We are a specialty finance holding company that provides our shareholders with returns derived primarily from our structured finance subsidiaries, commonly known as collateralized debt obligations issuers.

We have granted the underwriters an option to purchase up to an additional     ordinary shares from us at the public offering price, less underwriting discounts and commissions, within 30 days from the date of this prospectus, solely to cover over-allotments, if any.

We have prepared this prospectus using a number of conventions, which you should consider when reading the information contained herein. Unless the context suggests otherwise:

Stone Tower^® and Stone Tower Capital^® are trade names registered with the U.S. Patent and Trademark Office.

Unless otherwise indicated, information in this prospectus assumes that the option granted by us to the underwriters to purchase additional ordinary shares solely to cover over-allotments has not been exercised.

This prospectus contains certain forward-looking statements that are subject to various risks and uncertainties, including, without limitation, statements relating to the operating performance of our assets and financing needs. Forward-looking statements are generally identifiable by the use of forward-looking terminology such as “may,” “will,” “should,” “potential,” “intend,” “expect,” “endeavor,” “seek,” “anticipate,” “estimate,” “overestimate,” “underestimate,” “believe,” “could,” “project,” “predict,” “continue” or other similar words or expressions. Forward-looking statements are based on certain assumptions, discuss future expectations, describe future plans and strategies, contain projections of results of operations or of financial condition, or state other forward-looking information. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements. Factors that could have a material adverse effect on our operations and future prospects include, but are not limited to:

When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this prospectus. Readers are cautioned about relying on any of these forward-looking statements, which reflect our management’s views as of the date of this prospectus. The “Risk Factors” and other factors noted throughout this prospectus could cause our actual results to differ significantly from those contained in any forward-looking statement.

We cannot guarantee future results, levels of activity, performance or achievements. We undertake no duty to update any of the forward-looking statements after the date of this prospectus to conform these statements to actual results, except as may be required by law.

An investment in our ordinary shares involves a high degree of risk. You should carefully consider the following information, together with the other information contained in this prospectus, before investing in our ordinary shares. In connection with the forward-looking statements that appear in this prospectus, you should also carefully review the cautionary statement referred to under “Cautionary Statement Regarding Forward-Looking Statements.”

We were recently formed and have a limited operating history. Consequently, it is difficult to evaluate our future prospects and an investment in our ordinary shares. We will be subject to the risks generally associated with the formation of any new business such as our lack of established operating procedures as well as BSAM’s and Stone Tower’s relative inexperience with the management of a public entity. We cannot assure you that we will be able to operate our business successfully or implement our operating policies and strategies described in this prospectus. We are subject to all of the business risks and uncertainties associated with any new business, including the risk that we will not achieve our investment objectives and that the value of your investment could decline substantially. We may not generate sufficient revenue from operations to pay our expenses and make or sustain distributions to shareholders.

We own primarily ABS CDOs and CLOs. Our ABS CDOs hold primarily RMBS and to a lesser extent CMBS, synthetic asset-backed securities and other asset-backed securities. A downturn in overall economic conditions could lead to an increase in the default rates of residential or commercial mortgages, which would have a negative effect on the quality of the assets collateralizing these securities. For example, the majority of the RMBS held by our CDOs are backed by collateral pools comprised of subprime mortgages. Subprime mortgages have experienced increased default rates in recent periods. A deterioration in the assets collateralizing the asset-backed securities held by our CDOs could negatively affect the cash flows of the CDOs, and consequently our ability to receive dividends or distributions from these CDOs and pay dividends or distributions to our shareholders. See “— Risks Related to Our Assets — Subprime mortgage loans backing RMBS held by our CDOs are subject to additional risks.”

Our CLOs invest primarily in corporate leveraged loans and high-yield bonds that are rated below investment-grade. Non-investment-grade assets have greater credit and liquidity risk than investment-grade securities. The lower rating of these assets reflects a greater possibility that adverse changes in the financial condition of the issuer of these non-investment-grade assets or in general economic conditions, or both, may negatively affect the cash flows of the CDOs in which we hold equity interests. In addition, issuers of below-investment-grade debt obligations may be highly leveraged and may not have available to them more traditional methods of financing. During an economic downturn, a sustained period of rising interest rates or a period of fluctuating exchange rates (in respect of those issuers located in non-U.S. countries), such issuers may be more likely to experience financial stress and may be unable to meet their debt obligations due to the issuers’ inability to meet specific projected business forecasts or the unavailability of financing. While the results to date of our CLO holdings reflect that default rates for below-investment-grade debt obligations have been low relative to prior years, default rates may increase, perhaps significantly, in the future.

Changes in interest rates can affect our CDO subsidiaries’ net interest income, which is the difference between the interest received on interest-earning assets and the interest paid on interest-bearing liabilities. Changes in the level of interest rates also can affect, among other things, prepayment rates, yield spreads

In addition, if market interest rates increase, prospective investors may desire a higher distribution or dividend rate on our ordinary shares or seek to invest in other securities paying higher distributions or dividends. As a result, interest rate fluctuations and capital market conditions can affect the market value of our ordinary shares. For instance, if interest rates rise, the market price of our ordinary shares may decrease because potential investors may require a higher yield on our ordinary shares.

Our CDOs are complex and operate on a highly leveraged basis through collateralized financings, including potentially private or public offerings of debt, warehouse facilities, bank credit facilities, repurchase agreements and other borrowings. Although our CDOs’ actual use of leverage may vary depending on their ability to obtain credit facilities and the lenders’ and rating agencies’ estimate of the stability of their cash flows, our policies do not limit the amount of leverage we or any of our CDOs may incur. The cash flows of our CDOs may be reduced to the extent that changes in market conditions cause the cost of these financings to increase relative to the income that can be derived from the assets acquired. Defaults and lower than expected recoveries as well as delays in recoveries on the assets held by our subsidiaries could rapidly erode our equity in our CDOs. Increased debt service payments that are not offset by increased cash flow from underlying CDO assets would reduce cash flow available for distributions by our CDOs to us and, in turn, by us to our shareholders. Increased leverage increases the risk that our CDOs will not be able to meet their debt service obligations. See “— Risks Related to Our Assets — The equity issued by our CDO subsidiaries is subject to substantial risks.”

Holdings in our CDO subsidiaries and other CDO equity holdings are carried at estimated fair value, with unrealized gains and losses reported as a component of a net increase or decrease in net assets from operations in our consolidated statement of operations. However, there is no liquid public trading market for CDO equity upon which the value of our holdings may be readily determinable. The fair value of each holding is initially based on our cost. Upon each balance sheet date thereafter, fair value is estimated using the discounted cash flow technique. Accordingly, fair value is highly sensitive to our estimates of future cash flows attributable to our CDO equity holdings. Our estimates of future cash flows are in turn highly subjective and sensitive to a number of assumptions we must make regarding the collateral underlying each CDO, including assumptions as to forecasted default, recovery, reinvestment and prepay or call rates of the underlying CDO collateral as of the balance sheet date, and may also fluctuate over short periods of time. Our determinations of fair value may differ materially from the values that would have been used if a ready market for these investments existed. Our net asset value could be adversely affected if our determinations regarding the fair value of our holdings are materially higher than the values that we ultimately realize upon these holdings.

The credit quality of our CDOs’ assets may decline for a number of reasons, such as poor operating results of borrowers, declines in the value of the collateral supporting debt they hold and increases in defaults. A decline in the credit quality of our CDOs’ assets may force our subsidiaries to sell certain assets at a loss,

Substantially all of our assets consisting of equity in CDOs are highly illiquid and are not publicly traded or readily marketable. As a result, we can provide no assurance that any given asset could be sold at a price equal to the amount ascribed to such asset, which may result in unexpected losses if we are required to sell such assets. Furthermore, because of applicable securities law and 1940 Act transfer restrictions, the equity securities we hold in our CDO subsidiaries that are excluded from the registration requirements of the 1940 Act by virtue of Rule 3a-7 thereunder may be less liquid than securities issued by other CDOs.

Substantially all of our initial CDO holdings were purchased from the BSHG Funds which are managed by BSAM. These assets are difficult to value. The values of the assets transferred to us were determined based on certain models, assumptions and methods and not by any arm’s length negotiation, and do not necessarily reflect the values that could be achieved by us upon the sale or other disposition of such assets. Performance of these assets is expected to differ, and may differ materially, from that used in the valuation models that were used. Small variations in one or more of the assumptions used to value the initial assets could result in large variations in the value of our initial CDO holdings.

We depend upon the availability of adequate funding and capital for our operations. Our dividend policy is to distribute over time approximately 90% of our net investment income out of assets legally available for distribution. Therefore, we will not retain a substantial portion of our earnings and will have to rely on outside sources of funding for new investments. See “Dividend Policy.”

We cannot assure you that any, or sufficient, funding or capital will be available to us in the future on terms that are acceptable to us. In the event that we cannot obtain sufficient funding on acceptable terms, we may lower our distributions to shareholders, which may have a negative impact on the dividend yield and market price of our ordinary shares.

We are a holding company that indirectly engages in various businesses through majority-owned CDO subsidiaries, most of which rely on various exclusions or exemptions from the 1940 Act and engage in the businesses described herein. More than 60% of our assets by value consist of interests in majority-owned CDO subsidiaries, including Parapet CDO, that rely on the exemption provided to certain structured financing vehicles by Rule 3a-7 of the 1940 Act.

Rule 3a-7 imposes limitations on the ability of a CDO issuer to purchase or sell assets, including prohibiting the issuer from purchasing or selling assets for the primary purpose of recognizing gains or decreasing losses resulting from market value changes. Thus, provisions in the indentures that govern our CDO subsidiaries, including Parapet CDO, restrict them from purchasing and selling assets in circumstances in which it may otherwise be advantageous for them to do so. As a practical result, the issuers may not acquire or dispose of assets primarily to enhance returns to the holder of the CDO equity.

Depending on the anticipated asset mix and liability structure of a particular CDO subsidiary, compliance with Rule 3a-7 could require us to place additional limitations and prohibitions on the circumstances under which a CDO may sell assets, on the type of assets the subsidiary may acquire out of the proceeds of assets that mature, are refinanced or otherwise sold, on the period of time during which such transactions may occur, on the level of transactions that may occur or on other provisions of the indentures that govern the operation of those subsidiaries. We must monitor the activities of our subsidiaries, including those assets managed by third parties, to ensure that we meet these tests, which will limit the types and nature of business and assets in which we may engage indirectly through our Rule 3a-7 subsidiaries. If we were to determine that one or more of our CDO subsidiaries could not rely on Rule 3a-7, these CDO subsidiaries would have to rely on another 1940 Act exemption, which could require them to restructure their operations and, thus, adversely affect our earnings. In addition, we have a limited operating history and accordingly have only recently begun to implement procedures for maintaining appropriate qualifying assets levels to maintain exemption under the 1940 Act.

If we cannot rely on any exemption, exception or other exclusion from registration as an investment company, we could, among other things, be required either to (i) substantially change the manner in which we conduct our operations to avoid being required to register as an investment company or (ii) register as an investment company, either of which could have an adverse effect on us and the market price of our ordinary shares. If we were required to register as an investment company under the 1940 Act, we would become subject to substantial regulation with respect to our capital structure (including our ability to use leverage), management, operations, transactions with affiliated persons (as defined in the 1940 Act), portfolio composition (including restrictions with respect to diversification and industry concentration) and other matters.

Most CDO issuers are excluded from status as investment companies under the 1940 Act by reason of their compliance with Section 3(c)(7) thereunder. Section 3(c)(7) essentially requires such issuers to engage in private offerings made only to “qualified purchasers” (as defined in the 1940 Act), but places no limitations on the ability of the issuers to purchase or sell assets or otherwise trade the underlying portfolio of securities.

Rule 3a-7, on the other hand, imposes limitations on the ability of a CDO issuer to purchase or sell assets, including prohibiting the issuer from purchasing or selling assets for the primary purpose of recognizing gains or decreasing losses resulting from market value changes. Thus, as described above, provisions in the indentures that govern our CDO subsidiaries, including Parapet CDO, restrict them from purchasing and selling assets in circumstances in which it may otherwise be advantageous for them to do so.

Rule 3a-7 CDOs provide the manager with less opportunity to manage portfolio assets than Section 3(c)(7) CDOs. This may result in Rule 3a-7 CDOs being less liquid and generating less yield than Section 3(c)(7) CDOs, which would result in lower earnings and distributions for our shareholders.

BSAM and Stone Tower’s track record information contained in this prospectus may not be representative of the performance of CDOs currently held by us or CDOs we hold in the future and we caution you that our future returns may be substantially lower than those achieved in the past, including for the following reasons:

We are a holding company with no operations. Therefore, we are dependent upon the ability of our subsidiaries and their businesses and assets to generate earnings and cash flows and distribute them to us in the form of dividends or distributions to enable us to meet our expenses and to make distributions to our shareholders. The ability of our subsidiaries and the businesses in which they hold assets to make distributions or pay dividends depend on their respective operating results and may be subject to limitations, including, among other things, laws limiting the amount of funds available for the payment of dividends or distributions, and the terms and covenants of any present or future outstanding indebtedness, contract or agreement. If, as a consequence of these various limitations and restrictions, we are unable to generate sufficient funds for distributions from our subsidiaries and their businesses and assets, we may not be able to make or may have to delay distributions or dividends on our ordinary shares.

Our business is highly dependent on communications and information systems. We also depend on sophisticated software and access to information to derive expected cash flows of our investments. Any failure or interruption of our systems could cause delays or other problems in our activities, which could have a material adverse effect on our operating results and negatively affect the value of our shares and our ability to pay dividends or distributions on our ordinary shares.

We engage, and will continue to engage in the future, in certain hedging transactions at the company or CDO subsidiary level to seek to limit our exposure to changes in credit default risks, changes in interest rates, changes in currency exchange rates and other financial market changes and therefore may expose ourselves to risks associated with such transactions. For instance, our subsidiaries may utilize instruments such as puts and

The success of our hedging transactions depends on the managers’ ability to correctly predict movements of relevant market rates. Therefore, while we may enter into such transactions to seek to reduce relevant market rate risks, unanticipated changes may result in an overall investment performance below that which we would have obtained if we had not engaged in any such hedging transactions. In addition, the degree of correlation between price movements of the instruments used in a hedging strategy and the price movements in the portfolio positions being hedged may vary. Moreover, for a variety of reasons, we may not seek to establish a perfect correlation between such hedging instruments and the portfolio holdings being hedged. Any such imperfect correlation may prevent us from achieving the intended hedge and expose us to the risk of loss. We are also exposed to the credit risk of the counterparty with respect to payments under derivative instruments.

We are subject to significant competition in seeking business opportunities. Some of our competitors may have greater resources than we do and we may not be able to compete successfully for assets. Furthermore, competition for assets of the types and classes which our subsidiaries intend to acquire may lead to the price of such assets increasing, which may further limit our ability to generate our desired returns. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than us. We cannot assure you that the competitive pressures we face will not have a material adverse effect on our business, financial condition and results of operations. Also, as a result of this competition, we may not be able to take advantage of attractive business opportunities from time to time, and we or our CDO subsidiaries may not be able to identify and acquire assets that are consistent with our business objective. Moreover, other companies and funds may be formed to compete with us in pursuing a strategy similar to ours.

We may change our business strategy at any time without the consent of our shareholders, which could result in our acquiring subsidiaries or assets that are different from, and possibly riskier than, the strategy described in this prospectus. Our board of directors will determine our operational policies and may amend or revise our policies, including our policies with respect to our asset acquisitions, operations, indebtedness, capitalization and distributions, or approve transactions that deviate from these policies, without a vote of, or notice to, our shareholders. Operational policy changes could adversely affect the market price of our ordinary shares and our ability to make distributions to our shareholders.

Before purchasing assets held in CDOs managed by our managers or before acquiring equity in CDOs sponsored by third parties, the managers assess the value of the underlying assets and other factors that they believe will determine the CDO’s success. In making the assessment and otherwise conducting customary due

Our CDO subsidiaries may in the future invest in debt obligations and other assets denominated in non-U.S. currencies. Non-U.S. debt obligations involve risks relating to political, social and economic developments abroad, as well as risks resulting from the differences between the regulations to which U.S. and non-U.S. obligors and markets are subject. These risks may include:

In addition, non-U.S. assets denominated in currencies other than the U.S. dollar are subject to additional risks. Changes in currency exchange rates will affect the value of non-U.S. assets, the value of dividends and interest earned, and gains and losses realized on the sale of non-U.S. securities. An increase in the strength of the U.S. dollar relative to these other currencies may cause the value of our non-U.S. assets to decline. Certain non-U.S. currencies may be particularly volatile, and non-U.S. governments may intervene in the currency markets, causing a decline in value or liquidity of our securities holdings. Although we may hedge our non-U.S. currency risk, we may not be able to do so successfully and may incur losses in these assets as a result of exchange rate fluctuations.

We could experience fluctuations in our quarterly operating results and cash distributions due to a number of factors including the difference in actual cash received and expected cash, the timing of cash flows, changes in assumptions, such as default and prepayment risk, the level of our expenses, variations in and the timing of the recognition of realized and unrealized gains and losses and general market conditions. As a result of these factors, results of any period should not be relied upon as being indicative of performance in future periods.

Terrorist attacks across the globe, as well as events occurring in response to or in connection with them, may adversely affect our financial condition and results of operations. A terrorist attack could have a material adverse effect on the assets held by our CDO subsidiaries and therefore on our financial condition and results of operations. Furthermore, terrorist attacks of significant scale could cause volatility in the financial markets and uncertainty in the economies of the areas where they occur, and even possibly the global economy.

All of our executive officers and other senior personnel responsible for our day-to-day operations, other than our chief financial officer, are also employees or officers of either BSAM or Stone Tower and will not spend all of their time managing our activities. We depend on the diligence, skill and network of business contacts of the employees of BSAM and Stone Tower and our CEOs, our board of directors and our investment committee. BSAM and Stone Tower evaluate, negotiate, and monitor our holdings. Our future success will depend on the continued services of the management team of BSAM and Stone Tower. The continued services of the management team of BSAM and Stone Tower are not guaranteed because the management agreements do not require that any particular individual’s services be made available to us. However, we can not renew the management agreements with either of our managers during the 90-day period following the death, disability or voluntary resignation of the related CEO. If any such event occurs and we terminate the related management agreement, we have no assurance that a suitable replacement CEO or manager may be identified or, if identified, could be engaged on terms as favorable as those with our current CEOs and managers. We do not carry any key-man life insurance policies covering either of our CEOs.

We are also dependent on BSAM and Stone Tower for certain services, including administrative and business advice. The departure of either of our CEOs or any of the other senior members of the management team at BSAM or Stone Tower could have a material adverse effect on our ability to achieve our business objectives. We are subject to the risk that BSAM and/or Stone Tower will terminate their respective management agreement and that no suitable replacement will be found.

We will pay our managers substantial management fees, based in part on our equity capital (as defined in the management agreements), regardless of the performance of our portfolio, with certain exceptions. The management fee is based, among other things, on our net assets. The value of our net assets is based on highly subjective management assumptions, including assumptions to arrive at estimated future cash flows from our CDO and our CDOs’ asset values. Our managers’ entitlement to nonperformance-based compensation as a portion of the total compensation might reduce their incentive to devote the time and effort of their professionals to seeking profitable opportunities for our portfolio, which could result in a lower performance of our portfolio and negatively affect our ability to pay distributions to our shareholders.

The management incentive allocation structure that we have agreed to with BSAM and Stone Tower may cause BSAM and Stone Tower to purchase high-risk assets or take other risks. In addition to the base management fee, BSAM and Stone Tower or their respective affiliates are entitled to receive an incentive fee and corresponding distribution from the company based upon the company’s achievement of targeted levels of net increase in net assets resulting from operations. In evaluating acquisitions and other management strategies, the opportunity to earn an incentive fee based on net increase in net assets resulting from operations may lead BSAM and Stone Tower to place undue emphasis on the maximization of net increase in net assets resulting from operations at the expense of other criteria, such as preservation of capital, maintaining sufficient liquidity, and/or management of credit risk or market risk, in order to achieve a higher incentive fee. Assets with higher yield potential are generally riskier or more speculative. This could result in increased risk to the value of our assets.

Our managers are authorized to follow a very broad business approach on our behalf. We cannot predict with any certainty the percentage of our assets that will be in each asset category. We may change our business strategy and policies without a vote of shareholders. Our board of directors will periodically review our business approach and our assets. However, our board of directors is not required to review every proposed purchase or disposition of assets. Furthermore, even though a majority of our board of directors consists of independent directors, there is no assurance that our board of directors will provide effective oversight over the activities of our managers.

As registered investment advisors, each of our managers is required to allocate opportunities equitably among its clients. However, each manager has broad operational latitude in allocating opportunities, and we may not be given the opportunity to participate at all in certain acquisitions made by such other clients that meet our business objectives.

The management services to be provided by the managers under the management agreements are not exclusive to us and our subsidiaries. The managers and/or their affiliates engage in a broad spectrum of activities, including investment advisory activities, and have extensive investment activities that are independent from, and may from time to time conflict with, our business activities and strategies. The managers and/or their affiliates may advise, sponsor or act as manager to other investment funds, portfolio companies of private equity investments and other persons or entities (including prospective investors in the ordinary shares) that have investment objectives that overlap with our business plan and that may, therefore, compete with us for asset acquisition opportunities. We will therefore face a number of conflicts of interest with the managers and/or their affiliates with respect to the allocation of asset acquisition opportunities. In addition, the managers may raise new investment funds with investment objectives that overlap with our business plan, which may further compound these conflicts.

BSAM and Stone Tower will devote as much of their time to our business as they deem necessary or appropriate to fulfill their obligation under their respective management agreement. However, they are currently committed to and expect to be committed in the future to providing investment advisory services and securities research and brokerage services for other clients, including other funds that they manage, and engage in other business ventures in which we have no interest. Furthermore, neither of the Co-CEOs is required to devote a specific amount of time to our affairs. As a result of these separate business activities, the managers will have conflicts of interest in allocating management time, services and functions between us and other business ventures or clients.

BSAM and Stone Tower, through their activities on behalf of other clients or entities, may acquire confidential or material non-public information or be restricted by internal policies from initiating transactions in certain securities. The managers will not be free to divulge, or to act upon, any such confidential or material non-public information and, due to these restrictions, may not be able to initiate certain types of

Our management agreements, governance documents and other arrangements with BSAM and Stone Tower, including with respect to our initial holdings, were negotiated in the context of an affiliated relationship. Our independent directors were not then appointed and did not participate in the negotiation of such terms and did not approve the arrangements on our behalf. Because these arrangements were negotiated between related parties, their terms, including terms relating to compensation, contractual or fiduciary duties, conflicts of interest and the ability of BSAM and Stone Tower to engage in outside activities, including activities that compete with us, our activities and limitations on liability and indemnification, may be less favorable than otherwise might have resulted if the negotiations had involved unrelated parties.

We may purchase assets from, finance the assets of or make co-purchases alongside BSAM or Stone Tower, their affiliates and/or business ventures or clients that they manage, including assets of CDOs structured by BSAM or Stone Tower. These transactions will not be the result of arm’s length negotiations and will involve conflicts between our interests and the interest of BSAM or Stone Tower and/or their affiliates in obtaining favorable terms and conditions. Accordingly, certain of these transactions may require approval by the disinterested directors. There can be no assurance that any procedural protections, such as obtaining the approval of the disinterested directors, will be sufficient to assure that these transactions will be made on terms that will be at least as favorable to us as those that would have been obtained in an arm’s length transaction.

We may purchase assets that are senior or junior to, or have rights and interests different from or adverse to, assets held by other accounts or funds managed by BSAM or Stone Tower. Certain of these transactions may require approval by our disinterested directors. Our interests in such assets may conflict with the interests of such other accounts in related investments at the time of origination or in the event of a default or restructuring of a company, property or other asset.

In addition, in structuring our CDO subsidiaries, the managers may have conflicts between us and other entities managed by them that purchase debt securities in our CDOs with regard to setting subordination levels, determining interest rates, providing for divesting or deferring distributions that would otherwise be made to CDO equity or otherwise setting the amounts and priorities of distributions to the holders of debt and equity interests in the CDO.

We purchase additional assets from third parties in negotiated transactions. The prices at which the additional assets are purchased will be influenced by many economic, market and other factors using price modeling by BSAM and Stone Tower that is based on various assumptions and estimates. Accordingly, the purchase price for the additional assets will depend upon the ability of BSAM and Stone Tower to effectively price such additional assets in the then-current lending, interest rate and securitization markets. The expected future cash flow and the discount rates used in determining the purchase price of such additional assets will also be affected by BSAM’s and Stone Tower’s estimates of the performance of the underlying assets.

Some of the asset sellers may be entities with which BSAM or Stone Tower has engaged in other commercial transactions, are clients of BSAM or Stone Tower or have other business relationships and may

After the offering, funds managed by or affiliated with BSAM and Stone Tower are expected to hold  % and  %, respectively, of our ordinary shares and accordingly will have significant influence over shareholder voting, including independent director elections. Additionally, the special voting share classes granted to BSAM and Stone Tower entitle each to elect one director. These special voting shares remain valid so long as the relevant management agreement remains in effect, or the relevant manager or its affiliates have over $50 million invested in Everquest. BSAM’s special voting shares entitle it to designate one additional director so long as the BSAM-affiliated investment in Everquest is over $100 million. Due to operation of these special voting share classes, currently three of our seven directors are affiliated with BSAM and Stone Tower. As a result, BSAM and Stone Tower will be able to substantially influence our company’s decisions.

BSAM and Stone Tower will manage our operations pursuant to the management agreements. The management agreements provide that BSAM, Stone Tower and their affiliates and their respective legal and other representatives will not be liable to us, any of our subsidiaries, our directors, our shareholders or any of our subsidiary’s shareholders for any acts or omissions or any errors of judgment by any of the foregoing or losses suffered by us arising from, or in connection with the provision of services by BSAM or Stone Tower, or on behalf of BSAM or Stone Tower, under the management agreements, except those resulting from the willful misconduct, fraud, criminal misconduct or gross negligence of the managers or by reason of the managers’ reckless disregard of their obligations and duties. We have agreed to indemnify BSAM and Stone Tower and their affiliates and their respective legal and other representatives to the fullest extent permitted by law against all liabilities and expenses arising from acts or omissions of any such indemnified party arising from, or in connection with, the provision of services by BSAM and Stone Tower, or on behalf of BSAM and Stone Tower, under the management agreements, except those resulting from the willful misconduct, fraud, criminal misconduct or gross negligence or reckless disregard in performance of their obligations and duties.

The management agreements may be difficult and costly to terminate. The term of each management agreement is one year from its commencement, and will be renewed automatically for a one-year term on each anniversary date after the initial one-year term unless we or a manager party to such management agreement terminates such management agreement by providing a termination notice to the other party. If we deliver a termination notice to a manager, other than with respect to a termination for cause, such manager will be entitled to a termination payment in an amount equal to between one and three times the average annual fees paid to the manager in prior years, depending on the timing and circumstances of the termination. These provisions may increase the effective cost to us of terminating the management agreements.

We seek to generate both current income and capital appreciation. However, the securities we invest in may not appreciate in value and, in fact, may decline in value. In addition, collateral assets underlying our CDOs may default on interest and/or principal payments. Accordingly, we may not be able to realize gains or income from our CDOs. Any gains that we do realize may not be sufficient to offset any other losses we experience. Any income that we realize may not be sufficient to offset our expenses.

To the extent that the rate of default with respect to assets held by any of our CDO holdings increases, the amount available to be paid to us as an equity holder decreases as does the value of our equity in that CDO holding. Additionally, we may have to record an asset-impairment charge in our financial statements relating to our CDO assets experiencing increased defaults. Because our holdings of CDO equity typically represent a leveraged investment, the occurrence of defaults with respect to only a small portion of the assets could result in the substantial or complete loss of our holding in the CDO equity.

The substantial majority of the asset-backed CDOs in which we hold equity have invested in RMBS, including primarily RMBS backed by collateral pools of subprime residential mortgage loans. “Subprime” mortgage loans refer to mortgage loans that have been originated using underwriting standards that are less restrictive than the underwriting requirements used as standards for other first and junior lien mortgage loan purchase programs, such as the programs of Fannie Mae and Freddie Mac. These lower standards include mortgage loans made to borrowers having imperfect or impaired credit histories (including outstanding judgments or prior bankruptcies), mortgage loans where the amount of the loan at origination is 80% or more of the value of the mortgaged property, mortgage loans made to borrowers with low credit scores, mortgage loans made to borrowers who have other debt that represents a large portion of their income and mortgage loans made to borrowers whose income is not required to be disclosed or verified.

Additionally, some of the mortgage loans backing the RMBS held by some of our CDOs are “non-conforming loans” and are not eligible for purchase by Fannie Mae or Freddie Mac due to either credit characteristics of the related mortgagor or documentation standards in connection with the underwriting of the related mortgage loan that do not meet the Fannie Mae or Freddie Mac underwriting guidelines for “A” credit mortgagors. These credit characteristics include mortgagors whose creditworthiness and repayment ability do not satisfy such Fannie Mae or Freddie Mac underwriting guidelines and mortgagors who may have a record of credit write-offs, outstanding judgments, prior bankruptcies and other credit items that do not satisfy such Fannie Mae or Freddie Mac underwriting guidelines. These documentation standards may include mortgagors who provide limited or no documentation in connection with the underwriting of the related mortgage loan. In addition, certain mortgage loans may fail to conform to the underwriting standards of the related originators.

Due to economic conditions, including increased interest rates and lower home prices, as well as aggressive lending practices, subprime mortgage loans have in recent periods experienced increased rates of delinquency, foreclosure, bankruptcy and loss, and they are likely to continue to experience rates that are higher, and that may be substantially higher, than those experienced by mortgage loans underwritten in a more traditional manner. Thus, because of the higher delinquency rates and losses associated with subprime mortgage loans, the performance of RMBS backed by collateral pools with a significant subprime component could be correspondingly adversely affected, which, in turn, would adversely affect the performance of CDOs containing such RMBS in their collateral pools.

The income that a CDO is capable of earning and distributing to us will decrease to the extent that during its applicable reinvestment period it is unable to reinvest the proceeds it receives from matured, prepaid, sold or called CDO assets into similar or higher yielding instruments. The ability of a collateral manager of a CDO to reinvest proceeds in similar or higher yielding instruments will depend on a variety of factors, including the general interest rate environment and the availability of investments satisfying the investment policies of the collateral manager or the requirements of the applicable indentures. A decline in net income earned by our CDOs resulting from a failure to reinvest proceeds at similar or higher yields will decrease the distributions we receive from those CDOs.

Our largest CDO subsidiary, Parapet CDO, also holds preference shares and income notes in CDOs. These equity securities are subject to substantial risks, including the following:

Leveraged Investment.  CDO equity securities represent leveraged investments in the underlying assets held by the CDO. This leverage arises from the debt securities issued by the CDO, which will increase the cash flow available to equity holders as compared with the cash flow that would be available for a comparable investment in a non-leveraged transaction. This increased cash flow will directly affect the yield on the CDO equity securities. However, the use of leverage also creates risk for the holders of CDO equity, like us, because the leverage increases their exposure to losses with respect to the underlying assets. This is particularly true of the equity securities issued by Parapet CDO, because both the equity securities issued by Parapet CDO, as well as the CDO securities constituting the assets held by Parapet CDO, represent leveraged investments. As a result, the occurrence of defaults with respect to only a small portion of the collateral could result in the substantial or complete loss of the investment in the CDO equity we hold in our subsidiaries. Due to the existence of leverage, changes in the market value of the CDO equity we hold or the CDO equity held by Parapet CDO could be greater than the changes in the values of the underlying assets of the relevant issuer, which itself may be subject to, among other things, credit and liquidity risk. You should consider with particular care the risks of leverage because it increases substantially the risk that the holders of the CDO equity securities could lose their entire investment if the pool of assets is adversely affected.

Limited Assets to Pay Dividends and Other Distributions on the CDO Equity Securities.  CDO equity securities represent equity interests in the relevant CDO issuer only. Like other securities issued by CDOs, they are payable solely from and to the extent of the available proceeds from the underlying assets held by the issuer. The CDO equity securities are part of the issued share capital of the issuer and are not secured. Except for the issuer, no person is obligated to pay dividends or any other amounts with respect to the CDO equity. Consequently, holders of the CDO equity must rely solely upon distributions on the underlying assets. If distributions on the underlying assets are insufficient to pay required fees and expenses, to make payments on the debt securities of the issuer or to pay dividends or other distributions on the CDO equity, all in accordance with the applicable priority of payments, no other assets of the CDO issuer or any other person will be available for the payment of the deficiency. Once all proceeds of the underlying assets have been applied, no funds will be available for payment of dividends or other distributions on the CDO equity. Therefore, whether holders of the CDO equity receive a return equivalent to or greater than the purchase price paid for the CDO equity by holders of the CDO equity will depend upon the aggregate amount of dividends and other distributions paid on the CDO equity prior to any final redemption date and the amount of available funds on the final redemption date available for distribution to holders of the CDO equity.

Subordination of the CDO Equity.  CDO equity receives distributions from the CDO only if the CDO generates enough income to first pay the holders of the CDO debt securities and related CDO expenses. Payments of principal of and interest on debt issued by CDOs, and dividends and other distributions on CDO equity securities, are subject to priority of payments. CDO equity is subordinated to the prior payment of all obligations under debt securities. Furthermore, in the event of default under any debt securities issued by a CDO, holders of the CDO equity generally have no right to determine the remedies to be exercised. To the extent that any elimination, deferral or reduction in payments on debt securities occurs, such elimination will be borne first by the CDO equity and then by the debt securities in reverse order of seniority. Thus, the greatest risk of loss relating to defaults on the collateral held by CDOs is borne by the CDO equity. To the extent that a default occurs with respect to any collateral and the trustee sells or otherwise disposes of such collateral, it is likely that the proceeds of such sale or other disposition will be less than the unpaid principal and interest on such collateral. Excess funds available for distribution to the CDO equity will be reduced by losses occurring on the collateral, and returns on the CDO equity will be adversely affected.

Equity Status of the CDO Equity.  The CDO equity securities represent equity in the applicable issuer and are not secured by the underlying assets held by the issuer, which generally secures the classes of debt securities issued by the issuer. As such, the holders of the CDO equity securities will rank behind all of the

Payments in respect of preference shares and other equity securities are also subject to certain requirements imposed by the relevant jurisdiction of a CDO. Payments to holders of preference shares, other than payments made on the final redemption date, and the other equity securities will generally be paid as dividends in accordance with the corporate law of the issuer. Under Cayman Islands law, for example, any amounts paid as dividends or other distributions on equity securities will be payable only if the issuer has sufficient distributable profits and/or share premium and meets any other application restrictions imposed on the issuer. In addition, such distributions (including any distribution upon redemption of preference shares) will be payable only to the extent that the issuer is and remains solvent after such distributions are paid. Under Cayman Islands law, for example, a company is generally deemed to be solvent if it is able to pay its debts in the ordinary course of its business as they come due.

To the extent the requirements under the applicable law are not met, amounts otherwise payable to the holders of equity securities may be delayed or altogether precluded.

Yield, Maturity, Distributions and Other Performance Considerations.  The amount of distributions on the CDO equity will be affected by, among other things, the timing of purchases of underlying assets, the rates of repayment of or distributions on the underlying assets, the timing of reinvestment in substitute underlying assets and the interest rates available at the time of reinvestment. The longer the period of time before reinvestment of cash in underlying assets, the greater the adverse impact may be on the aggregate interest collected, thereby lowering yields and otherwise affecting performance of the CDO equity. The amount of distributions on CDO equity may also be affected by rates of delinquencies and defaults on and liquidations of the underlying assets, sales of underlying assets and purchases of underlying assets having different payment characteristics. The yield and other measures of performance may be adversely affected to the extent that the issuer incurs any significant unexpected expenses.

In addition to the risks relating to CDO equity securities issued by CDOs described above, our CDO subsidiaries will invest in a range of asset classes, which will subject us to further risks, including, among others, credit risks, liquidity risks, interest rate and other market risks, operational risks, structural risks and other legal risks. Some, but not all, of these additional asset classes and certain related risks are described below.

Corporate Leveraged Loans.  Our CDO subsidiaries may hold interests in corporate leveraged loans originated by banks and other financial institutions (as well as in some cases by affiliates of the managers). These loans will be term loans and revolving loans, may pay interest at a fixed or floating rate, may be senior or subordinated and may be secured or unsecured. These loans may be illiquid. To the extent that they are non-investment-grade, they may also bear risks associated with high-yield bonds described below.

Our CDO subsidiaries may acquire interests in corporate leveraged loans either directly (by way of sale or assignment) or indirectly (by way of participation). The purchaser of an assignment typically succeeds to all the rights and obligations of the assigning institution and becomes a lender under the credit agreement with respect to the debt obligation; however, its rights can be more restricted than those of the assigning institution. Participation interests in a portion of a debt obligation typically result in a contractual relationship only with the institution participating out the interest, not with the borrower. In purchasing participations, our CDO subsidiaries generally will have no right to enforce compliance by the borrower with the terms of the credit agreement, or any rights of set-off against the borrower, and our CDO subsidiaries may not directly benefit from the collateral supporting the debt obligation in which it has purchased the participation. As a result, our CDO subsidiaries will assume the credit risk of both the borrower and the institution selling the participation.

High-Yield Bonds.  Many of the high-yield bonds our CDO subsidiaries may acquire are rated below-investment-grade by one or more nationally recognized statistical rating organizations or are unrated but of comparably low credit quality, and have greater credit and liquidity risk than more highly rated bonds.

High-yield bonds are often issued in connection with leveraged acquisitions or recapitalizations in which the issuers incur a substantially higher amount of indebtedness than the level at which they had previously operated. High-yield bonds have historically experienced greater default rates than investment-grade bonds.

Mortgage-backed Securities.  RMBS and CMBS held by our CDOs bear various risks, including credit, market, interest rate, structural and legal risks. Risks affecting the underlying real estate investments of an RMBS or CMBS include general economic conditions, the condition of financial markets, political events, developments or trends in any particular industry and changes in prevailing interest rates. The cyclicality and leverage associated with real estate-related instruments have historically resulted in periods, including significant periods, of adverse performance, including performance that may be materially more adverse than the performance associated with other instruments.

Prepayment rates could negatively affect the value of our mortgage-backed securities, including RMBS and CMBS, which could result in reduced earnings or losses and negatively affect the cash available for distribution to our shareholders. Volatility in prepayment rates may affect our ability to maintain targeted amounts of leverage on our mortgage-backed securities portfolio and may result in reduced earnings or losses for us and negatively affect the cash available for distribution to our shareholders.

CDO Debt Securities.  Our CDOs may hold debt securities issued by other CDOs. These CDO debt securities rely on distributions of the CDO’s underlying assets. Interest payments on the CDO debt securities (other than the most senior tranche or tranches of a given issue) are generally subject to deferral, without causing an event of default or permitting exercise of remedies by the holders thereof. If distributions on the collateral of the CDO or proceeds of such collateral are insufficient to make payments on the CDO debt securities held by our CDO subsidiaries, no other assets will be available for payment of the deficiency. CDO securities are generally privately placed and offer less liquidity than other investment-grade or high-yield corporate debt.

Total Return Swaps.  Our CDO subsidiaries may enter into total return swaps. Total return swaps are subject to risks related to changes in interest rates, credit spreads, credit quality and expected recovery rates of the underlying credit instrument as well as renewal risks. A total return swap agreement is a two-party contract to exchange returns from predetermined investments or instruments. Total return swaps allow investors to gain exposure to an underlying credit instrument without actually owning the credit instrument. In these swaps, the total return (fixed interest fees and capital gains/losses on an underlying credit instrument) is paid to an investor in exchange for a floating rate payment. The investor pays a fraction of the value of the total amount of the credit instrument that is referenced in the swap as collateral posted with the swap counterparty. The total return swap, therefore, is a leveraged investment in the underlying credit instrument. The gross returns to be exchanged or “swapped” between the parties are calculated based on a “notional amount,” which is valued monthly to determine each party’s obligation under the contract. We are charged a finance cost by counterparties with respect to each agreement. Because swap maturities may not correspond with the maturities of the credit instruments underlying the swap, we may wish to renew many of the swaps as they mature. However, there is a limited number of providers of such swaps, and there is no assurance the initial swap providers will choose to renew the swaps, and, if they do not renew, that we would be able to obtain suitable replacement providers.

Credit Default Swaps.  We may own credit default swaps. Credit default swaps are subject to risks related to changes in interest rates, credit spreads, credit quality and expected recovery rates of the underlying credit obligations referenced in the credit default swap. A credit default swap is a contract in which the contract buyer pays a periodic premium until the contract expires or a credit default occurs. In return for this premium, the contract seller makes a payment to the buyer if there is a credit default or other specified credit event with respect to the issuer of the underlying credit instrument referenced in the credit default swap. We may act as a buyer and seller of credit default swaps by entering into contracts that reference CDOs from cash and synthetic structures backed by pools of corporate, consumer or structured finance debt. The change in fair value resulting from movements in interest rates, credit spreads, changes in credit quality and expected recovery rates is unrealized as credit default swaps are not traded to realize this value. The valuation of credit default swaps may require management to make certain assumptions and estimates and actual experience may materially differ from the estimates reflected in our subsequent financial statements.

We hold synthetic CDOs and we expect to invest in similar assets in the future. Synthetic CDOs enter into credit default swaps and total return swaps which entail the risks described above. In addition, synthetic CDOs are subject to a number of risks, including the following:

We operate primarily through ownership of our CDO subsidiaries. To the extent we form new CDO subsidiaries internally, relatively short-term credit facilities may be used to finance the acquisition of securities for new CDO subsidiaries until a sufficient quantity of securities is accumulated, at which time the assets are refinanced through a securitization, such as a CDO issuance, or other long-term financing. As a result, we are subject to the risk that a CDO subsidiary will not be able to acquire, during the period that the short-term facilities are available, a sufficient amount of eligible securities to create a new CDO subsidiary that will increase our earnings potential. We also bear the risk that our future CDO subsidiaries we form will not be able to obtain such short-term credit facilities or may not be able to renew any short-term credit facilities after they expire should it be necessary to obtain extensions for such short-term credit facilities to allow more time to seek and acquire the necessary eligible instruments for a long-term financing. Inability to renew or extend these short-term credit facilities may cause a CDO subsidiary to seek more-costly financing for these assets or to lose the ability to utilize them in connection with the creation of a CDO issuance. In addition, conditions in the capital markets may make the creation of a CDO issuance less attractive to us when a sufficient pool of collateral is available. We, through our subsidiaries, may also participate in the equity of CDO entities established by third parties with respect to which we will assume all or a portion of the risk of losses prior to completion of a securitization by such CDO entity. Although participation in such equity may result in attractive yields during the warehouse period prior to securitization, default on the underlying assets and changes in market conditions can lessen or eliminate our expected yield or could result in the partial or total loss of our investment.

In the normal course of business, we may enter into an agreement which requires a deposit for the purpose of covering all or a portion of any losses or costs associated with the accumulation of securities under a warehouse agreement. If the CDO transaction is not consummated, the warehouse securities could be liquidated and we could bear losses to the extent the original purchase price of the securities exceeds its sale price, subject to negotiated caps, if any, on our exposure. In addition, regardless of whether the CDO transaction is consummated, if any of the warehoused securities is sold before the consummation, we could be required to bear all or a portion of any resulting loss on the sale. In certain cases, we could be required to acquire the equity of the CDO.

The indentures governing our CDOs generally provide that the principal amount of assets must exceed the principal balance of the related bonds by a certain amount, commonly referred to as “over-collateralization.” The CDO terms provide that, if certain delinquencies and/or losses exceed the specified levels based on the analysis by the rating agencies (or any financial guaranty insurer) of the characteristics of the assets collateralizing the bonds, the required level of over-collateralization may be increased or may be prevented from decreasing as would otherwise be permitted if losses or delinquencies did not exceed those levels. Other tests (based on delinquency levels or other criteria) may restrict our ability, as holders of the CDO’s equity interests, to receive cash flow from these investments. While completing the long-term financing of CDOs, we will be engaged in negotiations with the rating agencies or other key transaction parties on future CDO financings regarding the CDO delinquency tests, over-collateralization terms, cash flow release mechanisms or other significant factors regarding the release of cash flow to us by our CDOs. Failure to obtain favorable terms with regard to these matters may materially and adversely affect our cash flows, liquidity and the value of our equity interests. If assets held by our CDO subsidiaries fail to perform as anticipated, their

We plan to deploy the portion of net proceeds of this offering that is not used to repay our existing $200 million secured credit facility in accordance with our investment objectives described in this prospectus. We intend initially to invest a substantial portion of the net proceeds in short-term investments which may be lower-yielding than our targeted assets. We expect to deploy this portion of the net proceeds from this offering in our targeted asset classes as soon as practicable depending on the availability of appropriate investment opportunities. However, we cannot assure you that any particular class of investments will be available when we begin to invest the proceeds from this offering.

Under our memorandum and articles of association, we may issue additional securities, including ordinary shares, and options or other rights to purchase ordinary shares for such consideration and on such terms and conditions as our board of directors may determine with the approval of a majority of our independent directors. Our board of directors is able to determine the class, designations, preferences, rights, powers and duties of any additional corporate securities, including any rights to share in our profits, losses and distributions, any rights to receive corporate assets upon a dissolution or liquidation of the company and any redemption, conversion and exchange rights. We may use such authority to issue additional ordinary shares, which could dilute existing holders of ordinary shares, or to issue securities with rights and privileges that are more favorable than those of our ordinary shares. You will not have any right to consent to or otherwise approve the issuance of any such securities or the terms on which any such securities may be issued.

We expect the initial public offering price of our ordinary shares to be higher than the net asset value per share of our outstanding ordinary shares immediately after the offering. If you purchase our ordinary shares in the offering, you will incur immediate dilution of approximately           in the net asset value per share of our ordinary shares from the price you pay for our ordinary shares in the offering.

Prior to the offering, there has not been a market for our ordinary shares. After the offering, we expect that the principal trading market for our ordinary shares will be on a U.S. exchange. We cannot predict the extent to which investor interest will lead to the development of an active and liquid trading market for our ordinary shares or, if such a market develops, whether it will be maintained.

The underwriters may sell a substantial amount of our ordinary shares to a limited number of investors, which, together with the effect of certain of our ordinary shares being subject to lock-up agreements and other restrictions on transfer, could impact the development of an active and liquid market for our ordinary shares.

We cannot predict the effects on the price of our ordinary shares if a liquid and active trading market for our ordinary shares does not develop. In addition, if such a market does not develop, relatively small sales

Even if an active trading market develops, the market price of our ordinary shares may be highly volatile and could be subject to wide fluctuations after this offering. Some of the factors that could negatively affect our share price include:

As a result of these factors, investors in our ordinary shares may not be able to resell their shares at or above the initial public offering price.

Upon completion of the offering, we expect to have           ordinary shares outstanding, including the           ordinary shares that we are selling in the offering, assuming that the underwriters do not exercise their option to purchase additional ordinary shares to cover over-allotments. We have agreed to make a shelf registration statement available for the benefit of the holders of the shares issued in connection with our formation and our private-round financing to have the resale of their shares registered under the Securities Act. Upon registration and following the termination of any applicable lock-up period, these ordinary shares will be eligible for sale into the market.

We may also issue from time to time additional ordinary shares in connection with the acquisition of investments, and we may grant demand or piggyback registration rights in connection with such issuances.

Of the ordinary shares outstanding following the offering and related transactions, approximately           ordinary shares will be held by affiliates of the managers and will be subject to resale restrictions under lock-up agreements with the underwriters of the offering. We cannot assure you that the holders of any of our ordinary shares that are subject to lock-up restrictions will not sell substantial amounts of their ordinary shares upon any waiver, expiration or termination of the restrictions. The occurrence of any such sales, or the perception that such sales might occur, could have a material adverse effect on the price of our ordinary shares and could impair our ability to obtain capital through an offering of equity securities.

After becoming a public company, management will be required to deliver a report that assesses the effectiveness of our internal controls over financial reporting, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act. Section 404 of the Sarbanes-Oxley Act requires our auditors to deliver an attestation report on management’s assessment of, and the operating effectiveness of, our internal controls over financial reporting in conjunction with their opinion on our audited financial statements as of December 31 subsequent to the year in which our registration becomes effective. As permitted by SEC release 2006-136, compliance with Section 404 of the Sarbanes-Oxley Act is likely to be deferred until after we have filed one annual report with the SEC. Substantial work on our part is required to implement appropriate processes, document the system of internal control over key processes, assess their design, remediate any deficiencies identified and test their operation. We cannot give any assurances that material weaknesses will not be identified in the future in

Following the offering, as a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. We will incur costs associated with our public company reporting requirements. We also anticipate that we will incur costs associated with recently adopted corporate governance requirements, including requirements under the Sarbanes-Oxley Act. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly. We also expect that these new rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. We are currently evaluating these new rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.

The ordinary shares are equity of the company. Any amounts paid by the company as dividends or other distributions on the ordinary shares will be payable only to the extent of the company’s distributable profits and/or share premium (determined in accordance with Cayman Islands law). In addition, such distributions will be payable only to the extent that the company is solvent on the applicable distribution date and the company will not be insolvent after such distributions are paid. Under Cayman Islands law, a company is generally deemed to be solvent if it is able to pay its debts as they fall due.

Each of Everquest and its non-US corporate subsidiaries is and will likely remain a “passive foreign investment company,” or a PFIC, for U.S. federal income tax purposes. There are potentially adverse U.S. federal income tax consequences of investing in a PFIC for a shareholder who is a U.S. taxpayer. These consequences include the following:

The PFIC rules are very complex, there are uncertainties as to the application of the PFIC rules to us, and the tax reporting with respect to multiple PFICs is complicated. In particular, we believe that the better view appears to be that QEF elections made by our shareholders with respect to Everquest Financial Ltd. and Everquest Cayman Ltd., in conjunction with QEF elections made by Everquest LLC with respect to its PFIC subsidiaries, should be sufficient to enable the shareholders to report their share of our earnings and the earnings of our subsidiaries under the QEF regime. We intend to report our earnings, as calculated for U.S. federal income tax purposes, to you on this basis should you choose to make a QEF election with respect to Everquest Financial Ltd. and Everquest Cayman Ltd. However, substantial uncertainty exists concerning this view because of the absence of any judicial decisions or Internal Revenue Service, or IRS, guidance directly on point, and we cannot provide any assurance that the IRS will not treat the QEF elections made by Everquest LLC as invalid with respect to you on the basis that you should have made QEF elections with respect to each of our subsidiaries as well. We will use our reasonable best efforts to obtain and provide separate information for each of our PFIC subsidiaries to enable you to make separate QEF elections for such subsidiaries if you specifically request such information. However, we cannot assure you that such information will be available for all of our PFIC subsidiaries. Potential investors are therefore urged to consult their tax advisors regarding the advisability of making protective or actual QEF elections with respect to our subsidiaries and the consequences to them of not having valid QEF elections in effect for their and our entire holding period with respect to our subsidiaries and being subject to the Excess Distribution Rules (described under “Certain Tax Considerations — U.S. Federal Income Tax considerations — Tax Consequences of Our PFIC Status to U.S. Holders of Ordinary Shares — If no QEF or Mark-to-Market Election is in Effect”) if the IRS were to take a contrary position.

In addition, we cannot be sure that we will be able to provide you with all the information necessary for you to file your tax returns on a timely basis (without taking into account any available extensions). Moreover, the amounts reported under separate QEF elections for Everquest and each of its direct and indirect subsidiaries may differ from the amounts we report to you with respect to QEF elections you make for Everquest and Everquest Cayman Ltd. (which take into account QEF elections made by Everquest LLC). Because we may not distribute to you all amounts includible under the QEF elections, the amount of capital gain you derive on a disposition of our shares may be less, and the amount of capital loss greater, than if we distributed all of our earnings currently. Also, with respect to some of our subsidiaries, a QEF election may not avoid the application of the Excess Distribution Rules with respect to those shares. See “Certain Tax Considerations — U.S. Federal Income Tax Considerations — Tax Consequences of Our PFIC Status to U.S. Holders of Ordinary Shares.”

Certain subsidiaries of Everquest LLC may also be controlled foreign corporations, or CFCs, for U.S. federal income tax purposes, and, thus will have inclusions of gross income from such subsidiaries under the rules applicable to CFCs, including rules which treat the pledge of stock in such subsidiaries as creating additional income to the extent there are untaxed accumulated earnings in such subsidiaries.

You are urged to consult your own tax advisors concerning your particular circumstances and the U.S. federal, state, local and non-U.S. tax consequences to you of owning and disposing of our ordinary shares.

We believe that the company, both directly and through its subsidiaries, generally operates its businesses in a manner that should not result in it being treated as engaged in a trade or business within the United States. Consequently, we do not pay U.S. corporate income or branch profits tax on our income. However, we may determine in the future that it would be advantageous to acquire certain assets or engage in certain activities which could give rise to U.S. corporate income tax or branch profits tax. Under such circumstances, we intend to acquire such assets or engage in such activities in a corporate subsidiary and in a manner such that only the income from such assets or activities are subject to U.S. tax (and not all of our income). In

We expect that payments received by us from our subsidiaries as well as payments received by our subsidiaries on their investments generally will not be subject to withholding or other taxes imposed by the United States or reduced by withholding or other taxes imposed by other countries from which such payments are sourced. Such payments, however, might become subject to U.S. or other withholding or other tax due to a change in law or other causes. The imposition of unanticipated withholding taxes, tax on our income or other tax could materially impair our ability to make distributions to you.

Under current U.S. federal income tax law, the treatment of synthetic securities in the form of credit default swaps is unclear. Certain possible tax characterizations of a credit default swap, if adopted by the IRS and if applied to credit default swaps to which we are a party, could subject payments received by us under such swaps to U.S. withholding or excise tax. While it is not expected, it is also possible that because of such tax characterizations, based on all the facts and circumstances, we could be treated as engaging in a trade or business in the United States and therefore subject to net income tax. We may not be entitled to a full gross-up on such taxes under the terms of the synthetic securities. The imposition of such unanticipated taxes could materially impair our ability to make distributions to you.

Legislation recently proposed in the United States Senate would, for tax years beginning at least two years after its enactment, tax a corporation as a domestic corporation for U.S. federal income tax purposes if the equity of that corporation is regularly traded on an established securities market and the management and control of the corporation occurs primarily within the United States. If this legislation caused us to be taxed as a domestic corporation, we would be subject to United States net income tax. However, it is unknown whether this proposal will be enacted in its current form and, if enacted, whether we would be subject to its provisions.

We estimate that the net proceeds we will receive from the sale of        ordinary shares in the offering will be approximately $     , or approximately $      if the underwriters fully exercise their over-allotment option, in each case assuming an initial offering price of $      per share, after deducting underwriting discounts and commissions, and estimated offering expenses of approximately $      payable by us. We expect to use the proceeds from this offering:

Under the terms of our existing secured credit facility, we are required to repay any outstanding amounts under the facility with the proceeds of this offering. This credit facility bears an annual interest rate of the applicable three-month LIBOR plus 2.00% on all amounts drawn. The proceeds of this facility were used to purchase CDO equity.

In connection with the offering, we expect to enter into a new credit facility upon which we may draw to make additional acquisitions of CDO subsidiaries. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”

We intend to distribute quarterly dividends to our shareholders. We intend to distribute over time approximately 90% of our net investment income out of assets legally available for distribution. All distributions will be made at the discretion of our board of directors, and will depend on a number of factors such as:

At a minimum, to the extent we have available cash resources (including cash of Everquest LLC that may be distributed in accordance with applicable law and subject to the priorities set forth in its limited liability company agreement) in excess of reasonable reserves and our reasonably foreseeable business needs, we intend (although we are not obligated) to distribute annually in the aggregate an amount sufficient to cover the taxes payable by the ordinary shareholders to pay their taxes resulting from a QEF election made by them with respect to Everquest or Everquest Cayman Ltd., assuming they are subject to the highest marginal statutory combined federal, state and local tax rate prescribed for an individual living in New York, New York.

We are a holding company with no operations and are dependent upon the ability of our subsidiaries to generate and distribute dividends to us.

In January 2007, we declared a dividend of $14,352,016, or $0.61 per ordinary share, for the fourth quarter of 2006, which we paid on March 31, 2007 to shareholders of record on December 31, 2006.

The following table sets forth (i) our actual cash and net assets as of December 31, 2006, (ii) our pro forma cash, debt and net assets to reflect drawings under our existing secured credit facility and shares issued in the private-round financings we completed in January and February 2007, and (iii) our pro forma cash, debt and net assets as adjusted to reflect the effects of the sale of our ordinary shares in the offering, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, and the application of the net proceeds as described in “Use of Proceeds.” You should read this table together with “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and notes thereto included elsewhere in this prospectus.

Purchasers of ordinary shares offered in this prospectus will experience immediate and substantial dilution of the net asset value of their ordinary shares from the offering price. Our net asset value as of December 31, 2006 was approximately $619.5 million, or $25.93 per share. After giving effect to the sale of           ordinary shares in the offering at an assumed offering price of $      per share, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, our as adjusted net asset value on December 31, 2006 would have been approximately $      million, or $      per share. This amount represents an immediate dilution in net asset value of $      per share to new investors who purchase our ordinary shares in the offering at an assumed offering price per share of $          . The following table shows this immediate per share dilution:

The following table summarizes, as of December 31, 2006, the differences between the average price per share paid by our existing shareholders and by new investors purchasing ordinary shares in the offering at the offering price of $      per share, before deducting underwriting discounts and commissions and estimated offering expenses payable by us in the offering:

If the underwriters fully exercise their over allotment option, the number of ordinary shares held by existing holders will be decreased to  % of the aggregate number of ordinary shares outstanding after the offering, and the number of ordinary shares held by new investors will be increased to  %, of the aggregate number of ordinary shares outstanding after the offering.

In the table below, we provide you with selected consolidated financial and other data of the company. We have prepared this information for the period from September 28, 2006 (commencement of operations) to December 31, 2006 using our audited consolidated financial statements for the period from September 28, 2006 (commencement of operations) to December 31, 2006. Results for the period from September 28, 2006 (commencement of operations) to December 31, 2006 are not necessarily indicative of results that may be expected for an entire year.

When you read this selected consolidated financial and other data, it is important that you read along with it the consolidated financial statements and related notes, as well as the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” which are included in this prospectus.

The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this prospectus.

We are a newly formed company. We commenced operations on September 28, 2006. On that date:

As a result of these transactions, at the initial closing, we received approximately $555.2 million of CDO equity and approximately $7.3 million in cash, net of the cash consideration we paid to the BSHG Funds and HY. We valued the equity interests in the CDOs we acquired in connection with our formation at their fair value as of the initial closing date, taking into account a number of factors, including the projected cash flows we expected to be generated by these interests and valuation information provided by third-party market participants. As of December 31, 2006, our CDO holdings, which includes equity tranches in 19 CDOs, had an aggregate fair value of $719.7 million.

Subsequent to December 31, 2006, and through March 31, 2007, we acquired equity tranches of an additional three CDOs for a purchase price of $32.9 million. In addition, we continue to actively evaluate multiple opportunities, some of which may be material in relation to our size. We believe that the growth in CDO issuance will continue to provide attractive opportunities to expand our portfolio.

We expect to use the net proceeds from this offering primarily to repay amounts outstanding under our existing $200 million secured credit facility, which were previously used to finance the acquisition of CDO equity. We also intend to use a portion of the remaining proceeds to form or make additional acquisitions of CDO equity. See “Use of Proceeds.” We may also employ leverage under a new secured credit facility to finance the acquisition of additional CDO equity.

We generate cash flow primarily through distributions we receive as an equity holder in our CDO subsidiaries. To a lesser extent, we may generate earnings through minority holdings in CDO equity. We may also receive distributions from assets maintained in short-term warehouse facilities in which we share the risk of loss and that are utilized to finance the purchase of assets prior to permanent CDO securitizations.

As an equity holder in CDOs, we anticipate that distributions to us will be made, typically quarterly, out of the returns received by our subsidiaries from their underlying cash generating assets, but only after they pay their operating and other expenses and make any required debt service payments to the holders of the debt tranches. In addition, our CDOs are typically subject to a series of collateral tests that are designed to protect the holders of, and to maintain the credit ratings associated with, the senior debt tranches. At times, these tests require that distributions on the equity tranches be deferred or diverted (without triggering an event of default) which would prevent our subsidiaries, even if they are generating profits, from making distributions of these profits to us.

The following factors also affect the distributions to us from our CDO subsidiaries or other CDOs in which we hold equity:

In addition, a variety of factors relating to our business may also impact our overall financial condition and operating performance. These factors include:

As described more fully in “Summary — Our Market Opportunity,” we noted the following market trends:

While corporate credit default rates are at historically low levels, there is uncertainty as to whether these default rates will remain at current levels. While we continue to monitor and manage credit risk as part of our risk management process, an increase in corporate credit default rates, with all other factors remaining the same, would have a negative effect on our results of operations which, depending on the extent of the increase, could be material. We may seek to hedge our exposure if default rates increase significantly and if hedges are available on attractive terms.

Furthermore, a substantial majority of the ABS CDOs in which we hold equity have invested primarily in RMBS backed by collateral pools of subprime residential mortgages. The value and returns of these RMBS may be affected by general economic conditions in some geographic regions, including increased interest rates and lower housing prices, which have negatively affected collateral pools of subprime residential mortgages that underlie certain RMBS. Generally, our ABS CDOs hold RMBS rated in the range of “A2” to “Ba2” which, because of their higher position within the RMBS structure, are less susceptible to loss than the equity or lower-rated tranches of RMBS. Nevertheless, increased losses within the underlying collateral pools of subprime mortgages could also cause the higher-rated RMBS to suffer losses, which could be material. For a description of steps we have taken to manage these risks, see “— Credit Risk.”

For a discussion of additional risks relating to our business see “Risk Factors” and “— Quantitative and Qualitative Disclosures about Market Risk.”

Our consolidated financial statements were prepared by management in accordance with accounting principles generally accepted in the United States of America, or GAAP.

Although we conduct our operations so that we are not required to register as an investment company under the 1940 Act, for financial reporting purposes we follow the AICPA Audit and Accounting Guide for Investment Companies, or the Guide. Our significant accounting policies are fundamental to understanding our financial condition and results of operations because some of those policies require that we make significant estimates and assumptions that may affect the value of our assets or liabilities and our financial results.

Our consolidated financial statements contained elsewhere in this prospectus include the accounts of Everquest Financial Ltd. and its subsidiaries, Everquest LLC and Everquest Cayman, Ltd. We have eliminated all intercompany accounts and transactions.

On December 24, 2003, the Financial Accounting Standards Board, or FASB, issued FASB Interpretation No. 46 (Revised December 2003), “Consolidation of Variable Interest Entities,” or FIN 46(R), to clarify the application of Accounting Research Bulletin (“ARB”) No. 51, “Consolidated Financial Statements,” as amended by FASB Statement No. 94, “Consolidation of All Majority-Owned Subsidiaries.” The effective date of FIN 46(R) has been deferred for investment companies (including nonregistered investment companies) that are accounting for investments in accordance with the Guide. For accounting purposes, we have evaluated all CDO equity investments, including Parapet 2006, Ltd., under a control based model in accordance with ARB No. 51 and have not consolidated any of our CDO equity investments. As required by the Guide, all investments are reported at fair value.

We use the discounted cash flow valuation technique to estimate the fair value of our equity in a CDO. Our methodology is a three step process which includes the following:

Forecast expected cash flow.  We generally use INTEX, a third party vendor of CDO analytical software, which is a widely used industry tool, to forecast, based on assumptions we provide, the timing and amount of expected cash flows we receive as an equity owner in our CDOs. While INTEX itself renders an objective analysis, management is required to provide assumptions, based on observable market parameters and standard

Generally, there is a three to six month delay between when a CDO closes and the time it is modeled on INTEX. Until the deal is modeled on INTEX, we use either the CDO underwriter’s cash flow model or the collateral manager’s model. There are also instances when a CDO equity holding may never be modeled on INTEX and in such instances we will continue to use either the CDO underwriter’s cash flow model or its collateral manager’s model.

When we form or acquire CDO equity, the assumptions initially used are typically based on those made by the CDO underwriter. These are market conventions that are found in the standard marketing literature, which we review in making our own determination as to the assumptions to use. As part of ongoing surveillance and portfolio management, the assumptions we use are constantly tested in relation to the market parameters and actual performance of the underlying collateral. As a result, our assumptions may change.

Calculate the discount rate.  The initial discount rate we use in valuing each CDO is determined by reference to the internal rate of return (IRR), which is calculated based on the estimated future cash flows and our initial investment or cost.

In subsequent periods we continue to use a discount rate to revalue the assets using our best estimate of the rate market participants would use to value a similar asset, based on actual performance of the underlying collateral, the surveillance results or other market parameters.

Calculate the fair value of our equity in the CDO.  The fair value of our equity in a CDO is the net present value of the expected future cash flows calculated using our current assumptions and the applicable discount rate.

We revalue our CDO equity on a monthly basis based on newly generated cash flow estimates using our current assumptions and discount rate. The current and future characteristics of the underlying CDO portfolio, the interest rate environment, market parameters and all other assumptions are continuously monitored.

As part of the valuation, we currently carry out the following process:

Because of the methodology described above, fair value is highly sensitive to both the discount rate we select and our estimates of future cash flows attributable to our CDO equity ownership. Our estimates of future cash flows are, in turn, highly subjective and sensitive to the assumptions we make, which require considerable judgment and knowledge of market factors. The actual items set forth in our assumptions and therefore the actual future cash flows attributable to our CDO equity ownership may vary materially from our current assumptions and estimated cash flows.

Due to uncertainty inherent in the valuation process, our estimates of fair value may differ materially from the values that would have been used had a more developed market for the CDO holding existed. Additionally, changes in the market environment and other events that may occur over the life of a CDO may cause the gains and losses ultimately realized on these CDOs to be different from the valuations currently assigned.

Amortized Cost.  For accounting purposes, equity in CDOs is treated as a debt-like instrument accounted for under the principles of Emerging Issues Task Force Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets,” or EITF 99-20. We recognize interest and realized gains and losses in accordance with EITF 99-20.

Under EITF 99-20, at any balance sheet date, the amortized cost of the investment is equal to (1) the initial investment plus (2) the yield accreted to date less (3) all cash received to date regardless of whether labeled interest or principal less (4) any write downs for impairment.

Accretion of periodic interest.  As of the purchase date, the excess of the estimated future cash flows over the initial investment is the accretable yield, which is recognized as interest income over the life of the CDO using the effective yield method.

On a quarterly basis, if estimated cash flows generated from the CDOs differ from the cash flows previously estimated, revised yields are calculated based on the current amortized cost of the CDO and the revised estimated cash flows. The revised yields are then applied prospectively to recognize interest income.

The revised yield is determined by solving for the IRR which equates those future cash flows back to the amount of the amortized cost.

As is the case with our valuation methodology described above, the amount of accretion of interest is based on our estimates of future cash flows attributable to our CDO equity ownership and is therefore highly subjective and sensitive to the assumptions we make, which require considerable judgment and knowledge of market factors. Our actual yield and cash flows may vary materially from those estimated.

Unrealized Gains and Losses and Realized Losses.  Any difference between the fair value and the amortized cost is reflected as unrealized gain or loss. The difference in the amortized cost and the fair value is caused primarily by changes in the future expected cash flows and variations in actual cash flows compared to previously expected cash flows.

Determining realized loss.  The rules under EITF 99-20 requires a specific impairment analysis to be done on a security by security basis to determine if there has been an other-than-temporary change to a CDO holding. We evaluate securities for impairment as of each calendar quarter end, or more frequently if we become aware of any material information that would lead us to believe that our equity in a CDO may be impaired.

If the fair value of the CDO holdings is less than amortized cost and the fair value based on the current yield and revised cash flows is less than the fair value based on the current yield and original cash flows, then an other-than-temporary impairment must be recognized. The recognized impairment will equal the difference between the current fair value and the amortized cost. The amortized cost of the CDO is written down by the recognized impairment which will impact future accretion of income.

Our net increase in net assets resulting from operations for the period was $22.0 million, or $0.94 per weighted average number of shares outstanding. This result reflects interest income accrued during the period on our fully invested portfolio of CDO equity, after deducting operating expenses, which included in significant part organizational fees which under GAAP are required to be expensed in total.

Set forth below are certain ratios for the period, which are calculated by dividing the specified items for the period by the average of total monthly net assets. The net investment income ratio and total expense ratio includes accrued incentive fees.

Total revenue for the period was $25.0 million, which consists primarily of interest income earned from our holdings in CDO equity.

Operating expenses for the period totaled $10.7 million, which includes one-time organizational fees of $2.2 million, management and incentive fees of $6.6 million and professional fees payable of $1.1 million, and which resulted in net investment income of $14.3 million.

During the period from September 28, 2006 through December 31, 2006, we realized a net loss of $1,837,691, of which $2,157,691 related to losses taken as a result of other than temporary impairment on investments and $320,000 pertained to realized gains. Unrealized gains for the period from September 28, 2006 through December 31, 2006 were $9,437,212.

As a result of the foregoing, net increase in net assets resulting from operations was $22.0 million.

As of December 31, 2006 our share capital (including additional paid-in capital) was fully invested in our holdings of CDO equity, consisting primarily of CDOs where we held all or a majority of the equity. At that date, our total assets of $726.2 million included affiliated investments in securities, at fair value of $443.2 million, which primarily represented our holdings in our subsidiary Parapet CDO, and nonaffiliated investments in securities, at a fair value of $253.7 million, which represented our holding in CDOs where the collateral manager was an unrelated third party.

As of December 31, 2006 we had total liabilities of approximately $106.8 million, of which $72.4 million consisted of amounts due to brokers, relating to acquisitions of CDO equity that had not settled as of the balance sheet date, and $25.6 million consisted of loans incurred under our secured credit facility. See “— Liquidity and Capital Resources” below for a description of liabilities entered into subsequent to the balance sheet date.

As of December 31, 2006, we had net assets of approximately $619.5 million, consisting almost entirely of share capital (including additional paid-in-capital), representing a net asset value per share of $25.93.

Subsequent to December 31, 2006, we raised additional share capital as described below under “— Liquidity and Capital Resources.” See also “Dilution.”

We held cash and cash equivalents of approximately $2.6 million as of December 31, 2006.

We used approximately $214.1 million of net cash and cash equivalents in operating activities for the period September 28, 2006 (commencement of operations) to December 31, 2006, primarily reflecting $307.5 million of cost of securities purchased offset by an increase of liabilities due to brokers of $72.4 million. These securities purchased include the equity tranches in CDOs, other than Parapet CDO, acquired in connection with our formation as well as subsequent acquisitions of CDO equity contracted for but not closed between our formation and December 31, 2006. These subsequent acquisitions resulted in the due to brokers liability of $72.4 million and were settled after the balance sheet date with cash generated by private-round financings and amounts drawn under our secured credit line.

Cash flows from financing activities were approximately $216.7 million, reflecting the proceeds from issuances of our ordinary shares in connection with our formation.

On December 15, 2006 we entered a $200 million credit facility for a term of one year with Citigroup Financial Products Inc., or CFPI, secured by a first-priority perfected security interest on 100% of our assets. This facility has been drawn upon and is available to fund investments, pre-approved by CFPI, prior to an initial public offering, or IPO. At December 31, 2006, there was approximately $174.4 million of availability under this facility. We are required to repay any outstanding amounts under the facility with proceeds of our initial public offering. See “Use of Proceeds.”

Subsequent to December 31, 2006, and through March 31, 2007, we received an additional $62.3 million of private-round financing. The proceeds of this financing have been used in part to pay down certain amounts outstanding under the CFPI credit facility and in part to purchase additional CDO equity.

The offering will provide additional estimated net proceeds of approximately $      million. See “Use of Proceeds.”

In connection with the offering, we expect to enter into a new credit facility of approximately $      million. We expect that the proceeds of a new credit facility would be used to finance the formation or acquisition of additional CDO subsidiaries.

We believe cash generated by our CDO holdings, together with cash available from the offering and under the new credit facility, will permit us to satisfy our liquidity needs during the foreseeable future. If, in the future, we need additional capital we would expect to raise funds primarily through additional equity offerings, although we may not be able to obtain additional equity financing on attractive terms or at all.

We expect that any new CDO subsidiaries will finance their operations in the ordinary course through the issuance of CDO debt to third parties. Pending permanent CDO financing, to the extent we form new CDO subsidiaries we would expect to use traditional financing techniques such as warehousing facilities (through which third parties, typically large banks, hold the underlying assets funded with warehousing facility borrowings), or repurchase agreements.

As of September 28, 2006, we entered into a management agreement with each of BSAM and Stone Tower whereby we will pay to the managers a base management fee quarterly in arrears in an amount equal to (i) 1.75% on an annualized basis of the company’s net assets up to $2 billion, plus (ii) 1.50% on an annualized basis of the company’s equity over $2 billion and up to $3 billion, plus (iii) 1.25% on an annualized basis of

For purposes of calculating the management fee, the company’s net assets will be adjusted to exclude special one-time events pursuant to changes in GAAP, as well as noncash charges after discussion between the company and the independent directors on our board of directors and approval by a majority of the independent directors.

In addition to the management fee, the managers are entitled to receive a quarterly incentive allocation in an amount equal to 25% of the amount by which the company’s net increase in net assets resulting from operations, as calculated prior the incentive allocation and excluding noncash charges and special one-time events pursuant to changes in GAAP, exceeds the greater of 2.0%, or 0.50% plus one-fourth of the U.S. Ten Year Treasury Rate of the company’s capital at the beginning of the quarter. As of December 31, 2006 the incentive allocation accrued was approximately $3.8 million.

As described in “Use of Proceeds,” we are required to repay outstanding amounts under our existing secured credit facility.

In the normal course of business, we may enter into swap agreements, or Swaps, for investment, financing or hedging purposes. The Swaps are utilized to structure and hedge CDO holdings and to economically meet our objectives and help us manage risk. We may enter into total return, credit default, interest rate and currency swap agreements.

Swaps are contractual agreements between a company and a third party to exchange a series of cash flows. Total return swaps are agreements where one party receives equity returns based on reference pools of assets in exchange for short term floating rate payments based on notional amounts. Credit default swaps, are agreements in which one party pays fixed periodic payments to a counterparty in consideration for a guarantee from the counterparty to make specific payment should a negative credit event take place. Risks arise from the possible inability of counterparties to meet the terms of their contracts. See “ — Credit Risk.”

As of December 31, 2006, Everquest had four credit default swaps valued at $701,117 in its portfolio.

In the normal course of business, we may enter into an agreement which requires a deposit for the purpose of covering a portion of any losses or cost associated with the accumulation of securities under a warehouse agreement. Such a deposit of cash allows for notional participation in the income, or the carry, generated by the assets acquired within the warehouse arrangement, after deducting the notional debt cost. At the termination of the agreement, depending on the performance of the collateral securities accumulated in the warehouse, we have the potential to either lose our deposit or earn a residual carry and LIBOR based interest along with the return of our deposit. We are obligated to acquire 100% of the equity of the CDO should the CDO closing fail to occur and the existing collateral manager is replaced by BSAM.

These agreements are treated as derivatives for accounting purposes and are reported at fair value.

As of December 31, 2006, Everquest had deposited $22.0 million in two such warehouses which also represents the fair value.

Credit risk is the principal form of risk that we face. Substantially all of the assets held by our CDOs are credit-related assets. Credit risk represents the maximum potential loss we face if a counterparty fails to

As a holder of CDO equity, or the so-called “first-loss” tranche of a CDO, our cash flow will decrease for any failure on the part of an obligor to pay its obligations that we are unable to recover subsequently. As a result, all of our equity holdings in CDOs are sensitive to changes in the credit quality of the borrowers of corporate credits or the issuers of the asset-backed securities, including changes in the forecasted default rates and any declines in the anticipated recovery rates. In periods of increasing default rates or decreasing recovery rates, our cash flows from our CDOs would be reduced. Our financial exposure is limited to its investments in the equity interests in the CDOs.

The asset-backed securities held by our asset-backed CDO subsidiaries are themselves also subject to credit risk. For example, RMBS are collaterized by pools of residential mortgages, where the cash flow depends on homeowners making payments of principal and interest on their residential mortgages.

Because of the credit risk we face, we are required to monitor continually the overall credit quality of the underlying collateral. See “Our Company — Risk Management — Monitoring and Surveillance.” We also monitor whether the collateral managers of the structures in which we hold equity manage the underlying collateral in accordance with the criteria established in the collateral management agreements. We seek to manage credit risk in various ways. We may seek to sell credit impaired assets or if we are not the collateral manager recommend to the collateral manager that it sell the asset. We also seek to manage our risk by monitoring our exposure to any one issuer or corporate borrower. We may also seek to hedge our exposure to an issuer, borrower or credit (including, for example, tranches of subprime RMBS held by our CDO subsidiaries) by entering into credit default swaps, total return swaps or similar hedging techniques.

Prior to and since our formation, our manager BSAM has hedged exposures to certain tranches of ABS held by some of our CDOs, particularly RMBS with a high degree of exposure to sub-prime residential mortgage loans. These hedging transactions were originally entered into between the BSHG Funds and third parties and were not initially transferred to us pending our entry into relevant International Swaps and Derivatives Association, or ISDA, master agreements or other appropriate documentation with the third-party counterparties to the swaps. On May 8, 2007, the BSHG Funds transferred to us their interests in credit default swaps that reference 48 tranches of ABS securities held by our CDOs with a notional amount of approximately $201 million. We have agreed to pay the BSHG Funds approximately $4.4 million, representing accrued premiums on the swaps from the date of our formation or the effective date of the swaps, if later, through May 8, 2007 and, in the case of swaps in existence at the time of our formation, the fair value of such swaps as of that date. As a result of these transfers, we bear the risk of any decrease in value, and benefit from any gain or payments, with respect to these credit default swap contracts from May 8, 2007. We are also required to pay the ongoing premiums relating to the contracts.

The consideration we paid for the swaps was less than their fair value as of the date of transfer, which BSAM estimated to be approximately $21.6 million as of that date, and was designed to represent the amount we would have paid if the swaps that were in existence at the time of our formation had been transferred to us at that time and if we had otherwise directly entered into the swaps that were entered into after our formation. As a result, to the extent the fair value continues to exceed the amount we paid, we would expect our second quarter results to include a gain relating to the recognition of the swaps on our balance sheet as of the transfer date. While the BSHG Funds as principal shareholders will continue to benefit from the swaps they transferred to us to the extent of their equity ownership in us, we have been advised that BSAM has agreed to compensate the BSHG Funds for the decrease in their net asset value resulting from the transfer of their interests in the swaps to us.

The hedges will not cover all our exposure to RMBS held by our CDOs that are backed primarily by sub-prime residential mortgage loans. Our CDOs may experience negative credit events relating to RMBS tranches that are not hedged. However, the contracts were designed to hedge tranches that our manager BSAM believed were appropriate in light of exposures to sub-prime residential mortgage loans. Prior to their expiration, the fair value of these credit default swaps may increase or decrease in ways that may not ultimately be reflected

Interest Rate Risk.  With respect to our consolidated entities, the borrowings under our $200 million credit facility will be repaid upon the closing of the offering. We expect to have a new facility in place upon closing of the offering, which will similarly be sensitive to interest rate risk. At December 31, 2006, we had $25.6 million outstanding on our current facility, which bears interest at a floating rate. Based on this amount outstanding, an increase in interest rates of 1% held over the course of a year, with all other factors remaining the same, would increase our consolidated interest expense by approximately $0.26 million.

Our other assets, which consist almost entirely of our equity ownership in our CDOs, which are not consolidated, are not per se market rate sensitive instruments, but the cash flows we derive by virtue of our ownership of our CDOs primarily result from the difference between earnings of the assets our CDOs hold, which consist generally of a portfolio of assets that typically bear interest at floating rates or other CDO equity securities, and the financing costs associated with the multiple tranches of debt issued by the CDOs, which also typically bear interest at floating rates. Generally, the assets and liabilities of the CDO are matched so that the CDO and our equity interest therein are not per se highly sensitive to changes in interest rates, i.e. an increase in floating rates, with all other things being equal, would typically result in an increase in the interest expense associated with the CDO’s debt tranches, but would be offset depending on the match by increased earnings on the floating rate assets. However, in managing asset and liabilities in a CDO, reinvestment risk and yield spread risk arise, as further described below.

Reinvestment Risk.  We intend to continue to fund a substantial portion of our investments with borrowings that, after the effect of hedging, have interest rates based on indices and repricing terms similar to, but of somewhat longer maturities than, the interest rate indices and repricing terms of our assets. Thus, we anticipate that in most cases the interest rate indices and repricing terms of our assets and our funding sources will not be identical, thereby creating a reinvestment risk on a significant portion of our portfolio. During periods of changing interest rates, such reinvestment risk could impact our financial condition, cash flows and results of operations.

Yield Spread Risk.  Most of our investments are also subject to yield spread risk. For a majority of these securities, value is based on a market credit spread over the rate payable to LIBOR or U.S. Treasuries of like maturity. An excessive supply of these securities combined with reduced demand will generally cause the market to require a higher spread on these securities, resulting in the use of a higher or “wider” spread over the benchmark rate to value these securities. Under these conditions, the value of our securities portfolio would tend to decrease. Conversely, if the spread used to value these securities were to decrease or “tighten,” the value of our securities would tend to increase. Such changes in the market value of our securities portfolio may affect our net equity or cash flow either directly through their impact on unrealized gains or losses on available-for-sale securities by diminishing our ability to realize gains on such securities, or indirectly through their impact on our ability to borrow, access capital or receive structured product flows.

Our analysis of risks is based on management’s experience, estimates, models and assumptions. These analyses rely on models that utilize estimates of fair value and interest rate sensitivity. Actual economic conditions or the implementation of investment decisions by our management may produce results that differ significantly from the estimates and assumptions used in our models and the projected results shown in this prospectus.

In respect of floating rate syndicated bank loans, we enter into a contractual relationship directly with the corporate borrower, and as such we are exposed to certain degrees of risk, including interest rate, market risk and the potential nonpayment of principal and interest, including the default or bankruptcy of the corporate borrower or early payment by the corporate borrower.

In general, CDOs are bankruptcy remote, special purpose investment vehicles formed to acquire, monitor and, to varying degrees, manage a pool of fixed-income or other cash-generating assets. CDOs are financing vehicles that allow owners of financial assets to obtain long-term funding, manage refinancing and maturity risks, and secure a fixed cost of funds over an underlying market interest rate. Issuers have different motivations for creating or sponsoring CDOs. Investment advisory firms create and sponsor CDOs as a means of maximizing for the CDO equity holders the spread between the cost of borrowings and the return profile of the CDOs underlying collateral. This type of CDO is commonly referred to as an “arbitrage CDO.” CDOs are also created by commercial banks and other financial institutions to efficiently finance and transfer the risk of owning fixed-income assets. Commercial banks and other financial institutions usually structure this type of CDO for the purpose of addressing regulatory capital and balance sheet considerations. This type of CDO is commonly referred to as a “balance sheet CDO.”

The CDO market can be further divided into two major sectors based on the types of fixed-income assets that comprise their underlying collateral pool: (i) asset-backed CDOs and (ii) corporate credit CDOs, or CLOs. The following chart contains estimates of the approximate percentage of total CDO issuance volume for the year ended December 31, 2006 in each of the two major CDO categories, as well as for other CDOs that do not fall into either of the two major CDO categories.

According to Moody’s Quarterly Review, the annual volume of CDO issuances rated by Moody’s has increased from approximately $14 billion in 1996 to approximately $158 billion in 2006, representing a compound annual growth rate, or CAGR, of approximately 27%. We believe the growth in the sector has been driven by the continued search for returns by CDO equity investors and that investors in general have been attracted to the market by strong collateral performance, attractive asset and liability spreads when compared to alternatives, and the value of structural considerations such as diversification, subordination, increasingly experienced collateral managers and the benefits of a maturing and more sophisticated market. We believe the

A CDO issues different classes of securities, the repayment of which is linked to the performance of the underlying collateral. The securities issued by a CDO are tranched into rated and unrated classes. The rating of each class is determined by a variety of factors, including but not limited to the priority of the claim on the cash flows generated by the underlying collateral. The following is a brief description of each CDO tranche:

Ownership of the CDO equity represents a leveraged exposure primarily to the credit performance of the underlying collateral, and is characterized by a combination of expected significant current cash flow as well as the opportunity for positive returns through long-term appreciation of the underlying portfolio due primarily to credit improvement. However, due to the level of payment subordination of CDO equity, these securities usually receive lower ratings or no ratings at all.

CDO securities representing the tranches in a CDO capital structure generally are limited recourse obligations of the CDO, payable solely from the underlying assets of the CDO or proceeds thereof. Consequently, holders of CDO securities must rely solely on distributions on the underlying collateral or proceeds thereof for payments. If distributions on the underlying collateral are insufficient to make payments on the CDO securities, no other assets will be available for payment of the deficiency, and following realization or liquidation of the underlying assets, the obligations of the issuer to pay such deficiency will be extinguished. As an additional credit enhancement, many CDOs provide for the deferral of interest on all but the most senior tranches. The subordinate tranches of many CDOs provide that a deferral of interest does not constitute an event of default that would provide holders of such tranches with associated default remedies. During periods of nonpayment, deferred interest will generally be capitalized and added to the outstanding principal balance of the related security. Any such deferral will reduce the amount of current payments made on such securities.

Synthetic vs. Asset Purchase Structure

CDOs do not always own their underlying collateral outright, but rather achieve collateral exposure synthetically by entering into total return and/or credit default swaps. In a total return swap, the CDO receives the total return (interest, fees and capital gains/losses on underlying securities) in exchange for a fixed rate of interest payment. The CDO may also be required to pay a fraction of the value of the total amount of the securities that are referenced in the swap as collateral posted with the swap counterparty. The total return swap, therefore, is a leveraged investment in the underlying securities portfolio. By contrast, in a credit default swap, the CDO receives periodic payments from a counterparty that seeks protection against the default of a

The terms of a typical CDO may vary depending on the type of underlying collateral, prevailing market and economic conditions, and the quality of the portfolio manager. As discussed in detail below, most of our CDOs rely on a different exclusion from the 1940 Act than the majority of CDOs in the marketplace. The following summarizes certain of the material terms of a typical CDO and some of the areas in which our CDOs will differ.

At closing, a cash CDO typically will have purchased approximately 50-75% of its targeted assets and is given an additional period, known as the ramp-up period, to complete the purchase of its remaining targeted assets. This ramp-up period typically ranges from 90 to 180 days. A synthetic CDO, which purchases some or all of its assets in swap form, may have a significantly shorter ramp-up period.

The maturity date of a CDO refers to the last date on which any remaining CDO debt must be repaid. In general, CDO debt matures between 12 to 40 years from the closing date.

Duration measures the price sensitivity of a CDO and is calculated based on the weighted average of the present values for all anticipated cash flows over its expected life. CDO equity often has a relatively short expected duration (usually less than 10 years), as a typical CDO distributes excess cash flows quarterly or semi-annually concurrent with the payment of interest on its liabilities subject to compliance with overall collateral quality tests and other performance criteria.

Most CDOs allow the portfolio manager to trade fixed-income assets, subject to compliance with selected collateral tests and annual volume limitations, which typically allow trading of up to 15% of the aggregate par amount of non-credit-impaired assets, or free trading basket, and unlimited trading with regard to credit-impaired and credit-improved assets. By contrast, most of our CDOs that are structured to comply with Rule 3a-7 are limited by the terms of their indentures with respect to trading fixed-income assets. The indentures of such CDOs generally do not contain any free trading basket and generally do not permit trading with regard to credit-improved assets. However, the managers may substitute for or sell assets that are credit-impaired or may substitute for or sell other assets in order to cause, maintain or restore compliance with a collateral coverage test, collateral quality test or eligibility criteria set forth in the related indentures that would not be satisfied in the absence of such substitution. In no event will any dispositions or acquisitions be permitted for the primary purpose of recognizing gains or decreasing losses resulting from market value changes.

Since many of the fixed-income assets held by a CDO represent debt obligations, which may mature or be prepaid during its life, many CDOs are structured to allow the portfolio manager, at its discretion, to reinvest the principal payments, subject to certain restrictions. The reinvestment period for a typical CDO commences on the closing date and extends for a period of three to seven years, subject to earlier termination in the event of a default.

Generally, the portfolio manager is required to reinvest principal payments received during the reinvestment period in accordance with specified investment guidelines that are designed to preserve or enhance the credit ratings assigned to the CDO debt. The primary difference between a typical CDO and our CDOs that will be structured to comply with Rule 3a-7 with respect to reinvestment criteria is that the indentures of our CDOs will contain prohibitions against disposing of assets or acquiring new assets for the primary purpose of recognizing gains or decreasing losses due to changes in market value.

CDOs typically are subject to a number of collateral tests that are designed to protect the holders of, and to maintain the credit ratings associated with, CDO debt, including the following:

Collateral coverage tests exist to ensure that the collateral securing the underlying assets of a CDO is sufficient to pay CDO debt in case of defaults on the underlying assets. The two main collateral coverage tests are the over-collateralization test and the interest coverage test. Additionally, some CDOs utilize a ratings-based test. Collateral coverage tests can divert cash flows from subordinated tranches, prevent reinvestment in new CDO assets and cause senior tranches to be paid down before payments to subordinated tranches.

Collateral quality tests ensure that the type of collateral securing the underlying assets of a CDO are of a sufficient quality such that the collateral may be used to pay CDO debt upon the default of the underlying assets. These tests restrict portfolio trading, and may include objective measures of portfolio diversity, average rating, average life, prospective average recovery and minimum weighted average coupon or spread.

A diversity score is a rating agency’s index of a portfolio’s diversification, which generally focuses on the number of credits, the number of industries, geographical diversity and the asset categories of the underlying collateral. The purpose of the diversity score is to measure the potential collateral effects that a default on some of the assets underlying the CDO will have on the other assets underlying the CDO.

Concentration tests address the presence in the portfolio of single issuers, the percentage of the collateral represented by loan participations, non-U.S. obligors, triple-C credits, deferred interest instruments and other factors. Like the diversity score, concentration tests are utilized to prevent the concentration of the underlying assets of a CDO in a particular asset type.

The portfolio manager in a typical CDO is entitled to receive senior and subordinate management fees periodically. In addition, portfolio managers may be entitled to receive incentive fees periodically.

CDO debt is typically subject to a right of redemption at the direction of at least a majority of the CDO equity generally after a three- to five-year non-call period and subject, in many cases, to the payment of a make-whole premium. The exercise of this right is typically also conditioned on the availability of sufficient funds to satisfy the redemption obligation, including any make-whole premium. CDO debt is also typically subject to special redemption in the event that during the reinvestment period the portfolio manager is unable to reinvest principal payments in additional qualifying collateral. In addition, CDO debt will be mandatorily redeemed, subject to the availability of sufficient funds, in the event of a collateral coverage test failure.

Most CDO issuers are excluded from the registration requirements of investment companies under the 1940 Act by reason of their compliance with Section 3(c)(7). Section 3(c)(7) essentially requires such issuers to engage in private offerings made only to “qualified purchasers” (as defined in the 1940 Act), but places no limitations on the ability of the issuer to purchase or sell assets or otherwise trade the underlying portfolio of securities.

However, CDOs may also be structured to be excluded from investment company status under Rule 3a-7. Rule 3a-7 does not have restrictions on the manner of offering. Instead, Rule 3a-7 excludes from treatment as investment companies issuers engaged in the business of purchasing, or otherwise acquiring, and holding “eligible assets” (as defined in Rule 3a-7), including financial assets that by their terms convert into cash within a finite period of time, and in activities related or incidental thereto, and who do not issue redeemable securities. Rule 3a-7 imposes certain restrictions on the activities of such issuers, including the following:

Compliance by our CDO subsidiaries with Rule 3a-7 may be viewed as requiring that the indenture governing a CDO subsidiary include limitations on the types of assets the CDO subsidiary may sell or acquire out of the proceeds of assets that mature, are refinanced or otherwise sold, on the period of time during which such transactions may occur, on the overall level of transactions that may occur or on other provisions of the indentures that govern the operation of the particular CDO subsidiary. It is intended that the indentures of our CDO subsidiaries will contain these types of provisions.

Most of our CDO subsidiaries are excluded from investment company status under Rule 3a-7. Some of our CDO subsidiaries may also be structured to be excluded from investment company status under Section 3(c)(7), which excludes from investment company status issuers that are engaged in private offerings made only to “qualified purchasers” (as defined in the 1940 Act).

We are a specialty finance holding company that provides our shareholders with returns derived primarily from our structured finance subsidiaries, commonly known as collateralized debt obligations issuers, or CDOs. We are jointly managed and advised by our managers, Bear Stearns Asset Management Inc., or BSAM, and Stone Tower Debt Advisors LLC, or Stone Tower. Relying on the structured finance expertise of our managers, our objective is to create, structure and own CDOs and other structured finance assets that will provide attractive risk-adjusted returns to us and our shareholders.

We generate earnings primarily through a diversified portfolio of CDOs in which we beneficially own all or a majority of the equity. Our CDOs are special purpose vehicles that hold a range of cash-generating financial assets, such as corporate leveraged loans, asset-backed securities and securities issued by other CDOs. To finance the acquisition of these assets, our CDOs typically issue multiple tranches of securities, ranging from highly rated senior debt securities, which are secured or collateralized by these assets, to unrated equity tranches. As the sole or principal equity owner in our CDO subsidiaries, we are entitled to all or a portion of any cash flow, which is typically paid quarterly, generated by the underlying financial assets, after deducting the interest and required principal payments made to holders of CDO debt securities and other expenses.

We expect to continue to increase our holdings of CDOs, primarily through the formation and acquisition of additional CDO subsidiaries in which we plan to hold all or a majority of the equity. To a lesser extent, we also acquire and hold minority equity positions in CDOs. We expect to form and hold CDOs structured by our managers as well as to help structure and opportunistically acquire CDOs sponsored by third parties where we believe we can do so on attractive terms. We may also form or hold, from time to time, other structured finance assets.

We expect to allocate capital primarily to creating and owning two types of CDOs: (i) corporate credit CDOs, or CLOs, that primarily hold corporate leveraged loans and high-yield bonds, and (ii) asset-backed securities CDOs, or ABS CDOs, which hold asset-backed securities, including residential mortgage-backed securities and commercial mortgage-backed securities. These two types of CDOs include cash CDOs, which hold an underlying portfolio of cash-generating assets, and synthetic CDOs, which enter into total return swaps, credit default swaps or other derivative instruments designed to replicate the economic consequences of holding a referenced portfolio of assets. A synthetic CDO may generally be structured more rapidly to capitalize on favorable market conditions.

We believe that we enjoy the following competitive advantages:

Fully Employed Paid-in Capital and Diversified Portfolio of CDOs.  We have fully employed our paid-in capital to date in a seasoned portfolio of CDOs diversified by manager, collateral type, vintage and duration. As of December 31, 2006, our CDO holdings consisted of 19 CDOs, including 11 CDOs in which we own all or a majority of the equity tranches, one of which we own 50% of the equity and seven in which we own a minority interest. In addition, at that date, our largest CDO subsidiary, Parapet CDO, held a portfolio consisting of preference share and income note tranches of 15 CDOs and mezzanine debt securities of 22 CDOs. As of December 31, 2006, five of the CDOs in which we hold equity securities were managed by our managers. We believe that this diversification reduces our exposure to individual market sectors or credit events.

Management Expertise.  Our co-chief executive officers, Ralph R. Cioffi and Michael J. Levitt, have a combined total of more than 54 years of experience in structured finance, non-investment-grade debt investing, leveraged finance and private equity. Mr. Cioffi joined Bear Stearns in 1985, and founded the BSHG Funds in March 2003. He was instrumental in the creation of the structured credit effort at Bear Stearns, which is a leading underwriter and secondary trader in structured credit securities. Mr. Levitt founded Stone Tower

Strengths of Our Managers.  We believe that we will be able to leverage the strengths of our managers, which include the following:

Access to Proprietary and High-Quality Deal Flow.  We believe BSAM and Stone Tower’s market position, expertise and long-standing relationships with a broad range of market participants have provided and

High-Quality Risk Management Systems.  We believe the strong track record to date of our managers is due, among other things, to the surveillance and risk management systems they utilize. We believe that access to those systems is a significant competitive advantage. The proprietary and third-party surveillance systems used by BSAM were designed to ensure that all assets are reviewed real time and those showing signs of potential credit deterioration or poor performance are designated for further review. BSAM’s surveillance systems track over 80,000 securities on a daily basis and monitor the performance of all of our CDO holdings as well as perform in-depth analysis on all the underlying collateral backing such holdings. We believe our managers’ systems enhance our ability to quickly identify, and where possible, sell or otherwise hedge potentially credit-impaired assets before significant credit deterioration begins or rating downgrades occur. We benefit from these systems not only in the case of CDOs managed by our managers but also with respect to those managed by third parties. With respect to CDOs managed by third parties, we integrate the underlying credits into our surveillance systems so that they can be monitored in the same way as CDOs managed by our managers. When we identify a potential credit-impaired asset in a third party managed CDO, we notify the manager and work with the manager to sell or hedge the asset. If the asset is not sold, we attempt to hedge our exposure to the asset. Additionally, Stone Tower performs daily surveillance on all loans underlying each of our CLO investments. Both BSAM and Stone Tower monitor assets in real time with systems that are designed to be early warning in nature, as opposed to systems that provide alerts only after an asset begins to deteriorate.

Access to BSAM and Stone Tower Investment Professionals and Infrastructure.  We also believe we have a significant competitive advantage through our access to BSAM’s and Stone Tower’s structured finance professionals, who are supported by an established operational infrastructure. As of December 31, 2006 the combined BSAM Team and Stone Tower team responsible for Everquest included a total of approximately 52 professionals, consisting of portfolio managers, research analysts and other professionals. In addition, Everquest has access to the broader operational infrastructure of BSAM and Stone Tower, including information technology, legal, administrative and other back office operational infrastructure. As of December 31, 2006, BSAM and Stone Tower had more than 440 employees in the aggregate.

Strong Alignment of Interest among Everquest, BSAM and Stone Tower.  The interests of BSAM and Stone Tower are strongly aligned with ours. The BSHG Funds, which are managed by BSAM, owned approximately 67.0% of our ordinary shares as of December 31, 2006, and are expected to own approximately  % of our ordinary shares after this offering. I/ST, a fund managed by an affiliate of Stone Tower, owned approximately 8.4% of our ordinary shares as of December 31, 2006, and is expected to own approximately     % of our ordinary shares after this offering. In addition, as a result of this offering each of BSAM and Stone Tower, or their designees, will be entitled to receive share grants representing 2.5% (or together an aggregate of 5.0%) of our ordinary shares outstanding upon completion of this offering.

We intend to continue to grow our holdings in CDOs and other structured finance assets. We seek to generate attractive returns by leveraging the strengths of our managers to:

Our CLO subsidiaries primarily acquire corporate leveraged loans and high-yield bonds. Most of the assets held by our CLO subsidiaries are rated below-investment-grade by one or more of the rating agencies. The composition of each CLO is generally governed by the specific asset limitations provided in each CLO and the rating criteria attributed to a particular CLO.

Corporate leveraged loans are debt obligations of highly leveraged corporations, partnerships and other entities in the form of first and second lien loans, participations in corporate leveraged loans, commercial real estate mezzanine loans and bridge facilities. Given the high proportion of debt that is typically found in the capital structure of this type of borrower, these debt obligations are referred to as leveraged loans. Our CLO subsidiaries may acquire leveraged loans that are (i) widely syndicated, (ii) middle-market loans, which are not widely syndicated, (iii) U.S. dollar-denominated, and (iv) euro-denominated. Our CLOs, to the extent allowed by a CLO indenture, may also hold the second lien loans and commercial real estate mezzanine loans of certain issuers. A second lien loan is a loan in which the holder of such loan is subordinated in its right to receive principal and interest payments from the borrower to the rights of the holder of the senior loan. Commercial real estate mezzanine loans are loans that are subordinated to a first mortgage loan on the same property, and are typically secured by pledges of ownership interests in the property and/or property owner.

High-yield bonds are below-investment-grade debt obligations of corporations and other non-governmental entities. These bonds could be secured by a borrowers’ assets or unsecured, and could have an interest-only payment schedule, with the principal amount remaining outstanding and at risk until the bond matures.

Our asset-backed CDO subsidiaries primarily acquire RMBS, CMBS, diverse consumer and commercial ABS and debt tranches of other asset-backed CDOs.

RMBS represent interests in pools of residential mortgage loans secured by one- to four-family residential mortgage loans in which payments of both principal and interest are generally made monthly, net of any fees paid to the issuer, servicer or guarantor of the securities. The RMBS held by our CDOs are principally collateralized by adjustable rate RMBS, fixed rate RMBS, hybrid adjustable rate RMBS and agency-backed RMBS. A majority of the RMBS held by our CDOs consist of non-agency adjustable rate and three- and five-year hybrid adjustable rate mortgage-backed securities. Most of the RMBS held by our CDOs are rated investment-grade by one or more rating agencies.

RMBS include:

CMBS are securities backed by obligations (including certificates of participation in obligations) that are principally secured by mortgages on real property or interests therein having a multifamily or commercial use, such as regional malls, other retail space, office buildings, industrial or warehouse properties, hotels, nursing homes and senior living centers. These securities may be senior, subordinate, investment-grade or non-investment-grade securities. The majority of the CMBS assets that our CDOs acquire are rated between A2 – Baa2 and A – BBB by Moody’s and S&P, respectively. The majority of these CMBS assets consist of securities that are part of a capital structure or securitization where the rights of such class to receive principal and interest are subordinate to senior classes but senior to the rights of lower-rated classes of securities. Our CDOs acquire CMBS with high-yield current interest income and where we consider the return of principal to be likely. Our CDOs acquire CMBS from private originators of, or investors in, mortgage loans, including savings and loan associations, mortgage bankers, commercial banks, finance companies, investment banks and other entities.

ABS are securities backed by either consumer or commercial receivables in sectors such as auto, credit cards, student loans and equipment. Our CDO subsidiaries acquire investment-grade and non-investment-grade ABS. The structure of an asset-backed security and the terms of the investors’ interest in the collateral can vary widely depending on the type of collateral, the desires of investors and the use of credit enhancements. ABS issuers are special-purpose entities owned or sponsored by banks and finance companies, captive finance subsidiaries of nonfinancial corporations or specialized originators such as credit card lenders. Most of the asset-backed securities that we acquire are rated between A2 – Baa2 and A – BBB by Moody’s and S&P, respectively.

CDO debt securities consist of the senior and mezzanine debt securities of CDOs. Our CDO subsidiaries acquire the debt tranches of CDOs sponsored by third parties as well as by the managers. We believe that CDO debt represents a potentially attractive acquisition opportunity for our CDO subsidiaries. Most of the CDO debt tranches that we acquire are rated between A2 – Baa2 and A – BBB by Moody’s and S&P, respectively.

To a lesser extent, our CDO subsidiaries also invest in commercial real estate subordinated loans, or B – Notes, mezzanine loans and trust preferred securities. B – Notes are loans that are (i) secured by a first mortgage on a single large commercial property or group of related properties, and (i) subordinated to an A – Note secured by the same first mortgage on the same property. Mezzanine loans are loans that are subordinated to a first mortgage loan on a commercial property and are senior to the borrower’s equity in the property. Mezzanine loans are typically secured by pledges of ownership interests in the property and/or property owner. Trust preferred securities are hybrid instruments that have characteristics of debt and equity securities.