480						344,669						6,094
Energy and Utilities			271,483						247,935						—
Industrial			227,736						236,125						—
Technology			137,476						368,873						1,588
Other			113,410						110,021						—
Total stocks			2,118,978			2,064,351			2,529,768			2,430,313			13,818			14,463
Debt securities			561,798			558,855			540,158			524,703			336,100			333,933
Affiliated entities			116,131			112,330			—			—			4,137			3,849
Derivatives			127,135			140,188			100,158			100,821			5,073			6,356
Investment funds			24,986			17,005			15,215			14,869			—			—
		$	25,326,700		$	25,220,199		$	7,220,618		$	7,099,010		$	22,499,813		$	22,443,732

F-25

FORTRESS OPERATING GROUP
(Limited Liability Companies)

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2005
(dollar amounts in tables shown in thousands)

Derivatives

Fortress’s derivatives held through consolidated Fortress Funds are held for trading purposes and are recorded in either Investment Company Holdings, at Fair Value – Derivatives or Derivative Liabilities, at Fair Value. The following table presents Fortress’s investments in derivatives held by consolidated Fortress Funds.


	(Proceeds)/Cost:								Fair Value:								% of Investment Company Holdings
Instrument	12/31/05				12/31/04				12/31/05				12/31/04				12/31/05			12/31/04
Credit Default Swaps		$	1,605			$	1,537			$	440			$	1,305			<.05	%		<.05	%
Forward Currency Forwards			—				—				8,849				—			0.1	%		<.05	%
Interest Rate Swaps and Futures			—				—				2,005				1,827			<.05	%		<.05	%
Total Return Swaps			—				—				—				14,710			<.05	%		0.3	%
Total Derivative Assets			1,605				1,537				11,294				17,842			0.1	%		0.3	%
Credit Default and Equity Swaps			—				(20	)			(59	)			(678	)		<.05	%		<.05	%
Forward Currency Forwards			—				—				(331	)			(13,226	)		<.05	%		(0.2	)%
Interest Rate Swaps and Futures			(10	)			—				(543	)			(2,539	)		<.05	%		<.05	%
Total Return Swaps			—				—				—				(13,655	)		<.05	%		(0.3	)%
Total Derivative Liabilities			(10	)			(20	)			(933	)			(30,098	)		<.05	%		(0.6	)%
Total – Derivatives		$	1,595			$	1,517			$	10,361			$	(12,256	)		0.1	%		(0.2	)%

B) OTHER INVESTMENTS

Other investments consist of loans, securities and investments in equity method investees and options in these investees.

Loans and Securities

Loans and securities represent investments held by Northcastle, a consolidated Fortress Fund formed in April 2005 (which is not an investment company), and are summarized as follows as of December 31, 2005:

The following is a summary of Fortress’s loans receivable held through Northcastle as of December 31, 2005, which are carried at amortized cost subject to impairment. None of these loans were delinquent or in default as of that date and no related allowance for losses was required.

F-26

FORTRESS OPERATING GROUP
(Limited Liability Companies)

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2005
(dollar amounts in tables shown in thousands)


Loan Type	Loan Count		Weighted Average Yield			Weighted Average Remaining Maturity (Years)		Current Face Amount			Fair Value			Carrying Value
Corporate Loan		1		11.90	%		4.75		$	16,351		$	15,901		$	15,901
Commercial Real Estate Loans		3		10.68	%		4.49			42,673			42,639			42,639
Total/Average (A)		4		11.02	%		4.68		$	59,024		$	58,540		$	58,540


(A)	The total current face amount of fixed rate loans was $25.4 million, and of floating rate loans was $33.6 million.

The following is a summary of Fortress’s investment securities held through Northcastle, which are comprised of Canadian income trusts, as of December 31, 2005, which are carried at fair value. The unrealized losses on Northcastle’s securities are primarily the result of market factors, rather than credit impairment, and Fortress believes their carrying values are fully recoverable over their expected holding period. No material gains or losses were recorded with respect to sales of these securities during 2005.


Industry	Number of Securities		Weighted Average Yield (A)			Cost			Unrealized							Fair (Carrying) Value
Industry	Number of Securities		Weighted Average Yield (A)			Cost			Gains			Losses				Fair (Carrying) Value
Oil & Gas		17		11.5	%		$	76,335		$	9,067		$	(59	)		$	85,343
Oil & Gas Services		4		7.1	%			11,074			2,055			(52	)			13,077
Natural Resources		2		13.6	%			12,490			—			(849	)			11,641
Power Generation		3		8.5	%			11,001			102			(189	)			10,914
Pipelines, Utilities and Infrastructures		8		7.2	%			30,034			1,046			(713	)			30,367
Consumer		16		8.1	%			43,669			645			(3,694	)			40,620
Industrials		21		8.4	%			78,301			2,789			(6,591	)			74,499
Real Estate Investment Trusts		15		7.3	%			62,419			2,624			(66	)			64,977
Total/Average		86		8.9	%		$	325,323		$	18,328		$	(12,213	)		$	331,438


(A)	The weighted average yield is based on each security's annualized December 2005 recurring distribution divided by average cost per security.

F-27

FORTRESS OPERATING GROUP
(Limited Liability Companies)

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2005
(dollar amounts in tables shown in thousands)

Investments in Equity Method Investees

Fortress holds investments in certain unconsolidated Fortress Funds which are accounted for under the equity method. Fortress’s maximum exposure to loss with respect to these entities is equal to its investment. Fortress’s ownership in these funds is held in two ways: (i) directly at Fortress Operating Group, and (ii) indirectly through consolidated Fortress Funds. In addition, unconsolidated affiliates also hold ownership in certain of these entities. Summary financial information related to these investments is as follows:


	Total Equity Held by Fortress						Total of Fortress's Equity in Net Income
	December 31,						Year Ended December 31,
	2005			2004			2005			2004			2003
NIH		$	9,736		$	3,699		$	6,091		$	8,448		$	1,421
Newcastle Investment Corp.			12,979			12,058			2,419			5,046			3,303
Eurocastle			12,081			14,650			1,710			900			(10	)
Other			2,805			1,818			245			222			48
		$	37,601		$	32,225		$	10,465		$	14,616		$	4,762


	Newcastle Investment Holdings LLC (‘‘NIH’’)
	December 31, (or the year then ended)
	2005				2004				2003
Assets		$	525,814			$	496,795
Liabilities			(352,509	)			(377,350	)
Minority interest			—				(77	)
Equity		$	173,305			$	119,368
Equity held by Fortress		$	9,736			$	3,699
Revenues		$	98,763			$	62,177			$	13,995
Expenses			(57,398	)			(27,570	)			(17,137	)
Discontinued operations			99,724				596				11,747
Net Income		$	141,089			$	35,203			$	8,605
Fortress's equity in net income		$	6,091			$	8,448			$	1,421
Fully diluted ownership (A)
Parent Company			4.8	%			4.8	%			21.4	%
Fortress consolidated			4.8	%			4.8	%			21.4	%
Fortress and affiliates			30.8	%			26.8	%			26.2	%

F-28

FORTRESS OPERATING GROUP
(Limited Liability Companies)

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2005
(dollar amounts in tables shown in thousands)


	Newcastle Investment Corp.												Eurocastle Investment Ltd.
	December 31, (or the year then ended)
	2005				2004				2003				2005				2004				2003
Assets		$	6,209,699			$	4,932,720							$	2,684,489			$	2,205,212
Liabilities			(5,291,696	)			(4,136,005	)							(2,340,310	)			(1,926,290	)
Minority interest			—				—								(3	)			(3	)
Equity		$	918,003			$	796,715							$	344,176			$	278,919
Equity held by Fortress		$	12,979			$	12,058							$	12,081			$	14,650
Revenues		$	383,822			$	259,626			$	152,946			$	138,635			$	36,243			$	788
Expenses			(268,975	)			(165,657	)			(97,705	)			(99,262	)			(22,068	)			(905	)
Discontinued operations			2,108				4,446				877				—				—				—
Preferred dividends			(6,684	)			(6,094	)			(4,773	)			—								—
Net Income		$	110,271			$	92,321			$	51,345			$	39,373			$	14,175			$	(117	)
Fortress's equity in net income		$	2,419			$	5,046			$	3,303			$	1,710			$	900			$	(10	)
Fully diluted ownership (A)
Parent Company			4.8	%			5.3	%			11.4	%			12.9	%			14.0	%			12.9	%
Fortress consolidated			4.8	%			5.3	%			11.4	%			18.9	%			18.4	%			19.8	%
Fortress and affiliates			12.1	%			12.3	%			12.9	%			22.5	%			22.0	%			22.6	%


(A)	Fully diluted ownership represents the percentage of outstanding common shares owned assuming that all options are exercised.

F-29

FORTRESS OPERATING GROUP
(Limited Liability Companies)

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2005
(dollar amounts in tables shown in thousands)

Options in Affiliates

Fortress holds options to purchase additional shares of its equity method investees with carrying values as follows:


	December 31,
	2005			2004			Accounting Treatment
Newcastle options		$	2,629		$	2,172	Held at cost subject to impairment
Eurocastle options			21,281			14,047	Qualify as a derivative
		$	23,910		$	16,219

Newcastle Investment Corp. (‘‘Newcastle’’)

The following table summarizes Newcastle’s common stock offerings and options granted to Fortress, which were fully vested upon issuance. Newcastle is listed on the New York Stock Exchange under the symbol NCT.


Year	Shares Issued (millions)		Weighted Average Option Strike Price			Number of Options Granted to Fortress		Fair Value of Options at Grant Date
2002		7.0		$	13.00		700,000		$	430
2003		7.9			21.39		788,227			1,269
2004		8.4			27.04		837,500			1,687
2005		3.3			29.60		330,000			1,148
							2,655,727		$	4,534

During 2003 and 2004, Fortress assigned a total of 791,668 of these options, with a weighted average strike price of $20.12 per share, to certain of its employees. This assignment was recorded as compensation expense at the fair value of the options at the date assigned. During 2005, Fortress exercised 670,620 of its options in Newcastle for $10.5 million. Subsequent to that transaction, Fortress held 1,193,439 of these options with a weighted average strike price of $26.80 (range of $20.35-$31.40).

Eurocastle Investment Ltd. (‘‘Eurocastle’’)

The following table summarizes Eurocastle’s common stock offerings and options granted to Fortress, which were fully vested upon issuance. Eurocastle is listed on Euronext (Amsterdam) under the symbol ECT.


Year	Shares Issued (millions)		Weighted Average Option Strike Price			Number of Options Granted to Fortress		Fair Value of Options at Grant Date
2003		11.9		€	10.00		1,185,767		$	154
2004		6.6			12.00		660,000			599
2005		5.7			17.25		574,000			1,166
							2,419,767		$	1,919

F-30

FORTRESS OPERATING GROUP
(Limited Liability Companies)

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2005
(dollar amounts in tables shown in thousands)

Investments in Variable Interest Entities

Fortress consolidates certain VIEs (defined in Note 2), when it is determined to be their primary beneficiary, either directly or indirectly through other consolidated subsidiaries. In each case, these funds would also be consolidated by Fortress under a voting control model, with the exception of Northcastle. The assets of the consolidated VIEs are primarily classified within Investment Company Holdings, at Fair Value, with the exception of Northcastle’s assets which are primarily classified within Other Investments − Loans and Securities. The liabilities of the consolidated VIEs, primarily the CDO Bonds Payable and Northcastle Debt described in Note 6, are not recourse to Fortress’s general credit.

Fortress is also a variable interest holder in other VIEs which are not consolidated, as it is not their primary beneficiary. In each case, these funds would also not be consolidated by Fortress under a voting control model.

All of the VIEs are Fortress Funds which are privately held investment vehicles whose purpose and activities are further described in Note 1, based on the business segment in which they operate. Fortress sponsored the formation of and manages each of these VIEs and, in most cases, has a principal investment therein as described in Note 1.

The following table sets forth certain information regarding VIEs in which Fortress holds a variable interest as of December 31, 2005:


	Fortress is Primary Beneficiary										Fortress is not Primary Beneficiary
Business Segment	Gross Assets			Fortress Investment				Debt (A)			Gross Assets			Fortress Investment (B)
Private Equity Funds		$	650,762		$	6,604			$	58,731		$	525,814		$	9,736
Liquid Hedge Funds (C)			—			—				—			3,240,993			236,168
Hybrid Hedge Funds			2,293,772			N/A	(D)			1,193,200			331,760			N/A	(D)
Castles			427,787			5,369				—			8,904,138			25,060


(A)	These are debt obligations of consolidated Fortress Funds which own the related collateral. This collateral is not directly available to other creditors of Fortress. The hybrid hedge fund debt represents the CDO bonds payable disclosed in Note 6.


(B)	Also represents Fortress's maximum exposure to loss with respect to these entities.


(C)	Fortress has no investment in the liquid hedge fund VIEs. However, it has indexed receivables from these entities which are considered variable interests. The settlement value of these receivables, which is also Fortress's maximum exposure to loss with respect to these entities, is shown in the ‘‘Fortress Investment’’ column.


(D)	The hybrid hedge fund VIEs represent CDO vehicles. Fortress's direct investment in these entities represents less than 0.5% of their equity. In addition, Fortress has an indirect investment in these entities. Fortress holds less than 1.5% of the equity of the consolidated hybrid hedge funds and has no investment in the unconsolidated hybrid hedge funds.

F-31

FORTRESS OPERATING GROUP
(Limited Liability Companies)

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2005
(dollar amounts in tables shown in thousands)


5.	FAIR VALUE OF FINANCIAL INSTRUMENTS

In the normal course of business, Fortress encounters primarily two significant types of economic risk: credit and market. Credit risk is the risk of default on Fortress’s investments in debt securities, loans, leases and derivatives that results from a borrower's, lessee’s or derivative counterparty's inability or unwillingness to make required or expected payments. Market risk reflects changes in the value of investments in loans, securities, leases or derivatives, as applicable, due to changes in interest rates, credit spreads or other market factors, including the value of the collateral underlying loans and the valuation of equity and debt securities. Credit risk is enhanced in situations where Fortress is investing in distressed assets, as well as unsecured or subordinate loans or securities, which is a material part of its business. Management believes that the carrying values of its investments are reasonable taking into consideration these risks along with estimated collateral values, payment histories, and other borrower information.

Fortress makes investments outside of the United States. Fortress’s non-U.S. investments are subject to the same risks associated with its U.S. investments as well as additional risks, such as fluctuations in foreign currency exchange rates, unexpected changes in regulatory requirements, heightened risk of political and economic instability, difficulties in managing non-U.S. investments, potentially adverse tax consequences and the burden of complying with a wide variety of foreign laws.

Fortress is exposed to economic risk concentrations insofar as it is dependant on the ability of the Fortress Funds to compensate it for the services which Fortress provides to these funds. Further, the incentive income component of this compensation is based on the ability of the Fortress Funds to generate adequate returns on their investments. In addition, substantially all of Fortress’s net assets, after deducting the portion attributable to non-controlling interests, are comprised of principal investments in, or receivables from, these funds.

Furthermore, Fortress is exposed to economic risk concentrations related to certain large investments as well as concentrations of investments in certain industries and geographic locations, as disclosed in Note 4.

The fair values reflected below are indicative of the interest rate environments as of December 31, 2005 and 2004 and do not take into consideration the effects of subsequent interest rate fluctuations.

Due to the inherent uncertainty of valuations of investments which are illiquid and/or without a public market, which constitute a substantial portion of Fortress’s investments, the estimates of fair value may differ from the values that are ultimately realized by Fortress, and those differences could be material.

F-32

FORTRESS OPERATING GROUP
(Limited Liability Companies)

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2005
(dollar amounts in tables shown in thousands)

The carrying amounts and estimated fair values of Fortress’s financial instruments as of December 31, 2005 and 2004 are as follows:


	Carrying Amount						Principal Balance / Notional Amount			Estimated Fair Value
	2005			2004			December 31, 2005			2005			2004
Assets
Investments company holdings, at fair value
Loans and securities		$	3,597,958		$	2,116,623			N/A		$	3,597,958		$	2,116,623
Investments in affiliates			6,972,857			3,230,844			N/A			6,972,857			3,230,844
Derivatives (A)			11,294			17,842		$	716,515			11,294			17,842
Other investments
Loans and securities			389,978			—			N/A			389,978			—
Options in affiliates			23,910			16,219			N/A			23,330			30,391
Liabilities
Securities sold not yet purchased, at fair value			45,219			75,548			N/A			45,219			75,548
Derivative liabilities, at fair value (A)			933			30,098			35,873			933			30,098
Investment company debt obligations payable − CDOs			1,193,200			588,000			1,193,200			N/A			N/A
Investment company debt obligations payable − other			626,949			253,383			626,899			626,949			253,383
Other debt obligations payable			430,284			87,121			430,284			430,284			87,121


(A)	The longest maturity of any of the derivatives is March 2035.

The methodologies used and key assumptions made to estimate fair value are as follows:

Investment Company Holdings (including Securities Sold, Not Yet Purchased) − As described in Note 2.

Other Investments − Loans and securities − The fair value of securities is determined based on the closing price on the recognized stock exchange on which the securities are listed or principally traded. The fair value of loans receivable is estimated by discounting expected future cash flows by a rate calculated based on current market conditions for comparable financial instruments, including market interest rates and credit spreads.

Other Investments − Options in Affiliates − The fair value of these securities was estimated by reference to a binomial option pricing model for options in North American companies and a Monte Carlo model for options in European companies.

Derivatives and Derivative Liabilities − The fair value of derivatives is estimated by obtaining counterparty broker quotations.

Debt Obligations Payable − Other than the CDO debt, management believes that for similar financial instruments with comparable credit risks, the stated interest rates as of December 31, 2005 (floating rates at spreads over a market index) approximate market rates. Accordingly, the carrying amount outstanding is believed to approximate fair value. The fair value of the CDO debt is not practicably estimable as there is no liquid secondary trading market.

F-33

FORTRESS OPERATING GROUP
(Limited Liability Companies)

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2005
(dollar amounts in tables shown in thousands)


6.	DEBT OBLIGATIONS

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


																	December 31, 2005
Debt Obligation/Collateral	Face Amount						Carrying Value
	December 31,						December 31,						Final Stated Maturity	Percent Floating Rate (A)			Weighted Average Funding Cost (B)			Weighted Average Maturity (Years)		Collateral Carrying Value (C)
	2005			2004			2005			2004			Final Stated Maturity	Percent Floating Rate (A)			Weighted Average Funding Cost (B)			Weighted Average Maturity (Years)		Collateral Carrying Value (C)
Investment Company Debt
Repurchase Agreements (D)		$	14,391		$	87,804		$	14,391		$	87,804	Oct 2013		100	%		3.33	%		6.56		$	22,340
CDO Bonds Payable			1,193,200			588,000			1,193,200			588,000	Jul 2012 - Sep 2017		100	%		4.99	%		7.39			2,172,806
Credit Agreements / Lines (E)			565,808			165,579			565,942			165,579	May 2006 - Oct 2008		100	%		6.07	%		2.14			Note (C	)
Term loans			46,700			—			46,616			—	Jul 2018		100	%		4.34	%		12.74			69,338
Subtotal - Investment Company Debt			1,820,099			841,383			1,820,149			841,383						5.30	%		5.89

Other Debt
Northcastle Debt			197,935			—			197,935			—	Aug 2010		18	%		4.61	%		4.51			324,882
Credit Agreement			230,000			84,576			230,000			84,576	Mar 2008		100	%		8.52	%		2.25			Note (C	)
Aircraft Loan			2,349			2,545			2,349			2,545	Jul 2007		100	%		7.11	%		1.58			2,685
Subtotal - Other Debt			430,284			87,121			430,284			87,121						6.71	%		3.29

Total		$	2,250,383		$	928,504		$	2,250,433		$	928,504						5.57	%		5.39


(A)	Generally at a spread over LIBOR.


(B)	Including the effect of the applicable hedge in the case of the aircraft loan.

(C)

The CDO Bonds Payable are generally collateralized by the cash, loans and securities held by the CDO Funds. The investment company credit agreements / lines are generally collateralized by the unfunded capital commitments of the respective fund Investors. One of these lines of credit, with $175 million outstanding as of December 31, 2005, as well as the investment company term loans, are collateralized by certain investments of the consolidated Fortress Funds that are investment companies to which they relate.


(D)	Subject to potential mandatory prepayments based on collateral value; payable on demand.


(E)	Approximately $1.0 billion remained undrawn on these credit agreements / lines as of December 31, 2005.

F-34

FORTRESS OPERATING GROUP
(Limited Liability Companies)

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2005
(dollar amounts in tables shown in thousands)

Fortress’s debt obligations have contractual maturities as follows as of December 31, 2005:


2006	$	45,806
2007		2,349
2008		758,608
2009		—
2010		189,329
Thereafter		1,254,291
	$	2,250,383

The investment company and Northcastle debt obligations included above are obligations of consolidated subsidiaries of Fortress which own the related collateral. Generally, this collateral is not directly available to other creditors of Fortress.

Fortress Operating Group Debt

In 2003, Fortress refinanced its $45 million credit agreement, which bore interest at LIBOR +3.50%, with a $98.5 million senior secured credit facility which bore interest at LIBOR + 3.00% and was subject to an unused commitment fee of 0.375% per annum.

In March 2005, Fortress entered into a new $175.0 million credit agreement (the ‘‘Credit Agreement’’). The Credit Agreement bore interest at LIBOR + 2.75% (7.70% as of December 31, 2005) and was subject to unused commitment fees of 0.375% per annum and letter of credit fees of 2.75% per annum. The Credit Agreement was collateralized by substantially all of Fortress’s assets as well as Fortress’s rights to fees from the Fortress Funds and its equity interests therein. In connection with the new credit agreement, fees of approximately $2.6 million were incurred. In December 2005, the Credit Agreement was amended to increase the available line by $70.1 million. In connection with this amendment, fees of approximately $1.8 million were incurred. Approximately $15.1 million was undrawn on the Credit Agreement as of December 31, 2005, of which $5.0 million supported issued and outstanding letters of credit.

In 2002, Fortress borrowed $2.9 million collateralized by its interest in an aircraft (the ‘‘Aircraft Loan’’), of which $2.3 million was outstanding as of December 31, 2005. This loan bears interest at LIBOR +2.25% (6.64% as of December 31, 2005). Fortress has hedged its exposure to the risk of changes in market interest rates with respect to this loan by entering into an interest rate swap, which fixes the effective interest rate on this loan at approximately 6.80% through maturity.


7.	INCOME TAXES

Fortress has provided for New York City unincorporated business tax (‘‘UBT’’) for one subsidiary based on a statutory rate of 4%. One subsidiary is subject to U.S. federal corporate income taxes. Certain subsidiaries of Fortress are subject to income tax of the foreign countries in which they conduct business. Fortress’s effective income tax rate was approximately 4.76%, 2.88%, and 3.58% for 2005, 2004 and 2003 respectively.

F-35

FORTRESS OPERATING GROUP
(Limited Liability Companies)

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2005
(dollar amounts in tables shown in thousands)

The provision for income taxes consists of the following:


	Year Ended December31,
	2005				2004			2003
Current
Federal income tax		$	481			$	—		$	—
Foreign income tax			861				—			—
State and local income tax			3,184				496			323
			4,526				496			323

Deferred
Foreign income tax benefit			(736	)			—			—
State and local income tax benefit			(2,032	)			—			—
State and local income tax expense			7,867				2,892			1,172
			5,099				2,892			1,172
Total		$	9,625			$	3,388		$	1,495

Income taxes are provided at the applicable statutory rates. The tax effects of the changes in the temporary differences in the areas listed below resulted in deferred income tax provisions:


	December 31,
	2005			2004
Operating loss carry-forward		$	3,096		$	328
Total deferred tax asset		$	3,096		$	328
Deferred management and incentive fee		$	11,143		$	3,690
Options received			867			531
Depreciation			78			—
Total deferred tax liability, pre-non-controlling interests			12,088			4,221
Deferred management and incentive fee, non-controlling interests			1,292			410
Total deferred tax liability		$	13,380		$	4,631

Fortress has recognized a deferred tax asset associated with tax operating loss carry-forwards creditable against future tax liabilities. The tax operating loss carry forwards will expire in 2015, if not utilized in prior years.

Fortress has recognized a deferred tax liability associated with:


(i)	the election to defer its receipt of hedge fund management fees and incentive income. A portion of this deferred tax liability is attributable to non-controlling interests in consolidated subsidiaries. A corresponding entry is made to reduce Fortress’s deferred tax expense and non-controlling interests liability.


(ii)	management fees recorded based on the value of options granted to Fortress, and


(iii)	the unrealized gain (loss) recorded in connection with options granted to Fortress, which are treated as derivatives and carried at fair value.

F-36

FORTRESS OPERATING GROUP
(Limited Liability Companies)

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2005
(dollar amounts in tables shown in thousands)

Tax Rate Reconciliation


	2005			2004			2003
Statutory U.S. federal income tax rate		35.00	%		35.00	%		35.00	%
Income passed through to stockholders		–34.76	%		–35.00	%		–35.00	%
State income taxes		4.46	%		2.88	%		3.58	%
Foreign taxes		0.06	%		0.00	%		0.00	%
Effective income tax rate		4.76	%		2.88	%		3.58	%


8.	RELATED PARTY TRANSACTIONS

Affiliate Receivables and Payables

As of December 31, 2005 and 2004, Due from Affiliates and Due to Affiliates were comprised of the following:


	Management Fees and Incentive Income						Dividends and Distributions						Total
	December 31,
Due from Affiliates	2005			2004			2005			2004			2005			2004
Private equity funds		$	28,720		$	19,731		$	115		$	—		$	28,835		$	19,731
Castles			14,632			9,469			641			448			15,273			9,917
Liquid and hybrid hedge funds			301,753			97,094			—			—			301,753			97,094
Unconsolidated subsidiaries of liquid hedge fund subsidiaries			—			—			15,916			—			15,916			—
Total		$	345,105		$	126,294		$	16,672		$	448			361,777			126,742
										Other					4,066			1,938
														$	365,843		$	128,680


	Payments on Behalf of Consolidated Fortress Funds						Incentive Income and Related Rebate						Total
	December 31,
Due to Affiliates	2005			2004			2005			2004			2005			2004
Private equity funds			—		$	—		$	3,832		$	—		$	3,832		$	—
Portfolio companies			—			18,377			—			—			—			18,377
Employees			—			—			54,149			—			54,149			—
Total		$	—		$	18,377		$	57,981		$	—			57,981			18,377
												Other			96			1,508
														$	58,077		$	19,885

As described in Note 3, Fortress has elected to defer the receipt of certain management fee and incentive income revenues from its unconsolidated hedge funds. The return on these deferred fee receivables is indexed by the funds in accordance with the deferred fee arrangements to returns on certain investments, including investments in affiliates. The indexed receivables increased by

F-37

FORTRESS OPERATING GROUP
(Limited Liability Companies)

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2005
(dollar amounts in tables shown in thousands)

$27.0 million, $5.5 million and $1.5 million during 2005, 2004 and 2003, respectively, which is recorded as Other Investments — Net Unrealized Gains from Affiliate Investments.

Other Related Party Transactions

From time to time, Fortress may advance amounts on behalf of affiliates for short periods. In such cases it generally charges interest to these affiliates. One of Fortress’s consolidated subsidiaries (not a Fortress Fund) acts as the loan origination platform for the hybrid hedge funds. In this respect, it holds commercial lending licenses in various states and receives fees for its loan origination duties. Fortress earned $0.2 million, $0.9 million and $0.5 million of other revenues from affiliates during 2005, 2004 and 2003, respectively.

The table below presents investments held by Fortress’s equity method investees and Portfolio Companies, which are not consolidated, in other Fortress equity method investees and Portfolio Companies as of December 31, 2005.


	Investment Type
Investor Type	Equity			Debt
Equity method investees		$	—		$	253,677
Portfolio Companies		$	205,040		$	176,600

One of the consolidated Fortress Funds has investments in two real estate related joint ventures with one of the Castles which aggregated approximately $30 million as of December 31, 2005.

Certain Portfolio Companies are co-owned by, have merged with, and/or have engaged in transactions with, other Portfolio Companies. Generally, co-ownership arrangements are entered into due to transaction size limitations in individual funds and transactions between Portfolio Companies take advantage of synergies between these entities. In some instances, Portfolio Companies have entered into contracts with other Portfolio Companies or with certain of Fortress’s equity method investees to provide services to, or receive services from, these entities, including asset management, consulting and loan servicing. These contracts were entered into because the entity providing the service possessed relevant expertise.

Fortress has entered into cost sharing arrangements with the operating subsidiaries of the private equity funds, including subleases of certain of its office space. Expenses borne by the operating subsidiaries of the private equity funds under these agreements are paid directly by those entities (i.e. they are not paid by Fortress and reimbursed). Furthermore, the operating subsidiaries of the private equity funds have a separate cost sharing arrangement with each other.

The Principals have guaranteed payment on a several basis to the Fortress private equity funds of any contingent repayment (clawback) obligation with respect to the private equity fund incentive income in the event that Fortress fails to fulfill its clawback obligation, if any, but only if Fortress has a net worth, as defined, of less than $10 million.


9.	COMMITMENTS AND CONTINGENCIES

Indemnifications – In the normal course of business, Fortress and its subsidiaries enter into operating contracts that contain a variety of representations and warranties and that provide general indemnifications. Fortress’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against Fortress that have not yet occurred. However, based on experience, Fortress expects the risk of material loss to be remote.

F-38

FORTRESS OPERATING GROUP
(Limited Liability Companies)

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2005
(dollar amounts in tables shown in thousands)

Debt Covenants – Fortress’s debt obligations contain various customary loan covenants. These covenants do not, in management’s opinion, materially restrict Fortress’s investment or financing strategy at this time. Fortress is in compliance with all of its loan covenants as of December 31, 2005.

Loan and equity commitments – Fortress, through the Fortress Funds, had unfunded commitments under loan agreements and joint venture agreements of approximately $643 million and $12 million, respectively, as of December 31, 2005. In addition, the Fortress Funds had signed binding letters of intent with respect to new investments representing commitments of approximately $37 million as of December 31, 2005.

Securities Sold, Not Yet Purchased – Securities sold, not yet purchased represent obligations of Fortress (through the Fortress Funds) to purchase the securities at prevailing market prices. As such, the future satisfaction of these obligations may be at amounts that are greater or less than that recorded in the accompanying balance sheet. The ultimate gains or losses depend upon the prices at which the underlying financial instruments are purchased to settle Fortress’s obligations under the sale commitments.

Litigation – Fortress is, from time to time, a defendant in legal actions from transactions conducted in the ordinary course of business. Management, after consultation with legal counsel, believes the ultimate liability arising from such actions that existed as of December 31, 2005, if any, will not materially affect Fortress’s results of operations or financial position.

On September 15, 2005, a lawsuit captioned David T. Atkins et al. v. Apollo Real Estate Advisors, L.P. et al. was brought on behalf of current and former limited partners in certain investing partnerships related to the sale of certain facilities to Ventas Realty Limited Partners (‘‘Ventas’’) against a number of defendants, including one of the Portfolio Companies and a subsidiary of Fortress (‘‘FIG’’). FIG was the investment manager of consolidated Fortress Funds that were controlling shareholders of the Portfolio Company during the relevant time periods. The suit alleges that the defendants improperly obtained certain rights with respect to such facilities from the investing partnerships. The plaintiffs have asked for damages in excess of $100 million on each of nine counts, as to which FIG is a defendant on seven counts, including treble damages with respect to certain counts. Fortress is seeking to have itself removed as a named defendant in this case. The Portfolio Company intends to file a motion to dismiss the claims and continues to vigorously defend this action. Fortress believes that the resolution of this action will not have a material adverse effect on its financial condition or results of operations.

In addition, in the ordinary course of business, the Fortress Funds are and can be both the defendant and the plaintiff in numerous actions with respect to bankruptcy, insolvency and other types of proceedings. Such lawsuits may involve claims that adversely affect the value of certain financial instruments owned by the Fortress Funds. Although the ultimate outcome of actions cannot be ascertained with certainty, Fortress believes that the resolution of any such actions will not have a material adverse effect on its financial condition or results of operations.

Minimum Future Rentals – Fortress is a lessee under operating leases for office space located in New York, Dallas, San Diego, Los Angeles, Toronto, Geneva, Sydney, Hong Kong, Tokyo, Frankfurt and London.

F-39

FORTRESS OPERATING GROUP
(Limited Liability Companies)

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2005
(dollar amounts in tables shown in thousands)

The following is a summary of major lease terms:


	New York Leases	Other Leases
Lease end date	Dec-16	Dec-14
Current annual rent	$4,888	$1,113
	Year 5 to $5,281;
Scheduled rent increases	Year 9 to $5,545	1.4% per annum

	Generally, a fixed percentage of	Generally, a fixed percentage of
	the landlord's annual operating	the landlord's annual operating
Escalations	expenses and tax expense.	expenses and tax expense.
Free rent periods	6 – 9 months	4 – 12 months
Leasehold improvement incentives	$2,304	$476
		5-year option on one lease,
Renewal periods	None	rest have none

Minimum future rental expense under these leases is as follows:


Year Ending December 31,
2006	$	7,196
2007		6,889
2008		6,538
2009		6,751
2010		6,518
Thereafter		27,138
Total	$	61,030

Rent expense recognized on a straight-line basis during the years ended December 31, 2005, 2004 and 2003 was $9.4 million, $4.0 million, and $2.8 million, respectively, and was included in General, Administrative and Other Expense.

F-40

FORTRESS OPERATING GROUP
(Limited Liability Companies)

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2005
(dollar amounts in tables shown in thousands)


10.	SEGMENT REPORTING

Management assesses the net performance of each segment based on its ‘‘distributable earnings.’’ Distributable earnings is not a measure of cash generated by operations which is available for distribution. Rather, distributable earnings is a supplemental measure of the value created (income earned) during any period which management uses in its determination of its periodic distributions to its equity holders. Distributable earnings should not be considered as an alternative to cash flow, in accordance with GAAP, as a measure of Fortress’s liquidity, and is not necessarily indicative of cash available to fund cash needs (including distributions).

‘‘Distributable earnings’’ for the existing Fortress businesses is equal to net income adjusted as follows:


•	Incentive Income


	(i)	a. for Fortress Funds which are private equity funds, adding (a) incentive income paid (or declared as a distribution) to Fortress (including incentive income paid to Fortress during the first 15 business days of the following year), less an applicable reserve for potential future clawbacks if the likelihood of a clawback is deemed greater than remote (net of the reversal of any prior such reserves that are no longer deemed necessary), minus (b) incentive income recorded in accordance with GAAP, based on the accounting method described in Note 2,


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


•	Other Income


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


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


	b.	subtracting gains (or adding losses) on stock options held in certain of the Castles which are treated as derivatives,

F-41

FORTRESS OPERATING GROUP
(Limited Liability Companies)

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2005
(dollar amounts in tables shown in thousands)


	c.	subtracting unrealized gains (or adding unrealized losses) from consolidated private equity funds,


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


•	Expenses


	(iv)	adding back compensation expense recorded in connection with the assignment of a portion of these Castle options to employees, and


	(v)	adding or subtracting, as necessary, the employee profit sharing in (i) above for timing differences related to the 15 business day adjustment thereto.

The largest adjustment between GAAP net income and distributable earnings relates to incentive income. Management believes only the incentive income related to realized income should be considered available for distribution, subject to a possible reserve, determined on a fund by fund basis, as necessary, for potential future clawbacks deemed to have more than a remote likelihood of occurring. As such, distributable earnings generally includes incentive income to the extent it relates to paid or declared distributions from Fortress Funds’ investments that have been monetized through sale or financing.

The computation of the clawback reserve, if any, takes into account, among other factors, the amount of unrealized incentive income within a given fund since, on an overall fund basis, this unrealized incentive income would have to suffer a complete loss before the realized portion becomes subject to contingent repayment. This type of incentive income is not recorded as revenue for GAAP purposes, under the revenue recognition method Fortress has selected, until the possibility of a clawback is resolved. This GAAP method is not completely reflective of value created (income earned) during the period which is available for distribution as it disregards the likelihood that any contingent repayment will in fact occur.

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


(i)	the difference between the GAAP carrying amount of equity method investments and their carrying amount for segment reporting purposes, which is generally fair value for publicly traded investments and cost for nonpublic investments,


(ii)	employee portions of investments, which are reported gross for GAAP purposes (as assets offset by non-controlling interests in consolidated subsidiaries) but net for segment reporting purposes, and


(iii)	the difference between the GAAP carrying amount for options owned in certain of the Castles (Note 2) and their carrying amount for segment reporting purposes, which is intrinsic value.

Summary financial data on Fortress’s segments is presented on the next three pages, together with a reconciliation to revenues, assets and net income for Fortress as a whole. Fortress’s investments in its equity method investees are all included in its Castles segment. Fortress’s interest income is all included in the Consolidation of Fortress Funds and its interest expense is included in the Consolidation of Fortress Funds (Interest Expense — Investment Company Holdings) and the amounts not allocated to a segment (Interest Expense — Other). Income tax expense is all included in the amounts not allocated to a segment.

F-42

FORTRESS OPERATING GROUP
(Limited Liability Companies)

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2005
(dollar amounts in tables shown in thousands)


	Private Equity Funds			Liquid Hedge Funds			Hybrid Hedge Funds			Castles				Unallocated				Fortress Unconsolidated Subtotal
December 31, 2005 and the Year then Ended
Segment revenues
Management fees		$	46,695		$	55,978		$	50,507		$	19,463			$	—			$	172,643
Incentive income			103,251			114,353			73,230			12,412				—				303,246
Segment revenues - total		$	149,946		$	170,331		$	123,737		$	31,875			$	—			$	475,889
Distributable earnings		$	102,014		$	89,413		$	57,417		$	4,440				($22,756	)		$	230,528
Total segment assets		$	101,626		$	264,081		$	161,210		$	90,215			$	64,815			$	681,947
				Fortress Unconsolidated Subtotal			Consolidation of Fortress Funds			Eliminations				Reconciliation to GAAP				Fortress Consolidated
Revenues					$	475,889		$	786,618		$	(159,554	)		$	(58,859	)		$	1,044,094
Distributable earnings / net income					$	230,528		$	3,304,206		$	(3,304,206	)		$	(37,852	)		$	192,676
Total assets					$	681,947		$	12,453,692		$	(1,329,372	)		$	57,671			$	11,863,938

Reconciling items between segment measures and GAAP measures:


Adjustments from segment revenues to GAAP revenues
Adjust incentive income	$	(62,496	)
Adjust income from the receipt of options		2,310
Other revenues*		1,327
Total adjustments	$	(58,859	)
* Segment revenues do not include GAAP other revenues; GAAP other revenues is included elsewhere in the calculation of distributable earnings.


Adjustments from distributable earnings to GAAP net income
Adjust incentive income	$	(62,496	)
Adjust unrealized gains and earnings from equity method investees		23,132
Adjust income from the receipt of options		2,310
Adjust compensation expense		—
Adjust employee portion of incentive income		(798	)
Total adjustments	$	(37,852	)

Adjustments from total segment assets to GAAP assets
Adjust equity investments from fair value	$	2,608
Adjust equity investments from cost		18,532
Adjust investments gross of employee portion		37,469
Adjust option investments to intrinsic value		(938	)
Total adjustments	$	57,671

F-43

FORTRESS OPERATING GROUP
(Limited Liability Companies)

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2005
(dollar amounts in tables shown in thousands)


	Private Equity Funds			Liquid Hedge Funds			Hybrid Hedge Funds			Castles				Unallocated				Fortress Unconsolidated Subtotal
December 31, 2004 and the Year then Ended
Segment revenues
Management fees		$	28,042		$	33,511		$	27,534		$	13,278			$	—			$	102,365
Incentive income			78,305			16,638			53,456			7,959				—				156,358
Segment revenues - total		$	106,347		$	50,149		$	80,990		$	21,237			$	—			$	258,723
Distributable earnings		$	62,922		$	31,140		$	38,576		$	9,312			$	(8,778	)		$	133,172
Total segment assets		$	36,399		$	67,940		$	83,246		$	77,887			$	22,183			$	287,655
				Fortress Unconsolidated Subtotal			Consolidation of Fortress Funds			Eliminations				Reconciliation to GAAP				Fortress Consolidated
Revenues					$	258,723		$	240,122		$	(90,672	)		$	(56,795	)		$	351,378
Distributable earnings / net income					$	133,172		$	1,045,116		$	(1,045,116	)		$	(18,722	)		$	114,450
Total assets					$	287,655		$	5,898,234		$	(420,169	)		$	31,013			$	5,796,733

Reconciling items between segment measures and GAAP measures:


Adjustments from segment revenues to GAAP revenues
Adjust incentive income	$	(60,525	)
Adjust income from the receipt of options		2,285
Other revenues*		1,445
Total adjustments	$	(56,795	)
* Segment revenues do not include GAAP other revenues; GAAP other revenues is included elsewhere in the calculation of distributable earnings.


Adjustment from distributable earnings to GAAP net income
Adjust incentive income	$	(60,525	)
Adjust unrealized gains and earnings from equity method investees		26,746
Adjust income from the receipt of options		2,285
Adjust compensation expense		(5,901	)
Adjust employee portion of incentive income		18,673
Total adjustments	$	(18,722	)
Adjustments from total segment assets to GAAP assets
Adjust equity investments from fair value	$	(28,564	)
Adjust equity investments from cost		5,685
Adjust investments gross of employee portion		47,764
Adjust option investments to intrinsic value		6,128
Total adjustments	$	31,013

F-44

FORTRESS OPERATING GROUP
(Limited Liability Companies)

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2005
(dollar amounts in tables shown in thousands)


	Private Equity Funds			Liquid Hedge Funds			Hybrid Hedge Funds			Castles				Unallocated				Fortress Unconsolidated Subtotal
Year Ended December 31, 2003
Segment revenues
Management fees		$	23,326		$	5,233		$	12,115		$	4,745			$	—			$	45,419
Incentive income			26,471			9,586			23,711			4,253				—				64,021
Segment revenues - total		$	49,797		$	14,819		$	35,826		$	8,998			$	—			$	109,440
Distributable earnings		$	22,837		$	9,871		$	14,557		$	8,158			$	(2,098	)		$	53,325
				Fortress Unconsolidated Subtotal			Consolidation of Fortress Funds			Eliminations				Reconciliation to GAAP				Fortress Consolidated
Revenues					$	109,440		$	174,942		$	(45,260	)		$	(18,806	)		$	220,316
Distributable earnings / net income					$	53,325		$	271,522		$	(271,522	)		$	(13,054	)		$	40,271

Reconciling items between segment measures and GAAP measures:


Adjustments from segment revenues to GAAP revenues
Adjust incentive income	$	(20,838	)
Adjust income from the receipt of options		1,424
Other revenues*		608
Total adjustments	$	(18,806	)
* Segment revenues do not include GAAP other revenues; GAAP other revenues is included elsewhere in the calculation of distributable earnings.


Adjustments from distributable earnings to GAAP net income
Adjust incentive income	$	(20,838	)
Adjust unrealized gains and earnings from equity method investees		5,840
Adjust income from the receipt of options		1,424
Adjust compensation expense		—
Adjust employee portion of incentive income		520
Total adjustments	$	(13,054	)

Fortress earned revenues by country as follows:


	Year Ended December 31,
	2005			2004				2003
Germany		$	16,277		$	193			$	127
United Kingdom			57,388			8,105				4,699
Italy			7,740			(3,298	)			3,300
Other non-U.S.			11,983			2,693				461
Total non-U.S.			93,388			7,693				8,587
U.S.			950,706			343,685				211,729
Total revenues		$	1,044,094		$	351,378			$	220,316

For unconsolidated entities, revenues were attributed to each country based on the country in which a majority of each entity’s employees were situated. For consolidated entities, revenues were attributed to each country based on the location of the underlying investments from which the revenue was generated.

F-45

FORTRESS OPERATING GROUP
(Limited Liability Companies)

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2005
(dollar amounts in tables shown in thousands)


11.	SUBSEQUENT EVENTS

Fortress Operating Group Transactions

In March 2006, Fortress formed a new, $3.0 billion private equity Fortress Fund, known as Fund IV. Fortress has committed to contribute 1.5% of Fund IV’s total equity or $45 million. Fortress has entered into management agreements with the Fund IV entities and will manage Fund IV under essentially the same terms as the other private equity Fortress Funds, including management fees and incentive income. Through September 2006, Fortress formed three additional private equity funds for the purpose of co-investing alongside Fund IV in either single or multiple transactions, which are being managed by Fortress under similar terms, including Fund IV Coinvestment Fund. All of these funds are consolidated by Fortress. In total, $2.1 billion was committed by investors to these three additional funds, of which $0.2 billion was committed by Fortress, its employees and certain unconsolidated Fortress Funds.

On May 10, 2006, Fortress formed Fortress RIC Coinvestment Fund (FRIC) to co-invest alongside Fund IV and Fund IV Coinvestment Fund in a Portfolio Company which is a publicly traded senior living company majority owned by two earlier Fortress Funds. The funds' investments – together with proceeds from a follow-on stock offering by this Portfolio Company – were used primarily to finance the Portfolio Company's acquisition of another senior living operator.

In total, the private equity funds invested $650 million of equity into the transaction ($325 million from FRIC, $250 million from Fund IV and $75 million from the Fund IV Coinvestment Fund). The funds invested indirectly, through a special purpose registered investment company, which committed to acquire the Portfolio Company's shares on May 12, 2006. The transaction closed on July 25, 2006.

In June 2006, Fortress entered into a new $750 million credit agreement. The borrowings under this credit agreement bear interest at LIBOR +2.00% and Fortress is subject to unused commitment fees of 0.375% per annum. The purpose of the credit agreement was to refinance Fortress’s existing credit agreement, to make funds available for investments in the various existing and new Fortress Funds, and to make a one-time $250 million distribution of capital from Fortress to the Principals. The maturity of the credit agreement is in June 2011. Members’ equity on a pro forma basis, after this distribution is completed, would be reduced by the amount of the distribution.

Fortress launched a new Fortress Fund called the Fortress Partners Fund L.P. (‘‘FPF’’). This fund was initially seeded, prior to June 30, 2006, with $230 million of capital from Fortress and its principals. FPF will invest in funds managed by third party managers, in existing and future Fortress Funds, and will also make direct investments in a variety of asset types. Fortress will manage FPF in exchange for management fees of between 1.0% — 1.5%, depending on the level of capital commitment of each of its investors, and incentive income of 20% on the change in net asset value of the investment portfolio acquired directly by FPF. This fund is consolidated by Fortress.

On October 6, 2006, Fortress informed all of the Investors of Northcastle, a consolidated Castle, of its decision to return Investor capital. The liquidation of this fund is expected to be completed before December 31, 2006 and will be accomplished by liquidating the fund’s investments and distributing the proceeds to the Investors. Fortress’s determination not to proceed with a public market capitalization of this business in light of market conditions in Canada resulted, following an assessment of various factors, in a determination to dissolve the fund and return Investor capital. Northcastle's significant assets are its $0.4 billion of loans and securities which are financed with $0.2 billion of debt.

F-46

FORTRESS OPERATING GROUP
(Limited Liability Companies)

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2005
(dollar amounts in tables shown in thousands)

Transactions Between Fortress Funds

On January 30, 2006, as part of Eurocastle's capital raise to finance a major acquisition, two of the consolidated Fortress Funds acquired an aggregate of 8,571,429 additional shares of Eurocastle for $180 million, representing 18.8% of Eurocastle's outstanding shares at the time. For services provided in connection with this capital raise, Fortress was granted options to purchase an additional 2,139,442 shares of Eurocastle stock, with a weighted average strike price of €25.19, valued at approximately $18.7 million in the aggregate.

F-47

FORTRESS OPERATING GROUP
(Limited Liability Companies)

COMBINED BALANCE SHEETS
(dollars in thousands)


	June 30, 2006				December 31, 2005
Assets	(Unaudited)
Cash and cash equivalents		$				$
Cash held at consolidated subsidiaries and restricted cash			770,460				252,134
Due from affiliates			522,891				365,843
Receivables from brokers and counterparties			118,324				35,367
Investment company holdings, at fair value
Loans and securities			4,736,265				3,597,958
Investments in affiliates			9,035,883				6,972,857
Derivatives			7,918				11,294
Other investments
Loans and securities			475,809				389,978
Equity method investees			36,668				37,601
Options in affiliates			66,670				23,910
Other assets			163,966				140,767
		$				$	11,863,938
Liabilities and Members' Equity
Liabilities
Due to affiliates		$				$
Due to brokers and counterparties			266,936				124,597
Accrued compensation and benefits			101,816				102,132
Other liabilities			92,465				176,007
Deferred incentive income			810,996				585,864
Securities sold not yet purchased, at fair value			121,588				45,219
Derivative liabilities, at fair value			240,736				933
Investment company debt obligations payable			2,286,072				1,820,149
Other debt obligations payable			928,481				430,284
			4,880,291				3,343,262
Commitments and Contingencies
Non-controlling Interests in Consolidated Subsidiaries			11,230,028				8,397,167
Members' Equity (Deficit)
Members' equity (deficit)			(95,623	)			123,704
Accumulated other comprehensive income (loss)			1,876				(195	)
			(93,747	)			123,509
		$				$	11,863,938

See notes to combined financial statements.

F-48

FORTRESS OPERATING GROUP
(Limited Liability Companies)

COMBINED INCOME STATEMENTS (Unaudited)
(dollars in thousands)


	Six Months Ended June 30,
	2006				2005
Revenues
Management fees from affiliates		$	74,544			$	41,232
Incentive income from affiliates			75,771				27,503
Other revenues			35,499				7,433
Interest and dividend income – investment company holdings
Interest income			556,062				179,085
Interest income from controlled affiliate investments			28,346				27,078
Dividend income			4,312				1,538
Dividend income from controlled affiliate investments			103,015				31,882
			877,549				315,751
Expenses
Interest Expense
Investment company holdings			424,939				73,015
Other			19,195				3,500
Compensation and benefits			183,445				88,376
General, administrative and other			50,285				35,746
Depreciation and amortization			3,186				891
			681,050				201,528
Other Income
Gains (losses) from investments
Investment company holdings
Net realized gains			81,376				53,975
Net realized gains from controlled affiliate investments			543,986				197,929
Net unrealized gains (losses)			(182,416	)			1,282
Net unrealized gains from controlled affiliate investments			974,379				687,276
Other investments
Net realized gains (losses)			(114	)			—
Net realized gains from affiliate investments			—				98
Net unrealized gains (losses)			(2,941	)			3,790
Net unrealized gains from affiliate investments			58,029				14,797
Earnings from equity method investees			2,420				7,020
			1,474,719				966,167
Income Before Deferred Incentive Income, Non-Controlling Interests in Income of Consolidated Subsidiaries and Income Taxes			1,671,218				1,080,390
Deferred incentive income			(225,132	)			(136,333	)
Non-controlling interests in income of consolidated subsidiaries			(1,350,811	)			(895,782	)
Income Before Income Taxes			95,275				48,275
Income tax expense			(7,270	)			(2,983	)
Net Income		$	88,005			$	45,292

See notes to combined financial statements.

F-49

FORTRESS OPERATING GROUP
(Limited Liability Companies)

COMBINED STATEMENTS OF CHANGES IN MEMBERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005 (Unaudited)
(dollars in thousands)


	Members' Equity (Deficit)				Accumulated Other Comprehensive Income (Deficit)				Total Members' Equity (Deficit)
Members' equity – December 31, 2005		$	123,704			$	(195	)		$	123,509
Capital distributions			(307,332	)							(307,332	)
Comprehensive income
Net income			88,005								88,005
Net unrealized gain (loss) on securities available for sale							(32	)			(32	)
Foreign currency translation							692				692
Net unrealized gain on derivatives designated as cash flow hedges							14				14
Comprehensive income from equity method investees							1,397				1,397
Total comprehensive income											90,076
Members' equity (deficit) – June 30, 2006		$	(95,623	)		$	1,876			$	(93,747	)

Members' equity – December 31, 2004		$	80,849			$	4,028			$	84,877
Capital contributions			8,000								8,000
Capital distributions			(77,501	)							(77,501	)
Comprehensive income
Net income			45,292								45,292
Net unrealized gain on securities available for sale							—				—
Foreign currency translation							(455	)			(455	)
Net unrealized gain on derivatives designated as cash flow hedges							35				35
Comprehensive income (loss) from equity method investees							(1,309	)			(1,309	)
Total comprehensive income											43,563
Members' equity – June 30, 2005		$	56,640			$	2,299			$	58,939

See notes to combined financial statements.

F-50

FORTRESS OPERATING GROUP
(Limited Liability Companies)

COMBINED STATEMENTS OF CASH FLOWS (Unaudited)
(dollars in thousands)


	Six Months Ended June 30,
	2006				2005
Cash Flows From Operating Activities
Net income		$	88,005			$	45,292
Adjustments to reconcile net income to net cash used in operating activities
Depreciation and amortization			3,186				891
Other amortization and accretion			2,775				(909	)
Undistributed earnings from equity method investees			—				(4,506	)
Gains from investments			(1,472,299	)			(959,147	)
Deferred incentive income			225,132				136,333
Non-controlling interests in income of consolidated subsidiaries			1,350,811				895,782
Deferred tax expense			4,420				1,749
Other non-cash amounts included in net income			(18,693	)			(2,314	)
Cash flows due to changes in
Cash held at consolidated subsidiaries and restricted cash			(517,641	)			(269,864	)
Due from affiliates			(123,023	)			(72,678	)
Receivables from brokers and counterparties and other assets			(102,902	)			4,344
Due to affiliates			(48,074	)			(18,864	)
Accrued compensation and benefits			20,786				3,156
Due to brokers and counterparties and other liabilities			135,652				90,418
Investment company holdings
Purchases of investments			(5,739,707	)			(3,083,911	)
Proceeds from sale of investments			4,304,223				2,143,324
Net cash used in operating activities			(1,887,349	)			(1,090,904	)
Cash Flows From Investing Activities
Purchase of other loan and security investments			(232,194	)			(21,587	)
Proceeds from sale of other loan and security investments			163,210				100
Purchase of interests in equity method investees			(373	)			(15,272	)
Distributions of capital from equity method investees			3,722				—
Purchase of fixed assets			(5,193	)			(4,234	)
Net cash used in investing activities			(70,828	)			(40,993	)
Cash Flows From Financing Activities
Borrowings under debt obligations			3,320,221				1,304,817
Repayments of debt obligations			(2,368,554	)			(1,003,663	)
Payment of deferred financing costs			(12,300	)			(12,177	)
Capital contributions			—				8,000
Capital distributions			(307,332	)			(66,558	)
Non-controlling interests in consolidated subsidiaries – contributions			2,499,422				1,380,320
Non-controlling interests in consolidated subsidiaries – distributions			(1,127,791	)			(468,011	)
Net cash provided by financing activities			2,003,666				1,142,728
Net Increase in Cash and Cash Equivalents			45,489				10,831
Cash and Cash Equivalents, Beginning of Period			36,229				10,205
Cash and Cash Equivalents, End of Period		$	81,718			$	21,036
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest (excluding interest paid by master funds of $368.7 million and $41.5 million, respectively)		$	67,351			$	21,974
Cash paid during the period for income taxes		$	1,093			$	1,982
Supplemental Schedule of Non-cash Investing and Financing Activities
Distribution of shares and options		$	—			$	10,943
Investment of amounts payable to employees into Fortress Funds		$	21,102			$	3,499

See notes to combined financial statements.

F-51

FORTRESS OPERATING GROUP
(Limited Liability Companies)

NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2006
(dollar amounts in tables shown in thousands)


1.	ORGANIZATION AND BASIS OF PRESENTATION


	1)	Private equity funds, which invest in debt and equity securities of public or privately held entities.


	2)	Liquid hedge funds, which invest in the global fixed income, commodities, currency and equity markets, and their related derivatives.


	3)	Hybrid hedge funds, which invest in undervalued, distressed and other less liquid investments.


	4)	Publicly traded alternative investment vehicles that Fortress refers to as the ‘‘Castles,’’ which are companies that invest in operating real estate and real estate related loans and securities (debt and equity).

Certain of the Fortress Funds are consolidated into Fortress, notwithstanding the fact that Fortress has only a minority economic interest in these funds, pursuant to generally accepted accounting principles. Consequently, Fortress’s financial statements reflect the assets, liabilities, revenues, expenses and cash flows of the consolidated Fortress Funds on a gross basis. The majority ownership interests in these funds, which are not owned by Fortress, are reflected as non-controlling interests in consolidated subsidiaries in the accompanying financial statements. The management fees and incentive income earned by Fortress from the consolidated Fortress Funds are eliminated in consolidation; however, Fortress’s allocated share of the net income from these funds is increased by the amount of these eliminated fees. Accordingly, the consolidation of these Fortress Funds has no net effect on Fortress’s earnings from the Fortress Funds. For a reconciliation between the financial statements and the segment-based financial data that management uses for making operating decisions and assessing performance, see Note 8.

The accompanying financial statements and related notes of Fortress have been prepared in accordance with accounting principles generally accepted in the United States for interim financial reporting and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared under U.S. generally accepted accounting principles have been condensed or omitted. In the opinion of management, all adjustments considered necessary for a fair presentation of Fortress’s financial position, results of operations and cash flows have been included and are of a normal and recurring nature. The operating results presented for

F-52

FORTRESS OPERATING GROUP
(Limited Liability Companies)

NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2006
(dollar amounts in tables shown in thousands)

interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. These financial statements should be read in conjunction with Fortress’s financial statements for the year ended December 31, 2005 and notes thereto. The combined balance sheet as of December 31, 2005 has been derived from the audited combined financial statements at that date, but does not include all of the information and disclosure requirements for complete financial statements in accordance with GAAP. Capitalized terms used herein, and not otherwise defined, are defined in Fortress’s financial statements for the year ended December 31, 2005.


2.	MANAGEMENT AGREEMENTS AND THE FORTRESS FUNDS

Private Equity Funds

Fund IV

Fortress Partners Fund

Fortress launched a new Fortress Fund called the Fortress Partners Fund L.P. (‘‘FPF’’). This fund was initially seeded, prior to June 30, 2006, with $230 million of capital, $175 million from Fortress and $55 million from its principals (treated as non-controlling interests in consolidated subsidiaries). FPF will invest in funds managed by third party managers, in existing and future Fortress Funds, and will also make direct investments in a variety of asset types. Fortress will manage FPF in exchange for management fees of between 1.0% — 1.5%, depending on the level of capital commitment of each of its investors, and incentive income of 20% on the change in net asset value of the investment portfolio acquired directly by FPF. This fund is consolidated by Fortress.

F-53

FORTRESS OPERATING GROUP
(Limited Liability Companies)

NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2006
(dollar amounts in tables shown in thousands)

Deferred incentive income allocated from the private equity funds, subject to contingent repayment, was comprised of the following:


	June 30, 2006			December 31, 2005
Distributed		$	219,602		$	123,426
Undistributed			591,394			462,438
Total		$	810,996		$	585,864

To date, no incentive income subject to contingent repayment has been recognized as income.

Liquid Hedge Funds

In February 2006, Fortress amended its management agreement with one of the liquid hedge funds, with the consent of its Investors, to provide for incentive income payable to Fortress to be determined on a quarterly, rather than annual, basis.


3.	INVESTMENTS

A) INVESTMENT COMPANY HOLDINGS, AT FAIR VALUE

Investment company holdings increased significantly due to the acquisition of new investments by consolidated Fortress Funds and unrealized gains on investments held by consolidated Fortress Funds, as follows:


	Amount
	June 30, 2006			December 31, 2005			Increase
	June 30, 2006			December 31, 2005			Amount				Percent
Investment company holdings, at fair value
Loans and securities		$	4,736,265		$	3,597,958		$	1,138,307			31.6	%
Investments in affiliates			9,035,883			6,972,857			2,063,026			29.6	%
Derivatives			7,918			11,294			(3,376	)		(29.9	)%
		$	13,780,066		$	10,582,109		$	3,197,957			30.2	%
Increase as a result of:
Acquisition of new investments (net of dispositions)
Private equity								$	1,202,401
Hedge funds (liquid and hybrid)									1,104,219
									2,306,620
Net unrealized gains on investments
Private equity									677,508
Hedge funds (liquid and hybrid)									114,553
									792,061
Other									99,276
								$	3,197,957

F-54

FORTRESS OPERATING GROUP
(Limited Liability Companies)

NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2006
(dollar amounts in tables shown in thousands)

On January 30, 2006, as part of Eurocastle’s capital raise to finance a major acquisition, two of the consolidated Fortress Funds acquired an aggregate of 8,571,429 additional shares of Eurocastle for $180 million, representing 18.8% of Eurocastle’s outstanding shares at the time. This acquisition is included in the acquisitions of new investments shown above.


B)	OTHER INVESTMENTS

Options in Affiliates

Eurocastle

The following table summarizes Eurocastle’s 2006 common stock offerings and options granted to Fortress for services provided in connection with these capital raises:


Year	Shares Issued (millions)		Weighted Average Option Strike Price			Number of Options Granted to Fortress		Fair Value of Options at Grant Date
2006		21.4		€	25.19		2,139,442		$	18,691

The fair value of the options received was recorded as management fee revenue on the grant date.

Investments in Variable Interest Entities

As of December 31, 2005, one of the Fortress Funds, Drawbridge Long Dated Value Fund II, LP, and its parallel funds were determined to be variable interest entities as they did not have sufficient equity investment at risk to finance their activities. These funds had financed their operations through debt rather than equity contributions by their investors, prior to their first capital call. Fortress, as the funds' general partner, was determined to be the primary beneficiary and therefore consolidated these funds. During the first six months of 2006, Drawbridge Long Dated Value Fund II, LP and its parallel funds received equity contributions from their investors that resulted in them having sufficient equity at risk to be no longer considered variable interest entities. Fortress has determined that it has control of Drawbridge Long Dated Value Fund II, LP and its parallel funds as their general partner and accordingly has continued to consolidate these funds as of June 30, 2006.

The acquisition of additional shares of Eurocastle (a VIE), as described above, caused Fortress to reconsider whether it was the primary beneficiary of Eurocastle. Fortress determined that it continued to not be the primary beneficiary.

The following entity was formed during the six months ended June 30, 2006 and was determined to be a VIE in which Fortress held a variable interest and was the primary beneficiary.

June 30, 2006

Entity

Gross
Assets

Fortress
Investment

Debt (B)

Fortress Credit Investments I Ltd.

409,084

(A)

305,000


	(A) This entity is a CDO vehicle within a consolidated hybrid hedge fund. Fortress has no direct investment in this entity, but does have an indirect investment through its ownership of less than 1.5% of the equity of this hybrid hedge fund. This indirect investment represents Fortress's maximum exposure to loss with respect to this entity.


	(B) These are debt obligations of consolidated Fortress Funds which own the related collateral. This collateral is not directly available to other creditors of Fortress. This debt represents a portion of the CDO bonds payable disclosed in Note 4.

F-55

FORTRESS OPERATING GROUP
(Limited Liability Companies)

NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2006
(dollar amounts in tables shown in thousands)

4. FINANCING ARRANGEMENTS

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


	Face Amount						Carrying Value
Debt Obligation/Collateral	June 30, 2006			December 31, 2005			June 30, 2006			December 31, 2005
Investment Company Debt
Repurchase Agreements (A)		$	24,771		$	14,391		$	24,771		$	14,391
CDO Bonds Payable			1,633,842			1,193,200			1,633,842			1,193,200
Credit Agreements / Lines (B)			576,391			565,808			576,479			565,942
Term loans			50,328			46,700			50,980			46,616
Subtotal – Investment Company Debt			2,285,332			1,820,099			2,286,072			1,820,149

Other Debt
Northcastle Debt			261,132			197,935			261,132			197,935
Credit Agreement			665,000			230,000			665,000			230,000
Aircraft Loan			2,349			2,349			2,349			2,349
Subtotal – Other Debt			928,481			430,284			928,481			430,284
Total		$	3,213,813		$	2,250,383		$	3,214,553		$	2,250,433


	(A) Subject to potential mandatory prepayments based on collateral value; payable on demand.


	(B) Approximately $1,663.1 million remained undrawn on these credit agreements / lines as of June 30, 2006.

Fortress Operating Group Debt

In June 2006, Fortress entered into a new $750 million credit agreement. The borrowings under this credit agreement bear interest at LIBOR +2.00% and Fortress is subject to unused commitment fees of 0.375% per annum. The purpose of the credit agreement was to refinance Fortress’s existing credit agreement, to make funds available for investments in the various existing and new Fortress Funds, and to make a one-time $250 million distribution of capital from Fortress to the Principals. The maturity of the credit agreement is in June 2011. In connection with the repayment of the prior credit facility, deferred loan costs of approximately $3 million were written off to interest expense.

5. INCOME TAXES

Fortress has provided for New York City unincorporated business tax (‘‘UBT’’) for one subsidiary based on a statutory rate of 4%. One subsidiary is subject to U.S. federal corporate income taxes. Certain subsidiaries of Fortress are subject to income tax of the foreign countries in which they conduct business. Fortress’s effective income tax rate was approximately 7.63% and 6.18% for the six months ended June 30, 2006 and 2005, respectively.

F-56

FORTRESS OPERATING GROUP
(Limited Liability Companies)

NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2006
(dollar amounts in tables shown in thousands)

The provision for income taxes consists of the following for the six months ended June 30, 2006 and 2005:


	Six Months Ended June 30,
	2006				2005
Current
Federal income tax		$	—			$	235
Foreign income tax			1,178				34
State and local income tax			1,672				965
			2,850				1,234
Deferred
Foreign income tax benefit			(702	)			—
State and local income tax benefit			(2,881	)			—
State and local income tax expense			8,003				1,749
			4,420				1,749
Total		$	7,270			$	2,983


6.	RELATED PARTY TRANSACTIONS

As of June 30, 2006, Due from Affiliates and Due to Affiliates were comprised of the following:


Due from Affiliates	Management Fees and Incentive Income			Dividends and Distributions			Total
Castles		$	26,618		$	948		$	27,566
Liquid and hybrid hedge funds			441,223			—			441,223
Unconsolidated subsidiaries of liquid hedge fund subsidiaries			—			41,965			41,965
Total		$	467,841		$	42,913			510,754
Other									12,137
								$	522,891
Due to Affiliates	Incentive Income and Related Rebate			Paid on Behalf of Consolidated Funds			Total
Private equity funds		$	6,303		$	20,283		$	26,586
Employees			4,533			—			4,533
Total		$	10,836		$	20,283			31,119
Other									82
								$	31,201

From time to time, Fortress may advance amounts on behalf of affiliates for short periods. In such cases it generally charges interest to these affiliates. One of Fortress’s consolidated subsidiaries (not a Fortress Fund) acts as the loan origination platform for the hybrid hedge funds. In this respect, it holds commercial lending licenses in various states and receives fees for its loan origination duties. Fortress earned $0.1 million and $0.2 million of other revenues from affiliates during the six months ended June 30, 2006 and 2005, respectively.

F-57

FORTRESS OPERATING GROUP
(Limited Liability Companies)

NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2006
(dollar amounts in tables shown in thousands)

7. COMMITMENTS AND CONTINGENCIES

Indemnifications — In the normal course of business, Fortress and its subsidiaries enter into operating contracts that contain a variety of representations and warranties and that provide general indemnifications. Fortress’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against Fortress that have not yet occurred. However, based on experience, Fortress expects the risk of material loss to be remote.

Debt Covenants — Fortress’s debt obligations contain various customary loan covenants. These covenants do not, in management’s opinion, materially restrict Fortress’s investment or financing strategy at this time. Fortress is in compliance with all of its loan covenants as of June 30, 2006.

Loan and Equity Commitments —Fortress, through the Fortress Funds, had unfunded commitments under loan agreements, joint venture agreements and other agreements of approximately $1,001.0 million, $39.5 million, and $96.5 million, respectively, as of June 30, 2006. In addition, the Fortress Funds had signed binding letters of intent with respect to new investments representing commitments of approximately $41.6 million as of June 30, 2006.

Securities Sold, Not Yet Purchased — Securities sold, not yet purchased represent obligations of Fortress (through the Fortress Funds) to purchase the securities at prevailing market prices. As such, the future satisfaction of these obligations may be at amounts that are greater or less than that recorded in the accompanying balance sheet. The ultimate gains or losses depend upon the prices at which the underlying financial instruments are purchased to settle Fortress’s obligations under the sale commitments.

Minimum Future Rentals — Fortress is a lessee under operating leases for office space located in New York, Dallas, San Diego, Los Angeles, Toronto, Geneva, Sydney, Hong Kong, Tokyo, Frankfurt and London. The related lease commitments have not changed materially since December 31, 2005.

Litigation — Fortress is, from time to time, a defendant in legal actions from transactions conducted in the ordinary course of business. Management, after consultation with legal counsel, believes the ultimate liability arising from such actions that existed as of June 30, 2006, if any, will not materially affect Fortress’s results of operations or financial position.

On September 15, 2005, a lawsuit captioned David T. Atkins et al. v. Apollo Real Estate Advisors, L.P. et al. was brought on behalf of current and former limited partners in certain investing partnerships related to the sale of certain facilities to Ventas Realty Limited Partners (‘‘Ventas’’) against a number of defendants, including one of the Portfolio Companies and a subsidiary of Fortress (‘‘FIG’’). FIG was the investment manager of consolidated Fortress Funds that were controlling shareholders of the Portfolio Company during the relevant time periods. The suit alleges that the defendants improperly obtained certain rights with respect to such facilities from the investing partnerships. The plaintiffs have asked for damages in excess of $100 million on each of nine counts, as to which FIG is a defendant on seven counts, including treble damages with respect to certain counts. Fortress is seeking to have itself removed as a named defendant in this case. The Portfolio Company intends to file a motion to dismiss the claims and continues to vigorously defend this action. Fortress believes that the resolution of this action will not have a material adverse effect on its financial condition or results of operations.

F-58

FORTRESS OPERATING GROUP
(Limited Liability Companies)

NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2006
(dollar amounts in tables shown in thousands)

instruments owned by the Fortress Funds. Although the ultimate outcome of actions cannot be ascertained with certainty, Fortress believes that the resolution of any such actions will not have a material adverse effect on its financial condition or results of operations.


8.	SEGMENT REPORTING

‘‘Distributable earnings’’ for the existing Fortress businesses is equal to net income adjusted as follows:

Incentive Income


	(i)	a.	for Fortress Funds which are private equity funds, adding (a) incentive income paid (or declared as a distribution) to Fortress (including incentive income paid to Fortress during the first 15 business days of the following year), less an applicable reserve for potential future clawbacks if the likelihood of a clawback is deemed greater than remote (net of the reversal of any prior such reserves that are no longer deemed necessary), minus (b) incentive income recorded in accordance with GAAP, based on Fortress's accounting method,


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

Other Income


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


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

F-59

FORTRESS OPERATING GROUP
(Limited Liability Companies)

NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2006
(dollar amounts in tables shown in thousands)


	b.	subtracting gains (or adding losses) on stock options held in certain of the Castles which are treated as derivatives,


	c.	subtracting unrealized gains (or adding unrealized losses) from consolidated private equity funds,


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

Expenses


	(iv)	adding back compensation expense recorded in connection with the assignment of a portion of these Castle options to employees, and


	(v)	adding or subtracting, as necessary, the employee profit sharing in (i) above for timing differences related to the 15 business day adjustment thereto.

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


	(i)	the difference between the GAAP carrying amount of equity method investments and their carrying amount for segment reporting purposes, which is generally fair value for publicly traded investments and cost for nonpublic investments,


	(ii)	employee portions of investments, which are reported gross for GAAP purposes (as assets offset by non-controlling interests in consolidated subsidiaries) but net for segment reporting purposes, and


	(iii)	the difference between the GAAP carrying amount for options owned in certain of the Castles and their carrying amount for segment reporting purposes, which is intrinsic value.

Summary financial data on Fortress’s segments is presented on the next two pages, together with a reconciliation to revenues, assets and net income for Fortress as a whole. Fortress’s investments in its equity method investees are all included in its Castles segment. Fortress’s interest income is all included in the Consolidation of Fortress Funds and its interest expense is included in the Consolidation of Fortress Funds (Interest Expense — Investment Company Holdings) and the

F-60

FORTRESS OPERATING GROUP
(Limited Liability Companies)

NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2006
(dollar amounts in tables shown in thousands)

amounts not allocated to a segment (Interest Expense — Other). Income tax expense is all included in the amounts not allocated to a segment.


	Private Equity Funds			Liquid Hedge Funds			Hybrid Hedge Funds			Castles				Unallocated				Fortress Unconsolidated Subtotal
June 30, 2006 and the Six Months then Ended
Segment revenues
Management fees		$	37,722		$	40,428		$	36,893		$	15,260			$	—			$	130,303
Incentive income			67,019			70,324			53,171			6,469				—				196,983
Segment revenues – total		$	104,741		$	110,752		$	90,064		$	21,729			$	—			$	327,286
Distributable earnings		$	76,578		$	77,041		$	37,572		$	5,041			$	(28,010	)		$	168,222
Total segment assets		$	72,797		$	348,887		$	250,225		$	123,704			$	149,532			$	945,145
				Fortress Unconsolidated Subtotal			Consolidation of Fortress Funds			Eliminations				Reconciliation to GAAP				Fortress Consolidated
Revenues					$	327,286		$	721,824		$	(76,900	)		$	(94,661	)		$	877,549
Distributable earnings / net income					$	168,222		$	1,663,450		$	(1,663,450	)		$	(80,217	)		$	88,005

Total assets					$	945,145		$	16,486,268		$	(1,501,676	)		$	86,835			$	16,016,572

Reconciling items between segment measures and GAAP measures:


Adjustments from segment revenues to GAAP revenues
Adjust incentive income	$	(113,809	)
Adjust income from the receipt of options		18,692
Other revenues*		456
Total adjustments	$	(94,661	)


	* Segment revenues do not include GAAP other revenues; GAAP other revenues is included elsewhere in the calculation of distributable earnings.


Adjustments from distributable earnings to GAAP net income
Adjust incentive income	$	(113,809	)
Adjust unrealized gains and earnings from equity method investees		27,001
Adjust income from the receipt of options		18,692
Adjust compensation expense		—
Adjust employee portion of incentive income		(12,101	)
Total adjustments	$	(80,217	)

Adjustments from total segment assets to GAAP assets
Adjust equity investments from fair value	$	(22,024	)
Adjust equity investments from cost		17,431
Adjust investments gross of employee portion		84,678
Adjust option investments from intrinsic value		6,750
Total adjustments	$	86,835

F-61

FORTRESS OPERATING GROUP
(Limited Liability Companies)

NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2006
(dollar amounts in tables shown in thousands)


	Private Equity Funds			Liquid Hedge Funds			Hybrid Hedge Funds			Castles				Unallocated				Fortress Unconsolidated Subtotal
Six Months Ended June 30, 2005
Segment revenues
Management fees		$	23,721		$	27,692		$	22,132		$	8,415			$	—			$	81,960
Incentive income			—			637			31,466			4,520				—				36,623
Segment revenues – total		$	23,721		$	28,329		$	53,598		$	12,935			$	—			$	118,583
Distributable earnings		$	12,469		$	17,605		$	27,096		$	2,820			$	(7,200	)		$	52,790
				Fortress Unconsolidated Subtotal			Consolidation of Fortress Funds			Eliminations				Reconciliation to GAAP				Fortress Consolidated
Revenues					$	118,583		$	245,938		$	(42,660	)		$	(6,110	)		$	315,751
Distributable earnings / net income					$	52,790		$	1,092,210		$	(1,092,210	)		$	(7,498	)		$	45,292

Reconciling items between segment measures and GAAP measures:


Adjustments from segment revenues to GAAP revenues
Adjust incentive income	$	(8,810	)
Adjust income from the receipt of options		4,323
Other revenues*		(1,623	)
Total adjustments	$	(6,110	)


	* Segment revenues do not include GAAP other revenues; GAAP other revenues is included elsewhere in the calculation of distributable earnings.


Adjustments from distributable earnings to GAAP net income
Adjust incentive income	$	(8,810	)
Adjust unrealized gains and earnings from equity method investees		14,463
Adjust income from the receipt of options		4,323
Adjust compensation expense		—
Adjust employee portion of incentive income		(17,474	)
Total adjustments	$	(7,498	)

9. SUBSEQUENT EVENTS

On October 6, 2006, Fortress informed all of the Investors of Northcastle, a consolidated Castle, of its decision to return Investor capital. The liquidation of this fund is expected to be completed before December 31, 2006 and will be accomplished by liquidating the fund’s investments and distributing the proceeds to the Investors. Fortress’s determination not to proceed with a public market capitalization of this business in light of market conditions in Canada resulted, following an assessment of various factors, in a determination to dissolve the fund and return Investor capital. Northcastle's significant assets are its $0.5 billion of loans and securities which are financed with $0.3 billion of debt.

F-62

No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

TABLE OF CONTENTS


	Page
Prospectus Summary		1
Summary Historical and Unaudited Pro Forma Financial and Operating Information		14
Risk Factors		20
Special Note Regarding Forward-Looking Statements		42
Market and Industry Data and Forecasts		43
Our Structure		44
Use of Proceeds		51
Cash Dividend Policy		52
Capitalization		53
Dilution		55
Unaudited Pro Forma Financial Information		57
Selected Financial and Operating Data		71
Management's Discussion and Analysis of Financial Condition and Results of Operations		75
Industry		101
Business		106
Management		124
Certain Relationships and Related Party Transactions		133
Agreement Among Principals		137
Principal Shareholders		138
Description of Indebtedness		139
Description of Shares		140
Shares Eligible for Future Sale		149
Material U.S. Federal Tax Considerations		152
Underwriting		166
Legal Matters		170
Experts		170
Where You Can Find More Information		170
Index to Financial Statements		F-1

Through and including , 2007 (the 25^th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

Class A Shares

Fortress Investment Group LLC

Class A Shares

PROSPECTUS

Goldman, Sachs & Co.

Banc of America Securities LLC

Citigroup

Deutsche Bank Securities

Lehman Brothers

, 2007

Table of Contents

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

The following table sets forth the estimated fees and expenses (except for the SEC registration fee, the National Association of Securities Dealers, Inc. filing fee and the NYSE listing fee) payable by the registrant in connection with the distribution of the shares:


SEC registration fee	$	80,250
National Association of Securities Dealers, Inc. filing fee		75,500
NYSE listing fee			*
Printing and engraving costs			*
Legal fees and expenses			*
Accountants' fees and expenses			*
Blue sky qualification fees and expenses			*
Transfer agent fees			*
Miscellaneous			*
Total	$		*


*	To be furnished by amendment.

Item 14. Indemnification of Directors and Officers

Our amended and restated operating agreement provide that we will indemnify, to the fullest extent permitted by the Delaware LLC Act, each person who was or is made a party or is threatened to be made a party in any legal proceeding by reason of the fact that he or she is or was our or our subsidiary's director or officer. However, such indemnification is permitted only if such person acted in good faith and lawfully. Indemnification is authorized on a case-by-case basis by (1) our board of directors by a majority vote of disinterested directors, (2) a committee of the disinterested directors, (3) independent legal counsel in a written opinion if (1) and (2) are not available, or if disinterested directors so direct, or (4) the shareholders. Indemnification of former directors or officers shall be determined by any person authorized to act on the matter on our behalf. Expenses incurred by a director or officer in defending against such legal proceedings are payable before the final disposition of the action, provided that the director or officer undertakes to repay us if it is later determined that he or she is not entitled to indemnification.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that, in the opinion of the Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

We maintain directors' and officers' liability insurance for our officers and directors.

Item 15. Recent Sales of Unregistered Securities

Since our formation on November 6, 2006, we have issued unregistered securities to a limited number of persons, as described below. None of these transactions involved any underwriters or any

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Table of Contents

public offerings and we believe that each of these transactions was exempt from registration requirements pursuant to Section 4(2) of the Securities Act or Rule 701 of the Securities Act pursuant to compensatory benefit plans and contracts related to compensation as provided under Rule 701. The recipients of the securities in these transactions represented their intention to acquire the securities for investment purposes only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were affixed to the share certificates and instruments issued in these transactions.

Issuance of Class B shares

On , 2007, we issued an aggregate of Class B shares to our principals. The issuance of these securities was exempt from registration under Section 4(2) of the Securities Act as transactions by the issuer not involving a public offering.

Grants of Restricted Shares

On , 2007, we will grant pursuant to our equity incentive plan, effective upon consummation of this offering, restricted Class A shares and restricted Fortress Operating Group units to certain employees. These grants of restricted Class A shares will be exempt from registration under Section 701 of the Securities Act because they will be made under written compensatory plans or agreements.

Item 16. Exhibits and Financial Statement Schedules

A. Exhibits


Exhibit No.			Description
1.1			Form of Underwriting Agreement*
3.1			Certificate of Formation of the Registrant*
3.2			Form of Amended and Restated Certificate of Formation of the Registrant*
3.3			Form of Amended and Restated Operating Agreement of the Registrant*
3.4			Specimen Certificate evidencing the Registrant's Class A shares*
4.1			Opinion of Skadden, Arps, Slate, Meagher & Flom LLP*
5.1			Form of Agreement Among Principals, by and among Peter Briger, Wesley Edens, Randal Nardone, Robert Kauffman, and Michael Novogratz*
10.1			Form of Fortress Investment LLC Equity Incentive Plan*
10.2			Form of Tax Receivable Agreement*
10.3			Form of Shareholders Agreement, by and among the Registrant, Peter Briger, Wesley Edens, Randal Nardone, Robert Kauffman, and Michael Novogratz*
10.4			Form of Employment, Non-Competition and Non-Solicitation Agreement by and between Peter Briger and the Registrant*
10.5			Form of Employment, Non-Competition and Non-Solicitation Agreement by and between Wesley Edens and the Registrant*
10.6			Form of Employment, Non-Competition and Non-Solicitation Agreement by and between Randal Nardone and the Registrant*
10.7			Form of Employment, Non-Competition and Non-Solicitation Agreement by and between Robert Kauffman and the Registrant*
10.8			Form of Employment, Non-Competition and Non-Solicitation Agreement by and between Michael Novogratz and the Registrant*
21.1			Subsidiaries of the Registrant*
23.1			Consent of Skadden, Arps, Slate, Meagher & Flom LLP*

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Exhibit No.			Description
23.2			Consent of Ernst & Young LLP
24.1			Power of Attorney (included as part of the signature page)


*	To be filed by amendment

B. Financial Statement Schedules

Item 17. Undertakings

(1) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted against the registrant by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

(2) The undersigned registrant hereby undertakes that:


	(a)	For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective.


	(b)	For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new Registration Statement relating to the securities offered therein, and this offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(3) The undersigned hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each underwriter.

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on November 8, 2006.

FORTRESS INVESTMENT GROUP LLC

By: /s/ Wesley R. Edens
Name: Wesley R. Edens
Title: Chief Executive Officer and Director

POWER OF ATTORNEY

In accordance with the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates stated. Each person whose signature appears below constitutes and appoints Wesley R. Edens and Randal A. Nardone and each of them severally, as his or her true and lawful attorney-in-fact and agent, each acting along with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) and exhibits to the Registration Statement on Form S-1, and to any registration statement filed under SEC Rule 462, and to file the same, with all exhibits thereto, and all documents in connection therewith, with the SEC, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


Signature	Title	Date

/s/ Wesley R. Edens	Chief Executive Officer and Director	November 8, 2006

Wesley R. Edens

/s/ Daniel N. Bass	Chief Financial Officer	November 8, 2006

Daniel N. Bass

/s/ Jonathan R. Brown	Chief Accounting Officer	November 8, 2006

Jonathan R. Brown

/s/ Peter L. Briger, Jr.	Director	November 8, 2006

Peter L. Briger, Jr.

/s/ Robert I. Kauffman	Director	November 8, 2006

Robert I. Kauffman

/s/ Randal A. Nardone	Director	November 8, 2006

Randal A. Nardone

/s/ Michael E. Novogratz	Director	November 8, 2006

Michael E. Novogratz

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INDEX TO EXHIBITS


Exhibit No.			Description
1.1			Form of Underwriting Agreement*
3.1			Certificate of Formation of the Registrant*
3.2			Form of Amended and Restated Certificate of Formation of the Registrant*
3.3			Form of Amended and Restated Operating Agreement of the Registrant*
3.4			Specimen Certificate evidencing the Registrant's Class A shares*
4.1			Opinion of Skadden, Arps, Slate, Meagher & Flom LLP*
5.1			Form of Agreement Among Principals, by and among Peter Briger, Wesley Edens, Randal Nardone, Robert Kauffman, and Michael Novogratz*
10.1			Form of Fortress Investment LLC Equity Incentive Plan*
10.2			Form of Tax Receivable Agreement*
10.3			Form of Shareholders Agreement, by and among the Registrant, Peter Briger, Wesley Edens, Randal Nardone, Robert Kauffman, and Michael Novogratz*
10.4			Form of Employment, Non-Competition and Non-Solicitation Agreement by and between Peter Briger and the Registrant*
10.5			Form of Employment, Non-Competition and Non-Solicitation Agreement by and between Wesley Edens and the Registrant*
10.6			Form of Employment, Non-Competition and Non-Solicitation Agreement by and between Randal Nardone and the Registrant*
10.7			Form of Employment, Non-Competition and Non-Solicitation Agreement by and between Robert Kauffman and the Registrant*
10.8			Form of Employment, Non-Competition and Non-Solicitation Agreement by and between Michael Novogratz and the Registrant*
21.1			Subsidiaries of the Registrant*
23.1			Consent of Skadden, Arps, Slate, Meagher & Flom LLP*
23.2			Consent of Ernst & Young LLP
24.1			Power of Attorney (included as part of the signature page)


*	To be filed by amendment

(State or Other Jurisdiction of
Incorporation or Organization)

(Primary Standard Industrial
Classification Code Number)

(I.R.S. Employer
Identification No.)

1345 Avenue of the Americas
46^th Floor
New York, New York 10105
(212) 798-6100