On behalf of the Halyard Capital Team, we are pleased to include a summary of our portfolio, investment and fundraising activity that resulted in a very successful 2007. The combination of successful realizations and attractive acquisitions by our portfolio companies has resulted in superior Fund I performance through 12/31/07. Additionally, we have made significant progress on the launch of Fund II, both on the fundraising front and on the investing front.

Portfolio Acquisitions

Halyard Capital continued to invest in building out its existing platform companies in attractive industries. Specifically, Halyard made four follow-on acquisitions within existing portfolio companies.

EducationDynamics - EducationDynamics ("ED"), formerly known as Halyard Education Partners, completed two significant add-on acquisitions in May 2007, WorldClass Strategy, an online lead generation provider to for-profit post-secondary education institutions, and GoalQuest, Inc., a provider of proprietary web-based tools that help universities recruit, enroll, retain and communicate with students and alumni. Through these acquisitions and the company's prior acquisitions of eLearners.com and Educational Directories Unlimited, ED is strongly positioned as the online leader in information resources for the post-secondary education market.

ImpreMedia - ImpreMedia, LLC, the nation's leading Spanish-language print and online news publisher, completed two acquisitions in 2007, Tribune Company's New York publication, Hoy, and its related weekend publication Fin de Semana in February and Rumbo, the No.1 Spanish-language newspaper network in Texas with newspapers in three of the top 10 Hispanic DMA's, Houston, San Antonio and the Rio Grande Valley. In addition, ImpreMedia recently signed an agreement with The McClatchy Co. to create a national Spanish-language online and print advertising platform. This partnership is significant as it allows ImpreMedia's advertisers to reach two additional top Hispanic markets, Miami and Dallas/Ft. Worth, thereby increasing penetration to 18 top U.S. Hispanic markets, including 9 of which are in the top 10.

Realizations

Halyard has continued to experience positive momentum in Fund I successfully monetizing the following portfolio companies during 2007, all of them generating strong returns for Fund I. These realizations include:

Tranzact - TRANZACT, the nation's premier provider of outsourced customer acquisition solutions to Fortune 1000 brands, was sold to Veronis Suhler Stevenson in October 2007 for $185 million. Halyard Capital partnered with management in May 2003 to found TRANZACT through the purchase of Mosaic Performance Solutions USA, a division of the Toronto-based Mosaic Group. Since then, Halyard and management successfully grew revenue and EBITDA 40% and 70%, respectively, over the 52-month investment period. The sale generated a multiple of 12x invested capital and an IRR of 82% for Halyard.

North Dakota Holdings - North Dakota Holdings, owner and operator of eight television stations in North Dakota and South Dakota, was sold to Dallas-based Hoak Media LLC in January 2007. Founded in August 2002, NDH developed its portfolio of stations through three acquisitions, focusing on targets with strong network affiliations and shares of their respective viewing populations and dominant local news presences. The sale generated a multiple of 2.4x invested capital and an IRR of 23% for Halyard.

American Consolidated Media - American Consolidated Media, publisher of 40 community newspapers and shopping publications serving nine communities throughout Texas and Oklahoma, was sold to Macquarie Media Group in February 2007. In July 2004, Halyard made its investment in ACM to facilitate its acquisition of Valley Media, a publisher of shopper and community newspaper publications with a significant Hispanic audience in the Lower Rio Grande Valley. The sale generated a multiple of 1.7x invested capital and an IRR of 24% for Halyard.

Presidio Corporation - Presidio Corporation was formed in November 2004 to execute on a platform/buildup strategy focused on the delivery of voice and data networking solutions to the middle market enterprise. The company has completed six accretive acquisitions and has achieved impressive cash flow growth, thereby allowing the company to issue a dividend to investors in May 2007.

New Investments

Halyard has made significant progress putting capital to work in Fund II, committing $75 million of capital to three platform companies: EducationDynamics (also a Fund I portfolio company), Engauge Marketing and HCPro. Each of these investments offers exciting investment opportunities in high growth sectors, including education, information services and marketing services.

Engauge Marketing - Engauge was created by Halyard Capital in partnership with Stan Rapp and formed through the acquisitions of Austin Direct Impact LLC in February 2007, a high-end database marketing agency, and Ten United, Ltd. In July 2007, a leading brand marketing agency. Engauge is a new marketing solutions agency that optimizes the timeless power of brand and customer engagement and focuses on three fundamental direct marketing disciplines: database analytics, digital/online advertising and traditional direct marketing communication. Engauge also completed the acquisition of StreamRite, a digital development firm with online marketing technology solutions, in January 2008, and has an additional interactive marketing firm under exclusive LOI.

HCPro - Halyard acquired HCPro in February 2008, the result of Halyard's targeted initiative of identifying investment opportunities in the Compliance and Regulatory Information Services sector. HCPro is the leading provider of information, educational, and advisory products and services in the areas of compliance, regulation and management to the U.S. healthcare industry. HCPro delivers this content in a wide variety of formats including newsletters, e-mail, magazines, books, online products, software, broadcast events, seminars, conferences, training and consulting and videos. The company intends to grow through new product launches and strategic acquisitions.

Outlook and Current Initiatives

The level of new deals in the pipeline continues to be strong and the lower-middle market transactions seem to be less impacted by the challenges in the leverage market currently affecting the financing of larger transactions. However, we do expect that companies in the lower middle market will begin to run into capital structure issues giving the aggressive leverage lending multiples and the proliferation of multi-tier capital structures that were prevalent over the last few years. We believe that these companies with over-extended capital structures will generate future investment opportunities for Halyard and we continue to be on the lookout for these types of opportunities.

In addition, we have devoted a significant amount of time over the last year developing new investment themes and cultivating executive relationships and partnerships. A sampling of some of our investment initiatives appear below:

We are currently working with an experienced cable executive to identify attractive cable assets in high growth markets. We are currently in exclusive discussions to acquire one particular asset which we expect to close in the first quarter of 2008. We have identified a number of other attractive targets that will enhance this platform.

Halyard has been actively exploring the opportunity to create a new platform company in the post-secondary assessment and analytics sector alongside a seasoned education executive. We believe the underlying industry fundamentals are attractive and have identified a number of attractive acquisition targets.

Halyard continues to seek out opportunities in the Information Services, Interactive Marketing and Business Process Outsourcing arena. We are working with a number of executives in our network to target specific opportunities within these area.

Robert Nolan / Bruce Eatroff / Chris Ruth / Rene Benedetto / Tim Brown / Michael Furey / Jonathan Barnes / Joseph Bondarenko / Duncan Welstead / Eric Brice / Brendyn Grimaldi / Heather Higgins