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)


Delaware 6282 20-5837959
(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
46th Floor
New York, New York 10105
(212) 798-6100
 

(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
46th Floor
New York, New York 10105
(212) 798-6100

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


  Copies to:  
Joseph A. Coco, Esq.
Skadden,   Arps,  Slate,  Meagher  &  Flom  LLP
Four Times Square
New York, New York 10036-6522
(212) 735-3000
  Edward F. Petrosky, Esq.
J. Gerard Cummins, Esq.
Sidley Austin LLP
787 Seventh Avenue
New York, New York 10019
(212) 839-5300

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.


  Per Class A
Share
Total
Initial public offering price $ $
Underwriting discount $ $
Proceeds to us (before expenses) $ $

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

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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.

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

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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.

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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.

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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  

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  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  

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(1)  ‘‘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 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,

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,
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,

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(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.

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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

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. 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.

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 paid 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.

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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.

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.

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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