**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**FORM
      10-K**




(Mark
      One)




x
            ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934




For
      the
      fiscal year ended December 31, 2006




o
            TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934




For
      the
      transition period from ________________ to ________________




Commission
      file number 000-51682




**HIGHBURY
      FINANCIAL INC.**


(Exact
      Name of Registrant as Specified in Its Charter)




Delaware
            
            20-3187008(State
                or other jurisdiction of incorporation or organization)
            
            (I.R.S.
                Employer Identification No.)999
                Eighteenth Street, Ste. 3000, Denver, CO
            
            80202(Address
                of principal executive offices)
            
            (Zip
                Code)





Issuer’s
      telephone number (303) 357-4802




Securities
      registered under Section 12(b) of the Exchange Act:


None




Securities
      registered under Section 12(g) of the Exchange Act:


Title
      of Each Class :


Units
      consisting of one share of Common Stock, $.0001 par value per share, and two
      Warrants


Common
      Stock, $.0001 par value per share


Warrants
      to purchase shares of Common Stock




Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act.  YES  ̈ NO x




Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the
      Act.  YES  ̈ NO x




Indicate
      by check mark whether the registrant: (1) has filed all reports required to
      be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
      during the preceding 12 months (or for such shorter periods as the registrant
      was required to file such reports), and (2) has been subject to such filing
      requirements for the past 90 days.  YES x NO  ̈









Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the best
      of registrant’s knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any amendment to
      this
      Form 10-K.  ̈




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (check
      one)




Large
                accelerated filer ̈
            Accelerated
                filer ̈
            Non-accelerated
                filerx




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Act).    YES  ̈ NO x




As
      of
      June 30, 2006, the aggregate market value of the Common Stock held by
      non-affiliates of the Registrant was approximately $37,165,331, computed by
      reference to the closing sales price of such Common Stock on June 30, 2006,
      as
      reported on the OTC Bulleting Board. In determining the market value of the
      voting stock held by any non-affiliates, shares of Common Stock of the
      Registrant beneficially owned by directors, officers, stockholders who acquired
      their shares of common stock prior to the Registrant’s initial public offering,
      and holders of more than 10% of the outstanding shares of common stock of the
      Registrant have been excluded. This determination of affiliate status is not
      necessarily a conclusive determination for other purposes.




As
      of
      March 15, 2007, there were 9,527,000 shares of common stock, $0.0001 per value
      per share, outstanding.




**DOCUMENTS
      INCORPORATED BY REFERENCE: None**









**TABLE
      OF CONTENTS**




**Page**PART
                IITEM
                1.
            BUSINESS
            3ITEM
                1A.
            RISK
                FACTORS
            10ITEM
                1B.
            UNRESOLVED
                STAFF COMMENTS
            18ITEM
                2.
            PROPERTIES
            18ITEM
                3.
            LEGAL
                PROCEEDINGS
            18ITEM
                4.
            SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY HOLDERS
            18PART
                IIITEM
                5.
            MARKET
                FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
                PURCHASES OF EQUITY SECURITIES
            20ITEM
                6.
            SELECTED
                FINANCIAL DATA
            23ITEM
                7.
            MANAGEMENT’S
                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                OPERATIONS
            26ITEM
                7A.
            QUANTITATIVE
                AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
            42ITEM
                8.
            FINANCIAL
                STATEMENTS AND SUPPLEMENTARY DATA
            42ITEM
                9.
            CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                DISCLOSURE
            42ITEM
                9A.
            CONTROLS
                AND PROCEDURES
            42ITEM
                9B.
            OTHER
                INFORMATION
            42PART
                IIIITEM
                10.
            DIRECTORS,
                EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
            43ITEM
                11.
            EXECUTIVE
                COMPENSATION
            45ITEM
                12.
            SECURITY
                OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
                STOCKHOLDER MATTERS
            46ITEM
                13.
            CERTAIN
                RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
                INDEPENDENCE
            49ITEM
                14.
            PRINCIPAL
                ACCOUNTANT FEES AND SERVICES
            51ITEM
                15.
            EXHIBITS
                AND FINANCIAL STATEMENT SCHEDULES
            53SIGNATURES
            55FINANCIAL
                STATEMENTS
            F-1









*FORWARD
      LOOKING STATEMENTS*





*This
      Annual Report on Form 10-K includes forward-looking statements within the
      meaning of the Private Securities Litigation Reform Act of 1995, as amended,
      Section 27A of the Securities Act of 1933, as amended, or the Securities Act,
      and Section 21E of the Securities Exchange Act of 1934, as amended, or the
      Exchange Act. These forward-looking statements can be identified by the use
      of
      forward-looking terminology, including the words “believes,” “contemplates,”
“continues,” “estimates,” “anticipates,” “expects,” “intends,” “may,” “will” or
“should,” or, in each case, their negative or other variations or comparable
      terminology.* *You
      should read statements that contain these words carefully because
      they:*




•
                          discussfuture
                              expectations;


•
                    contain
                        projections of future results of operations or financial
                        condition;
                        or


•
                state
                    other “forward-looking”
information.





*We
      believe it is important to communicate our expectations to our stockholders.
      However, there may be events in the future that we are not able to predict
      accurately or over which we have no control. The risk factors and cautionary
      language discussed in this Annual Report provide examples of risks,
      uncertainties and events that may cause actual results to differ materially
      from
      the expectations described by us in such forward-looking statements, including
      among other things:*





•
                  the
                      impact of legislative and regulatory actions and reforms and
                      regulatory,
                      supervisory or enforcement actions of government actions relating
                      to
                      us;




•
              changes
                  in political, economic or industry conditions, the interest rate
                  environment or financial and capital markets, which could result
                  in
                  changes in demand for products or services or in the value of assets
                  under
                  management;




•
              terrorist
                  activities and international hostilities, which may adversely affect
                  the
                  general economy, financial and capital markets, specific industries,
                  and
                  us;




•
              changing
                  conditions in global financial markets generally and in the equity
                  markets
                  particularly, and decline or lack of sustained growth in these
                  markets;




•
            our
                business strategy and plans;




•
            the
                introduction, withdrawal, success and timing of business initiatives
                and
                strategies;




•
            harm
                to our reputation;




•
            fluctuations
                in customer demand;




•
            management
                of rapid growth;




•
            the
                impact of fund performance on
                redemptions;




•
            changes
                in investors’ preference of investing
                styles;




•
            changes
                in or loss of sub-advisers;




•
            the
                impact of increased competition;




•
            the
                results of future financing
                efforts;




•
            the
                impact of future acquisitions or
                divestitures;





•
            the
                relative and absolute investment performance of our investment
                products;




•
            investment
                advisory agreements subject to termination or
                non-renewal;




•
            a
                substantial reduction in fees received from third
                parties;





•
            our
                success in finding or acquiring additional investment management
                firms on
                favorable terms and consummating acquisitions of investment management
                firms;




•
            the
                ability to retain major clients;




1




•
            the
                ability to attract and retain highly talented
                professionals;




•
            significant
                limitations or failure of software
                applications;




•
            expenses
                subject to significant fluctuations;
                and




•
            the
                impact, extent and timing of technological changes and the adequacy
                of
                intellectual property protection.




*By
      their nature, forward-looking statements involve risks and uncertainties because
      they relate to events and depend on circumstances that may or may not occur
      in
      the future. We caution you that forward-looking statements are not guarantees
      of
      future performance and that our actual results of operations, financial
      condition and liquidity, and developments in the industry in which we operate
      may differ materially from those made in or suggested by the forward-looking
      statements contained in this Annual Report. In addition, even if our results
      of
      operations, financial condition and liquidity, and developments in the industry
      in which we operate, are consistent with the forward-looking statements
      contained in this Annual Report, those results or developments may not be
      indicative of results or developments in subsequent periods.* *You
      are cautioned not to place undue reliance on these forward-looking statements,
      which speak only as of the date of such statements.*




*All
      forward-looking statements included herein are expressly qualified in their
      entirety by the cautionary statements contained or referred to in this Annual
      Report. Except to the extent required by applicable laws and regulations,
      Highbury undertakes no obligation to update these forward-looking statements
      to
      reflect events or circumstances after the date of this Annual Report or to
      reflect the occurrence of unanticipated events.*




*Unless
      otherwise provided in this Annual Report, references to the “Company,” the
“Registrant,” the “Issuer,” “we,” “us,” and “our” refer to Highbury Financial
      Inc.* *and
      its subsidiary. References to Highbury refer solely to Highbury Financial Inc.
      and references to Aston refer solely to Aston Asset Management LLC, a subsidiary
      of Highbury.*




2




**PART
      I**




**ITEM
                1.**
              **BUSINESS**




**General**




Highbury
      is an investment management holding company providing permanent capital
      solutions to mid-sized investment management firms. We pursue acquisition
      opportunities and seek to establish accretive partnerships with high quality
      investment management firms. Highbury’s strategy is to provide permanent equity
      capital to fund buyouts from corporate parents, buyouts of founding or departing
      partners, growth initiatives, or exit strategies for private equity funds.
      This
      strategy includes leaving material equity interests with management teams to
      align the interests of management and Highbury’s shareholders and, in general,
      does not include integrating future acquisitions, although Highbury may execute
      add-on acquisitions for its current or future affiliates. We seek to augment
      and
      diversify our sources of revenue by asset class, investment style, distribution
      channel, client type and management team. We intend to fund acquisitions with
      retained net income or the issuance of debt or equity.




**Aston
      Business Strategy**




Pursuant
      to the asset purchase agreement, dated as of April 20, 2006, referred to in
      this Annual Report on Form 10-K as the asset purchase agreement, among Highbury,
      Aston and ABN AMRO Asset Management Holdings, Inc., or AAAMHI, ABN AMRO
      Investment Fund Services, Inc., ABN AMRO Asset Management, Inc.,
      Montag & Caldwell, Inc., Tamro Capital Partners LLC, Veredus Asset
      Management LLC, and River Road Asset Management, LLC, collectively referred
      to
      herein as the sellers, on November 30, 2006, Highbury acquired
      substantially all of the sellers’ business of providing investment advisory,
      administration, distribution and related services to the U.S. mutual funds
      specified in the asset purchase agreement, referred to throughout this Annual
      Report on Form 10-K as the acquired business. Aston, a 65%-owned affiliate
      of
      Highbury, is a platform for internal growth and add-on
      acquisitions.




As
      of
      December 31, 2006, Aston managed approximately $5.7 billion in total assets,
      including mutual fund and separate account assets under management. Aston
      provides investment advisory services to the Aston Funds, a family of 20
      no-load, open-end mutual funds with approximately $5.5 billion in client assets
      as of December 31, 2006. The mutual fund assets have historically grown
      internally, through market appreciation and net positive asset flows, from
      approximately $100 million in assets under management in 1993 to $7.3 billion
      at
      its peak in 2004, although since 2004 cumulative net redemptions have reduced
      the mutual fund assets to approximately $5.5 billion as of December 31, 2006.
      Aston also advises approximately $199 million of assets under management in
      separate accounts as of December 31, 2006.




Aston’s
      mutual fund platform is built upon providing advisory, sales, marketing,
      compliance, finance, operations, and administration resources to mutual funds
      using sub-advisers that produce institutional quality investment products.
      In
      managing historical growth and planning for future growth, the acquired business
      has been, and Aston will continue to be, guided by the following business
      strategies.




***Maintain
      and Improve Investment Performance***




The
      acquired business has a long-term record of achieving competitive, risk-adjusted
      returns on the mutual funds managed by its sub-advisers based on ratings from
      Morningstar. As of December 31, 2006, 12 of the 20 funds carried at least a
      three-star rating from Morningstar .
      These
      ratings are based on past performance, which may not be predictive of future
      results. Aston’s key strategy is to maintain and improve its investment
      performance by actively monitoring its sub-advisers to ensure consistent
      application of the specifically mandated investment philosophy and process
      while
      the sub-advisers actively manage Aston’s portfolios to achieve distinct balances
      of risk and reward. In terms of improving performance, Aston seeks to partner
      with additional investment managers with proven track records as well as provide
      additional support to its current sub-advisers in order to improve the
      sub-advisers’ ability to generate competitive returns while maintaining
      acceptable levels of risk for clients.




Morningstar
      Ratings TM are a
      standard performance measure used in the mutual fund industry to evaluate the
      relative performance of similar mutual funds. Aston believes that many investors
      rely heavily on Morningstar Ratings TM to
      select mutual funds in which to invest. As a result, Aston regularly uses
      Morningstar Ratings TM to
      evaluate the relative performance of its mutual funds. For each fund with at
      least a three-year history, Morningstar calculates a Morningstar Rating TM based on
      a Morningstar risk-adjusted return measure that accounts for variation in a
      fund’s monthly performance (including the effects of sales charges, loads and
      redemption fees), placing more emphasis on downward variations and rewarding
      consistent performance. The top 10% of funds in each category receive five
      stars, the next 22.5% receive four stars, the next 35% receive three stars,
      the
      next 22.5% receive two stars and the bottom 10% receive one star. (Each share
      class is counted as a fraction of one fund within this scale and rated
      separately, which may cause slight variations in the distribution percentages.)
      The overall Morningstar Rating TM for a
      fund is derived from a weighted average of the performance figures associated
      with its 3-, 5- and 10-year (if applicable) Morningstar Rating TM metrics.




3




***Selectively
      Expand Aston’s Investment Strategies***




Since
      the
      introduction of its first equity funds in 1993, the acquired business has
      expanded its product offerings to include multiple strategies within the equity
      and fixed income asset classes. Historically, Aston has entered into
      sub-advisory agreements with qualified sub-advisers to create new products
      in
      response to demand in the market. Aston intends to continue to expand
      selectively its investment strategies where it believes the application of
      its
      core competencies and process can produce attractive risk-adjusted returns.
      Aston believes that by doing so it can enhance its ability to increase assets
      under management as well as augment and further diversify its sources of
      revenue.




***Selectively
      Expand Aston’s Products and Distribution
      Relationships***




Aston
      strives to develop investment products and distribution channels that best
      deliver its strategies to clients of the Aston Funds. It seeks continued
      opportunities to expand its investment products and relationships for the
      delivery of these products. The combination of capacity and established
      investment performance track records creates potential to drive future growth.
      For example, Aston’s client relationship management team continuously identifies
      sources of demand for the funds working closely with a broad network of
      consultants and financial planners and providing information regarding Aston’s
      investment strategies and performance. Aston also continuously expands existing
      relationships and initiates new relationships within a variety of channels
      for
      mutual funds, including 401(k) platforms, fund supermarkets, broker dealers
      and
      financial planners. These third party distribution resources support a variety
      of defined contribution plans and independent financial advisers with demand
      for
      the institutional quality institutional investment styles of Aston.




Aston’s
      sales force includes 18 wholesalers which provide Aston with national
      distribution for new and existing products. Aston’s status as an independent,
      open-architecture platform enables it to incubate new products with a variety
      of
      investment management firms, regardless of their affiliations. Open-architecture
      refers to an investment platform that can distribute investment products that
      are advised or sub-advised by other firms. Previously, the sellers had generally
      limited new advisory relationships to affiliates of the sellers. Aston’s
      flexibility allows Aston to establish additional mutual funds and new product
      lines with a broad range of existing and new sub-advisers.




Aston
      is
      currently developing additional business lines that offer opportunities for
      growth. For example, Aston is building a separately managed account platform
      that had $199 million of assets under management as of December 31, 2006. In
      December 2006, Aston created a new fund, the Aston/Optimum Large Cap Opportunity
      Fund in partnership with Optimum Investment Advisors, LLC, the current
      sub-adviser to the Aston/Optimum Mid Cap Fund. The funds’ board of trustees has
      also approved the creation of a new mutual fund to be managed in the EAFE
      investment style. EAFE refers to investments in common stocks of companies
      located in Europe, Australia and the Far East. Aston intends to use its family
      of investment products and distribution resources to leverage its additional
      initiatives.




***Build
      Aston as a Brand Name***




The
      growth of the acquired business occurred under the Alleghany and the sellers’
brands. With the addition of the Aston brand, co-branded with outstanding
      institutional sub-advisers, Aston intends to build upon the historical success
      of the acquired business’ strategy to enhance the credibility, reputation and
      acceptance of the Aston brand name.




4




***Selectively
      Pursue Accretive Acquisitions***




We
      expect
      that prudent, accretive acquisitions will be a source of growth for Aston’s
      business in the future. Aston’s employees have substantial experience acquiring,
      integrating and managing investment management firms. Prior to the acquisition,
      Aston’s employees were involved in the acquisition or founding of six investment
      management firms over ten years and also founded the acquired business while
      at
      Alleghany Asset Management, Inc. These initiatives helped fuel the growth of
      Alleghany’s investment businesses from 1986 until its sale to ABN AMRO in 2001.
      In our efforts to pursue accretive acquisitions for Aston, Highbury may elect
      to
      finance transactions using one or more of the following sources: capital from
      Highbury, external debt, seller financing  or
      contingent payments. Highbury also intends to seek acquisitions independent
      of
      Aston which may be funded by its revolving credit facility, other external
      borrowings, retained earnings (if any), additional equity and other sources
      of
      capital, including seller financing and contingent payments.




**Assets
      Under Management**




The
      acquired business’ funds have grown significantly over the past 14 years. On
      April 20, 2006, the date the asset purchase agreement was entered into, the
      funds had $6.1 billion of client assets under management. The largest amount
      of
      client assets under management of the acquired business at the end of any
      calendar quarter was $7.3 billion at the end of the second quarter of 2004.
      Mutual fund assets under management continued to decrease in 2006 as a result
      of
      net asset outflows. As of December 31, 2006, total mutual fund assets under
      management were $5.5 billion. Future net outflows and declines in the prices
      of
      securities would result in further decreases in assets under management. The
      following chart displays the historical growth since inception of the acquired
      business’ mutual fund assets under management (in billions) as of
      December 31 for each calendar year.









**Investment
      Strategies**




The
      following table describes Aston’s investment strategies within the equity and
      fixed income asset classes:




**Asset
                Class**
            
            **Assets
                Under**
              **Management at**
              **December
                31, 2006**
              **(in millions)**
            
            **Description**Equity
            
            $
            5,274
            
            Invests
                in a range of U.S. and global companies of various market capitalizations
                under both growth and value disciplinesFixed
                Income
            
            
            180
            
            Invests
                primarily in corporate and government bondsTotal
            
            $
            5,454





**Investment
      Products**




Aston
      markets its investment services to its clients through a variety of funds
      designed to suit a client’s individual investment needs. The acquired business
      introduced its first mutual fund in 1993, and today Aston manages 20 no-load,
      open-end mutual funds, including 16 equity funds and four fixed income funds,
      with approximately $5.5 billion of mutual fund assets under management as of
      December 31, 2006. The open-architecture platform utilizes nine different
      entities to manage the funds. Most recently, Aston created a new fund, the
      Aston/Optimum Large Cap Opportunity Fund, in December 2006 in partnership with
      Optimum Investment Advisors, LLC, the current sub-adviser to the Aston/Optimum
      Mid Cap Fund. Aston also entered into sub-advisory agreements in November 2006
      with Taplin, Canida & Habacht, Inc. and McDonnell Investment Management, LLC acting as advisors to three of Aston’s fixed income funds. The
      funds’ board of trustees has approved the creation of a new EAFE mutual fund.
      EAFE refers to investments in common stocks of companies located in Europe,
      Australia and the Far East. The following table sets forth the assets under
      management, and overall Morningstar RatingTMfor each
      mutual fund managed as of December 31, 2006. These ratings are based on past
      performance, which may not be predictive of future results.




5




**Fund**
              
              **Inception**
              
              **Assets Under**
                **Management**
                **(in
                  millions)**
              
              **Morningstar
                  Category**
              
              **Rating**Equity
                  Funds:Aston/Montag &
                  Caldwell Growth
              
              1994
              
              $
              2,051
              
              Large Growth
              
              ****Aston/ABN
                  AMRO Growth
              
              1993
              
              
              835
              
              Large
                  Growth
              
              ***Aston/Optimum
                  Mid Cap
              
              1994
              
              
              721
              
              Mid-Cap
                  Blend
              
              ***Aston/Veredus
                  Aggressive Growth
              
              1998
              
              
              443
              
              Small
                  Growth
              
              *Aston
                  Value
              
              1993
              
              
              366
              
              Large
                  Value
              
              ***Aston/TAMRO
                  Small Cap
              
              2000
              
              
              294
              
              Small
                  Blend
              
              ****Aston/River
                  Road Small Cap Value
              
              2005
              
              
              280
              
              Small
                  Value
              
              —Aston/ABN
                  AMRO Real Estate
              
              1997
              
              
              122
              
              Specialty-Real Estate
              
              ***Aston
                  Balanced
              
              1995
              
              
              55
              
              Moderate
                  Allocation
              
              **Aston/Veredus
                  Select Growth
              
              2001
              
              
              36
              
              Large
                  Growth
              
              ****Aston/Montag &
                  Caldwell Balanced
              
              1994
              
              
              29
              
              Moderate
                  Allocation
              
              **Aston/River
                  Road Dynamic Equity
              
              2005
              
              
              21
              
              Mid-Cap
                  Value
              
              —Aston/TAMRO
                  Large Cap Value
              
              2000
              
              
              16
              
              Large
                  Blend
              
              ****Aston/Veredus
                  SciTech
              
              2000
              
              
              4
              
              Specialty-Technology
              
              **Aston/ABN
                  AMRO Mid Cap Growth
              
              2005
              
              
              1
              
              Mid-Cap
                  Growth
              
              —Aston/Optimum
                  Large Cap Opportunity
              
              2006
              
              
              0
              
              —
              
              —Total
                  Equity Funds
              
              
              
              
              5,274Fixed
                  Income Funds:Aston/TCH
                  Fixed Income
              
              1993
              
              
              111
              
              Intermediate-Term Bond
              
              ***Aston/McDonnell
                  Municipal Bond
              
              1993
              
              
              25
              
              Muni
                  National Intermediate
              
              ***Aston/TCH
                  Investment Grade Bond
              
              1995
              
              
              23
              
              Short-Term
                  Bond
              
              ****Aston/ABN
                  AMRO High Yield
              
              2003
              
              
              21
              
              High
                  Yield Bond
              
              ***Total
                  Fixed Income Funds
              
              
              
              
              180**Total
                  Funds**
              
              
              
              $
              5,454




**Fees
      and Revenues**




Aston
      generates revenue by charging mutual funds an advisory fee and an administrative
      fee based on a percentage of invested assets. A portion of the fees are paid
      to
      the sub-advisers, to a third-party sub-administrator, and to third-party
      distribution partners. Each fund typically bears all expenses associated with
      its operation and the issuance and redemption of its securities. In particular,
      each fund pays investment advisory fees (to Aston), shareholder servicing fees
      and expenses, fund accounting fees and expenses, transfer agent fees, custodian
      fees and expenses, legal and auditing fees, expenses of preparing, printing
      and
      mailing prospectuses and shareholder reports, registration fees and expenses,
      proxy and annual meeting expenses and independent trustee fees and expenses.
      The
      acquired business has guaranteed newly organized funds that their expenses
      will
      not exceed a specified percentage of their net assets during an initial
      operating period. Aston absorbs all advisory fees and other mutual fund expenses
      in excess of these self-imposed limits in the form of expense reimbursements
      or
      fee waivers and collects as revenue the advisory fee less reimbursements and
      waivers. As of December 31, 2006, Aston was reimbursing 14 mutual funds whose
      expenses exceed the applicable expense cap. These funds are Aston Value;
      Aston/TAMRO Small Cap; Aston/ABN AMRO Real Estate; Aston/Veredus Select Growth;
      Aston/Montag & Caldwell Balanced; Aston/River Road Dynamic Equity;
      Aston/TAMRO Large Cap Value; Aston/Veredus SciTech; Aston/ABN AMRO Mid Cap
      Growth; Aston/Optimum Large Cap Opportunity; Aston/TCH Fixed Income;
      Aston/McDonnell Municipal Bond; Aston/TCH Investment Grade Bond; and Aston/ABN AMRO High Yield.




6




**Distribution**




Each
      of
      the funds has a distinct investment objective that has been developed to provide
      a broad, comprehensive selection of investment opportunities. This strategy
      gives Aston access to many possible customers and distribution channels. Aston
      distributes the Aston Funds to individuals and institutions. While institutions
      may invest directly through Aston, individuals generally purchase shares through
      retail financial intermediaries. All Aston Funds are sold exclusively on a
      no-load basis, i.e., without a sales commission. No-load mutual funds offer
      investors a low-cost and relatively easy method of investing in a variety of
      stock and bond portfolios. Aston’s “N” class of fund shares is sold through
      financial intermediaries. Those “N” class shares incur an additional annual
      expense equal to 0.25% of the Fund’s assets under management which is payable to
      the financial intermediaries for distribution and recordkeeping. The
      institutional “I” class of fund shares, however, bears no such fee.




Aston
      pays all of the advertising and promotion expenses for the Aston Funds and
      receives reimbursement from the Aston Funds pursuant to a 12b-1 plan. This
      reimbursement mitigates, but does not completely offset, the advertising and
      promotion expenses. These costs include advertising and direct mail
      communications to potential fund shareholders as well as a substantial staff
      and
      communications capability to respond to investor inquiries. Marketing efforts
      have traditionally been focused on fee-based intermediaries, including due
      diligence teams, brokers, advisers, financial planners and consultants. The
      independent registered advisory channel as well as the 401(k) channel are a
      specific focus. In addition, Aston has a significant focus on marketing efforts
      toward participant-directed defined contribution plans such as 401(k) plans
      that
      invest in mutual funds. Advertising and promotion expenditures vary over time
      based on investor interest, market conditions, new investment offerings and
      the
      development and expansion of new marketing initiatives.




**Technology
      and Intellectual Property**




The
      day-to-day mutual fund technology of Aston is outsourced to PFPC, Inc.,
      including fund accounting, sub-administration, custody and transfer agency
      functions. Sub-administration is the provision of services related to the
      administration of a mutual fund on an out-sourced basis. The business also
      utilizes a web based CRM system, which maintains contact information of both
      clients and prospects and is hosted by interlink ONE, Inc. Aston’s website is
      hosted by Sysys Corporation.




**Competition**




We
      face
      substantial competition in every aspect of our business. Competitive factors
      affecting our business include brand recognition, business reputation,
      investment performance, quality of service and the continuity of client
      relationships. Fee competition also affects the business, as do compensation,
      administration, commissions and other expenses paid to
      intermediaries.




Performance
      and price are the principal methods of competition for Aston. Prospective
      clients and mutual fund shareholders will typically base their decisions on
      a
      fund’s ability to generate returns that exceed a market or benchmark index, i.e.
      its performance, and on its fees, or price. Individual mutual fund investors
      may
      also base their decision on the ability to access the mutual funds Aston manages
      through a particular distribution channel. Institutional clients are often
      advised by consultants who may include other factors in their decisions for
      these clients.




We
      compete with a large number of global and U.S. investment advisers, commercial
      banks, brokerage firms and broker-dealers, insurance companies and other
      financial institutions. There are approximately 900 domestic investment advisers
      that manage assets in excess of $1 billion according to Money Market Directories
      and, according to the Investment Company Institute, mutual fund managers in
      the
      United States manage more than $8.1 trillion in over 8,000 funds. Aston is
      considered a small to mid-sized investment advisory firm. Many competing firms
      are parts of larger financial services companies and attract business through
      numerous means including retail bank offices, investment banking and
      underwriting contacts, insurance agencies and broker-dealers. U.S. banks and
      insurance companies can now affiliate with securities firms. This permitted
      affiliation has accelerated consolidation within the investment advisory and
      financial services businesses. It has also increased the variety of competition
      for traditional investment advisory firms with businesses limited to investing
      assets on behalf of institutional and individual clients. Foreign banks and
      investment firms have also entered the U.S. investment advisory business, either
      directly or through partnerships or acquisitions. A number of factors serve
      to
      increase our competitive risks:




7




•
                some
                    of Aston’s competitors have greater capital and other resources, and offer
                    more comprehensive lines of products and services than
                    Aston;




•
            consolidation
                within the investment management industry, and the securities industry
                in
                general, has served to increase the size and strength of a number
                of our
                competitors;




•
            there
                are relatively few barriers to entry by new investment management
                firms,
                and the successful efforts of new entrants, including major banks,
                insurance companies and other financial institutions, have resulted
                in
                increased competition; and




•
            other
                industry participants will from time to time seek to recruit Aston’s
                employees away from Aston.




These
      factors and others could reduce Aston’s revenues and earnings and materially
      adversely affect its business. If the funds have poor performance relative
      to
      their peers, they could lose existing clients and may be unable to attract
      new
      clients. These factors may place Aston at a competitive disadvantage, reduce
      its
      earnings and revenues, and materially adversely affect its business. Aston
      cannot be sure its strategies and efforts to maintain its existing assets and
      attract new business will be successful.




In
      order
      to grow the business, we must be able to compete effectively for assets under
      management. Specifically, the acquired business has historically competed
      principally on the basis of:




•
            investment
                performance;




•
            quality
                of service provided to clients;




•
            brand
                recognition and business
                reputation;




•
            continuity
                of client relationships and of assets under
                management;




•
            continuity
                of its selling arrangements with
                intermediaries;




•
            continuity
                of advisory or sub-advisory agreements with excellent
                managers;




•
            the
                range of products offered;




•
            level
                of fees and commissions charged for services;
                and




•
            level
                of expenses paid to financial intermediaries related to administration
                and/or distribution.




The
      acquired business has succeeded in growing aggregate assets under management,
      and we believe that we will continue to be able to do so by focusing on
      investment performance and client service and by developing new products and
      new
      distribution capabilities.




**Employees**




Upon
      the
      consummation of the acquisition, Aston hired 36 full-time employees, including
      four in senior management and administration, six in marketing and
      communications, 18 in sales and sales management and eight in operations and
      compliance. All of these employees were employed by the acquired business or
      AAAMHI prior to the consummation of the acquisition.




Highbury
      currently has three executive officers, two of whom are also members of our
      board of directors. Highbury has no employees. These individuals are not
      obligated to devote any specific number of hours to our matters and intend
      to
      devote only as much time as they deem necessary to our affairs.




**Regulation**




Virtually
      all aspects of our company are subject to extensive regulation in the United
      States at both the federal and state level. These laws and regulations are
      primarily intended to protect investment advisory clients and shareholders
      of
      registered investment companies. Under these laws and regulations, agencies
      that
      regulate investment advisers, such as us, have broad administrative powers,
      including the power to limit, restrict or prohibit an investment adviser from
      carrying on its business in the event that it fails to comply with such laws
      and
      regulations. Possible sanctions that may be imposed include the suspension
      of
      individual employees, limitations on engaging in certain lines of business
      for
      specified periods of time, revocation of investment adviser and other
      registrations, censures, and fines.




8




Aston
      is
      registered as an investment adviser with the SEC. As a registered investment
      adviser, it is subject to the requirements of the Investment Advisers Act of
      1940, or the Investment Advisers Act, and the SEC’s regulations thereunder, as
      well as to examination by the SEC’s staff. The Investment Advisers Act imposes
      substantive regulation on virtually all aspects of our advisory business and
      our
      relationship with our clients. Applicable requirements relate to, among other
      things, fiduciary duties to clients, engaging in transactions with clients,
      maintaining an effective compliance program, performance fees, solicitation
      arrangements, conflicts of interest, advertising, and recordkeeping, reporting
      and disclosure requirements. The Aston Funds are registered with the SEC under
      the Investment Company Act. The Investment Company Act imposes additional
      obligations, including detailed operational requirements on both the funds
      and
      their advisers. Moreover, an investment adviser’s contract with a registered
      fund may be terminated by the fund on not more than 60 days’ notice, and is
      subject to annual renewal by the fund’s board after an initial term of up to two
      years. The SEC is authorized to institute proceedings and impose sanctions
      for
      violations of the Investment Advisers Act and the Investment Company Act,
      ranging from fines and censures to termination of an investment adviser’s
      registration. The failure of Aston or registered funds advised by Aston to
      comply with the requirements of the SEC could have a material adverse effect on
      us. Under the rules and regulations of the SEC promulgated pursuant to the
      federal securities laws, Aston is subject to periodic examination by the
      SEC.




In
      response to recent scandals in the financial services industry regarding late
      trading, market timing and selective disclosure of portfolio information,
      various legislative and regulatory proposals are pending in or before, or have
      been adopted by, the U.S. Congress and the various regulatory agencies that
      supervise our operations, including the SEC. Additionally, the SEC, the NASD
      and
      other regulators, as well as Congress, are investigating certain practices
      within the mutual fund industry.




The
      SEC
      has also adopted new rules requiring every registered fund to adopt and
      implement written policies and procedures designed to detect and prevent
      violations of federal securities law, to review these policies annually for
      adequacy and effectiveness, and to designate a chief compliance officer
      reporting directly to the fund’s board of directors or trustees. Registered
      advisers must also adopt a written compliance program to ensure compliance
      with
      the Investment Advisers Act and appoint a chief compliance officer. These
      compliance programs were required to be in place by October 5, 2004. Some
      of these compliance rules, as well as other new disclosure requirements that
      have recently been adopted, are intended to deal with abuses in areas of late
      trading and market timing of mutual funds. These new rules require additional
      and more explicit disclosure of market timing policies and procedures, as well
      as that funds have formal procedures in place to comply with their
      representations regarding market timing policies.




These
      regulatory and legislative initiatives, to the extent enacted or adopted, could
      have a substantial impact on the regulation and operation of mutual funds and
      investment advisers and could adversely affect our manner of operation and
      profitability. See “Risk Factors - Risks Related to the Financial Services
      Industry and Aston” under Item 1A for more information about how these proposals
      may materially adversely affect our business.





We
      are
      subject to the Employee Retirement Income Security Act of 1974, as amended,
      or
      ERISA, and to regulations promulgated thereunder, insofar as Aston is a
“fiduciary” under ERISA with respect to benefit plan clients. ERISA and
      applicable provisions of the Internal Revenue Code of 1986, as amended, impose
      certain duties on persons who are fiduciaries under ERISA, prohibit certain
      transactions involving ERISA plan clients and provide monetary penalties for
      violations of these prohibitions. Our failure to comply with these requirements
      could have a material adverse effect on our business.




**Available
      Information**




Highbury
      makes available, free of charge on its website, its annual report on Form 10-K,
      quarterly reports on Form 10-Q, current reports on Form 8-K and amendments
      to
      those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
      Exchange Act of 1934 as soon as reasonably practicable after Highbury
      electronically files such material with, or furnishes it to, the Securities
      and
      Exchange Commission, or SEC. Reports may be viewed and obtained on the Company’s
      website, www.highburyfinancial.com.




9




The
      public may read and copy any materials the Company files with the SEC at the
      SEC’s Public Reference Room at 100 F Street, NE., Washington, DC 20549.
      Information on the operation of the Public Reference Room may be obtained by
      calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site
      that
      contains reports, proxies and information statements, and other information
      regarding issuers that file electronically with the SEC at
      http://www.sec.gov.




**ITEM
              1A.**
            **RISK
                FACTORS**





*In
      addition to other information included in this Annual Report on Form 10-K,
      the
      following factors should be considered in evaluating our business and future
      prospects.* *If
      any of the following risks occur, our business, financial condition and results
      of operations may be materially adversely affected. In that event, the trading
      price of our securities could decline, and our stockholders could lose all
      or a
      part of their investment.*




**Risks
      Related to the Financial Services Industry and Aston**




***The
      financial services industry faces substantial regulatory risks and we may
      experience reduced revenues and profitability if our services are not regarded
      as compliant with the regulatory regime.***




The
      financial services industry is subject to extensive regulation. Many regulators,
      including U.S. government agencies and self-regulatory organizations, as well
      as
      state securities commissions and attorneys general, are empowered to conduct
      administrative proceedings and investigations that can result in, among other
      things, censure, fine, the issuance of cease-and-desist orders, prohibitions
      against engaging in some lines of business or the suspension or expulsion of
      an
      investment adviser. The requirements imposed by regulators are designed to
      ensure the integrity of the financial markets and not to protect our
      stockholders.




Governmental
      and self-regulatory organizations, including the SEC, the NASD and national
      securities exchanges such as the New York Stock Exchange, impose and enforce
      regulations on financial services companies. The types of regulations to which
      investment advisers and managers are subject are extensive and include, among
      other things: recordkeeping, fee arrangements, client disclosure, custody of
      customer assets, and the conduct of officers and employees.




The
      regulatory environment in which we operate is also subject to modifications
      and
      further regulations. New laws or regulations or changes in the enforcement
      of
      existing laws or regulations applicable to us also may adversely affect our
      business, and our ability to function in this environment depends on our ability
      to constantly monitor and react to these changes. For example, the growing
      trend
      of separating the fees mutual fund managers pay brokerage firms for investment
      research from brokerage commissions may trigger restrictions under the
      Investment Advisers Act of 1940.




***We
      may face legal liability that may result in reduced revenues and
      profitability.***




In
      recent
      years, the volume of claims and amount of damages claimed in litigation and
      regulatory proceedings against financial services firms has been increasing.
      Aston’s investment advisory contracts include provisions designed to limit our
      exposure to legal claims relating to services, but these provisions may not
      protect us or may not be adhered to in all cases. We may also be subject to
      claims arising from disputes with employees for alleged discrimination or
      harassment, among other things. The risk of significant legal liability is
      often
      difficult to assess or quantify and its existence and magnitude often remain
      unknown for substantial periods of time. As a result, we may incur significant
      legal expenses in defending against litigation. Substantial legal liability
      or
      significant regulatory action against us could materially adversely affect
      our
      business, financial condition or results of operations or cause significant
      harm
      to our reputation, which could seriously harm our business.




There
      have been a number of highly publicized cases involving fraud or other
      misconduct by employees in the financial services industry in recent years,
      and
      we run the risk that employee misconduct could occur. It is not always possible
      to deter or prevent employee misconduct and the precautions we take to prevent
      and detect this activity may not be effective in all cases.




10




***We
      face strong competition from financial services firms, many of whom have the
      ability to offer clients a wider range of products and services than we offer,
      which could lead to pricing pressures that could have a material adverse affect
      on our revenue and profitability.***




We
      compete with other firms - both domestic and foreign - in a number of areas,
      including the quality of our employees, transaction execution, products and
      services, innovation, reputation and price. We may fail to attract new business
      and may lose clients if, among other reasons, we are not able to compete
      effectively. We also face significant competition as a result of a recent trend
      toward consolidation in the investment management industry. In the past several
      years, there has been substantial consolidation and convergence among companies
      in this industry. In particular, a number of large commercial banks, insurance
      companies and other broad-based financial services firms have established or
      acquired broker-dealers or have merged with other financial institutions. Many
      of these firms have the ability to offer a wide range of products such as loans,
      deposit-taking and insurance, brokerage, investment management and investment
      banking services, which may enhance their competitive positions. They also
      have
      the ability to support investment management activity with commercial banking,
      investment banking, insurance and other financial services revenue in an effort
      to gain market share, which could result in pricing pressure on our business.
      The passage of the Gramm-Leach-Bliley Act in 1999 reduced barriers to large
      institutions’ providing a wide range of financial services products and
      services. We believe, in light of increasing industry consolidation and the
      regulatory overhaul of the financial services industry, that competition will
      continue to increase from providers of financial services products.




***The
      investment advisory fees we receive may decrease in a market or general economic
      downturn, which would decrease our revenues and net
      income.***




Because
      we are in the investment advisory business, our net income and revenues are
      likely to be subject to wide fluctuations, reflecting the effect of many factors
      on our assets under management, including: general economic conditions;
      securities market conditions; the level and volatility of interest rates and
      equity prices; competitive conditions; liquidity of global markets;
      international and regional political conditions; regulatory and legislative
      developments; monetary and fiscal policy; investor sentiment; availability
      and
      cost of capital; technological changes and events; outcome of legal proceedings;
      changes in currency values; inflation; credit ratings; and the size, volume
      and
      timing of transactions. These and other factors subject us to an increased
      risk
      of asset volatility.




As
      an
      investment management firm, our business could be expected to generate lower
      revenue in a market or general economic downturn. The investment advisory fees
      we receive are based on the market value of the assets under management.
      Accordingly, a decline in the prices of securities would be expected to cause
      our revenue and income to decline by:




•
                causing
                    the value of the assets under management to decrease, which would
                    result
                    in lower investment advisory fees;
                    or





•
                causing
                    some of our clients to withdraw funds from our investment management
                    business in favor of investments they perceive as offering greater
                    opportunity and lower risk, which also would result in lower
                    investment
                    advisory fees.




***Aston’s
      investment advisory contracts are subject to termination on short notice.
      Termination of a significant number of investment advisory contracts will have
      a
      material impact on our results of operations.***




Aston
      derives almost all of its revenue from investment advisory contracts with the
      Aston Funds. These contracts are typically terminable by the target fund
      trustees without penalty upon relatively short notice (generally not longer
      than
      60 days). We cannot be certain that we will be able to retain the target funds
      as clients. Because the Aston Funds all have the same trustees, it is possible
      that all the contracts with them could be terminated simultaneously. If the
      trustees of the Aston Funds terminate Aston’s investment advisory contracts we
      would lose substantially all of our revenues.




***To
      the extent Aston is forced to compete on the basis of price, it may not be
      able
      to maintain its current fee structure.***




The
      investment management business is highly competitive and has relatively low
      barriers to entry. To the extent Aston is forced to compete on the basis of
      price, it may not be able to maintain its current fee structure. Although
      Aston’s investment management fees vary from product to product, historically
      the acquired business competed primarily on the performance of its products
      and
      not on the level of its investment management fees relative to those of its
      competitors. In recent years, however, there has been a trend toward lower
      fees
      in the investment management industry. In order to maintain its fee structure
      in
      a competitive environment, Aston must be able to continue to provide clients
      with investment returns and services that make investors willing to pay its
      fees. In addition, the board of trustees of the mutual funds managed by Aston
      must make certain findings as to the reasonableness of these fees. We cannot
      be
      certain that Aston will succeed in providing investment returns and service
      that
      will allow it to maintain its current fee structure. Fee reductions on existing
      or future new business could have an adverse effect on our profit margins and
      results of operations.




11




***Termination
      of Aston’s sub-advisory contracts could have a material adverse impact on the
      Aston Funds’ performance, and consequently, on our revenues and operating
      results.***




As
      of
      December 31, 2006, Aston managed 20 no-load mutual funds, comprised of 16
      equity funds and four fixed income funds, with approximately $5.5 billion of
      mutual fund assets under management. Aston currently utilizes nine different
      entities to manage the funds, of which five are affiliates of the sellers and
      four are independent. The sub-advisory contracts with the sellers’ affiliates,
      which are not terminable by the sub-advisers for five years from the
      consummation of the acquisition, include limited non-compete provisions and
      certain capacity guarantees in appropriate products to benefit the acquired
      business. While this arrangement is intended to ensure that the investment
      philosophy and process guiding the mutual funds in the future are consistent
      with their historical investment philosophy and process, there can be no
      assurances that this arrangement will remain in place. If one or more of these
      sub-advisory contracts is terminated, it could have a material adverse impact
      on
      the Aston Funds’ performance and on our revenues and operating
      results.




***Aston
      depends on third-party distribution channels to market its investment products
      and access its client base. A substantial reduction in fees generated by
      third-party intermediaries could have a material adverse effect on its
      business.***




The
      potential investor base for mutual funds and managed accounts is limited, and
      Aston’s ability to distribute mutual funds and access clients for managed
      accounts is highly dependent on access to the distribution systems and client
      bases of national and regional securities firms, banks, insurance companies,
      defined contribution plan administrators and other intermediaries, which
      generally offer competing internally and externally managed investment products.
      For open-end funds, such intermediaries are paid for their services to fund
      shareholders, in part, through Rule 12b-1 fees. Rule 12b-1 fees are those fees
      designated for promotions, sales, or any other activity connected with the
      distribution of the fund’s shares. In the case of no-load funds, Rule 12b-1 fees
      are usually, but not always, 0.25% of net assets and are used to cover
      advertising and marketing costs. Access to such distribution systems and client
      bases is substantially dependent upon our ability to charge Rule 12b-1 fees
      to
      our funds. To the extent that recent regulatory initiatives prohibit or limit
      the imposition of Rule 12b-1 or similar fees, our access to these distribution
      systems and client bases may be foreclosed in the future. To a lesser extent,
      the managed account business depends on referrals from financial planners and
      other professional advisers, as well as from existing clients. We cannot assure
      you that these channels and client bases will continue to be accessible to
      Aston. The inability to have such access could have a material adverse effect
      on
      our earnings.




While
      we
      expect Aston to continue to diversify and add new distribution channels for
      its
      mutual funds and managed accounts, a significant portion of the growth in the
      acquired business’ assets under management in recent years has been accessed
      through intermediaries. As of December 31, 2006, substantially all of the
      assets under management of the acquired business were attributable to accounts
      that it accessed through third-party intermediaries. These intermediaries
      generally may terminate their relationships on short notice. Loss of any of
      the
      distribution channels afforded by these intermediaries, and the inability to
      access clients through new distribution channels, could decrease assets under
      management and adversely affect our results of operations and growth. In
      addition, in the case of managed accounts offered through intermediaries to
      their customers, such intermediaries may reduce the fees that they remit to
      us
      as part of the arrangements they have with Aston. A substantial reduction in
      fees received from third-party intermediaries could have a material adverse
      affect on our business.




***A
      change of control of our company would automatically terminate our investment
      management agreements with our clients, unless our managed account clients
      consent and, in the case of fund clients, the funds’ board of trustees and
      shareholders voted to continue the agreements.***




12




Under
      the
      Investment Company Act, an investment management agreement with a fund must
      provide for its automatic termination in the event of its assignment. Under
      the
      Investment Advisers Act, a client’s investment management agreement may not be
“assigned” by the investment adviser without the client’s consent. An investment
      management agreement is considered under both acts to be assigned to another
      party when a controlling block of the adviser’s securities is transferred. An
      assignment of our investment management agreements may occur if, among other
      things, we sell or issue a certain number of additional common shares in the
      future. We cannot be certain that our clients will consent to assignments of
      our
      investment management agreements or approve new agreements with us if a change
      of control occurs. This restriction may discourage potential purchasers from
      considering an acquisition of a controlling interest in Highbury.




***If
      the adviser’s advisory contracts are assigned, the selling adviser may receive a
      benefit in connection with its sale of its business only if certain conditions
      are met.***




If
      an
      adviser sells its business and, as a result, the adviser’s advisory contracts
      with registered investment companies are assigned, the selling adviser may
      receive a benefit in connection with its sale of its business only if certain
      conditions are met following the sale and assignment of the advisory contracts.
      Among these conditions is a requirement that no “unfair burden” be imposed on
      the investment companies as a result of the transaction. An unfair burden will
      be deemed to exist if, during the two years after the transaction, the
      predecessor or successor adviser or any interested person thereof is entitled
      to
      compensation from any person engaged in transactions with Highbury or from
      Highbury or its shareholders for other than bona fide advisory or administrative
      services. This restriction may discourage potential purchasers from considering
      an acquisition of a controlling interest in Highbury.




***Investors
      in open-end funds can redeem their investments in these funds at any time
      without prior notice, which could adversely affect our
      earnings.***




Open-end
      fund investors may redeem their investments in those funds at any time without
      prior notice. Investors may reduce the aggregate amount of assets under
      management for any number of reasons, including investment performance, changes
      in prevailing interest rates and financial market performance. Poor performance
      relative to other asset management firms tends to result in decreased purchases
      of mutual fund shares and increased redemptions of mutual fund shares.
      Cumulative net redemptions have reduced the mutual fund assets under management
      by the acquired business from $7.3 billion in 2004 to approximately $5.5 billion
      as of December 31, 2006, principally as a result of the net asset outflows
      in the Montag & Caldwell Growth Fund and the Veredus Aggressive Growth
      Fund, whose assets under management represent approximately 38% and 8% of the
      Aston Funds’ aggregate assets as of December 31, 2006. In a declining stock
      market, the pace of mutual fund redemptions could accelerate. The redemption
      of
      investments in mutual funds managed by the acquired business would adversely
      affect our revenues, which are substantially dependent upon the assets under
      management in our funds. If net redemptions of investments in the acquired
      business’ mutual funds increase, it would cause our revenues to decline, which
      would have a material adverse effect on our earnings.




***A
      decline in the prices of securities, the performance of the Aston Funds or
      changes in investors’ preference of investing styles could lead to a decline in
      our assets under management, revenues and earnings.***




Substantially
      all of our revenues are determined by the amount of assets under management.
      Under Aston’s investment advisory contracts with the Aston Funds, the investment
      management fee is typically based on the market value of assets under
      management. In addition, Aston receives asset-based distribution or service
      fees
      with respect to the open-end funds pursuant to distribution plans adopted under
      provisions of Rule 12b-1 under the Investment Company Act. Accordingly, a
      decline in the prices of securities generally may cause our revenues and net
      income to decline by either causing the value of our assets under management
      to
      decrease, which would result in lower investment advisory and Rule 12b-1 fees,
      or causing clients to withdraw funds in favor of investments or investment
      styles they perceive to offer greater opportunity or lower risk, which would
      also result in lower fees. For example, investors have withdrawn funds from the Montag & Caldwell Growth Fund
      and the Veredus Aggressive Growth Fund as a result of performance and changes
      in
      investors’ preferences for investing strategies. In addition, while the revenues
      of the acquired business are diversified across investment styles, the large
      capitalization growth style of investing accounts for approximately 54% of
      assets under management as of December 31, 2006. Large capitalization style
      implies a restriction imposed on the portfolio manager to select for investment
      by the fund predominantly equity securities of companies that have an average
      market capitalization of more than $10 billion and companies whose earnings
      are
      expected to grow at a rate that is above average for their industries or the
      overall market. The securities markets are highly volatile, and securities
      prices may increase or decrease for many reasons, including economic and
      political events and acts of terrorism beyond our control. If a decline in
      securities prices, fund performance or change in investors’ preference of
      investment styles were to cause our revenues to decline, it could have a
      material adverse effect on our earnings.




13




***Loss
      of key employees could lead to the loss of clients and a decline in
      revenue.***




Aston’s
      ability to attract and retain personnel is important to attracting and retaining
      its clients. The market for qualified wholesalers, senior managers, compliance
      professionals, marketing professionals, key managers at the sub-advisers and
      other professionals is competitive. We and the sub-advisers may not be
      successful in our efforts to recruit and retain the required personnel to
      maintain or grow our business. Loss of a significant number of key personnel
      could have an adverse effect on us.




***Any
      significant limitation or failure of Aston’s software applications and other
      technology systems that are critical to its operations could constrain its
      operations.***




Aston
      is
      highly dependent upon the use of various proprietary and third-party software
      applications and other technology systems to operate the business. Aston uses
      its technology to, among other things, provide reports and other customer
      services to its clients. Any inaccuracies, delays or systems failures in these
      and other processes could subject Aston to client dissatisfaction and losses.
      Although Aston takes protective measures, its technology systems may be
      vulnerable to unauthorized access, computer viruses or other events that have
      a
      security impact, such as an authorized employee or vendor inadvertently causing
      Aston to release confidential information, which could materially damage Aston’s
      operations or cause the disclosure or modification of sensitive or confidential
      information. Moreover, loss of confidential customer identification information
      could cause harm to our reputation. Aston relies heavily on software and
      technology that are licensed from, and supported, upgraded and maintained by,
      third-party vendors. A suspension or termination of certain of these licenses
      or
      the related support, upgrades and maintenance could cause temporary system
      delays or interruption. Potential system failures or breaches and the cost
      necessary to correct them could result in material financial loss, regulatory
      action, breach of client contracts, reputational harm or legal claims and
      liability, which in turn could negatively impact our revenues and
      income.




***We
      could suffer losses in earnings or revenue if our reputation is harmed or the
      Aston brand name is not recognized.***




Aston’s
      reputation is important to the success of Highbury. Aston has strong
      relationships with intermediaries and continuity of these relationships is
      based
      on the intermediaries’ trust and confidence in Aston. If Aston’s reputation is
      harmed, existing clients of Aston may reduce amounts held in, or withdraw
      entirely from, funds that Aston advises or funds may terminate their investment
      advisory contracts which could reduce the amount of assets under management
      of
      Aston and cause us to suffer a corresponding loss in earnings or revenues.
      Reputational harm may also cause Aston to lose employees, and we may be unable
      to continue to attract new employees with similar qualifications, motivations
      or
      skills. If we fail to address, or appear to fail to address, successfully and
      promptly, the underlying causes of any reputational harm, we may be unsuccessful
      in repairing any existing harm to our reputation, and our future business
      prospects would likely be affected.




Aston
      co-brands the Aston Funds with the names of the sub-advisers. For example,
      the
      ABN AMRO Montag & Caldwell Growth Fund has been re-named the
      Aston/Montag & Caldwell Growth Fund. If investors and intermediaries
      fail to recognize the re-branded funds, Aston may suffer losses in assets under
      management, which would negatively impact our revenues and financial
      results.




***We
      rely on a few major clients for a significant majority of our business, and
      the
      loss of any of these clients, or adverse developments with respect to the
      financial condition of any of our major clients could reduce our
      revenue.***




Relationships
      with a limited number of clients account for a significant majority of our
      revenue. We expect that Aston’s relationships with these clients will continue
      to account for a substantial portion of our total revenue in future periods.
      Aston’s client, the Aston Funds, a Delaware business trust, which accounts for
      approximately 96% of our assets under management, is comprised of 20 mutual
      funds that are currently managed by Aston. Because all these funds have the
      same
      trustees, it is possible that the contracts with them could be terminated
      simultaneously. Of these 20 funds, Aston/ABN AMRO Growth,
      Aston/Montag & Caldwell Growth, Aston/Optimum Mid Cap and Aston/Veredus
      Aggressive Growth each account for more than 10% of the revenues of Aston.
      Additionally, the assets under management that Aston sources through independent
      financial advisers using Schwab and Fidelity, as custodians, each generate
      more
      than 10% of revenues received by Aston. These various client concentrations
      leave us vulnerable to any adverse change in the financial condition of any
      of
      our major clients. The loss of any of these relationships may have a material
      adverse impact on our revenues.




14




**Risks
      Related to the Structure of our Business**




***The
      agreed-upon expense allocation under our revenue sharing arrangement with Aston
      may not be large enough to pay for all of Aston’s operating
      expenses.***




Pursuant
      to the limited liability company agreement of Aston, we receive a specified
      percentage of Aston’s gross revenue, and a percentage of revenue is retained for
      use in paying Aston’s operating expenses. We may not have anticipated and
      reflected in the agreement possible changes in Aston’s revenue and expense base,
      and the agreed-upon expense allocation may not be large enough to pay for all
      of
      Aston’s operating expenses. We may elect to defer the receipt of our share of
      Aston’s revenue to permit Aston to fund such operating expenses, or we may
      restructure our relationship with Aston with the aim of maximizing the long-term
      benefits to us. We cannot be certain, however, that any such deferral or
      restructured relationship would be of any greater benefit to us. Such a deferral
      or restructured relationship might have an adverse effect on our near-term
      or
      long-term profitability and financial condition.




***The
      failure to receive regular distributions from Aston will adversely affect us
      and
      our holding company structure will result in substantial structural
      subordination that may affect our ability to make payments on our
      obligations.***




Because
      we are a holding company, we receive substantially all of our cash from
      distributions made to us by Aston. Aston’s payment of distributions to us may be
      subject to claims by Aston’s creditors and to limitations applicable to Aston
      under federal and state laws, including securities and bankruptcy laws.
      Additionally, Aston may default on some or all of the distributions that are
      payable to us. As a result, we cannot guarantee we will always receive these
      distributions from Aston. The failure to receive the distributions to which
      we
      are entitled under our limited liability company agreement with Aston and the
      Aston management team would adversely affect us, and may affect our ability
      to
      make payments on our obligations.




Our
      right
      to receive any assets of Aston upon its liquidation or reorganization, and
      thus
      the right of our stockholders to participate in those assets, typically would
      be
      subordinated to the claims of Aston’s creditors. In addition, even if we were a
      creditor of Aston, our rights as a creditor would be subordinated to any
      security interest and indebtedness of Aston that is senior to us.




***Aston’s
      autonomy limits our ability to alter its day-to-day activities, and we may
      be
      held responsible for liabilities it incurs.***




Although
      our limited liability company agreement with Aston gives us the authority to
      control or vote with respect to Aston’s business activities, we generally are
      not directly involved in managing its day-to-day activities, including
      satisfaction of the contractual terms of the advisory, sub-advisory and other
      contracts, product development, client relationships, compensation programs
      and
      compliance activities. As a consequence, our financial condition and results
      of
      operations may be adversely affected by problems stemming from the day-to-day
      operations of Aston.




In
      addition, we may be held liable in some circumstances as a control person for
      the acts of Aston or its employees. For example, if Highbury exercises or
      refuses to exercise its approval right as the manager member to settle potential
      litigation or Aston issues securities in violation of laws and does not use
      due
      care in exercising this authority, Highbury may be exposed to liability related
      to Aston’s actions. While Highbury maintains directors’ and officers’ insurance
      and Aston maintains errors and omissions and general liability insurance in
      amounts believed to be adequate to cover certain potential liabilities, we
      may
      have claims that exceed the limits of available insurance coverage. Furthermore,
      insurers may not remain solvent, meet their obligations to provide coverage,
      or
      coverage may not continue to be available with sufficient limits and at a
      reasonable cost. A judgment against us or Aston in excess of available insurance
      coverage could have a material adverse effect on us.




15




**Risks
      Relating to Ownership of our Warrants**




***If
      we are unable to maintain a current prospectus relating to the common stock
      underlying our warrants, our warrants may have little or no value and the market
      for our warrants may be limited.***




No
      warrants will be exercisable and we will not be obligated to issue shares of
      common stock unless at the time a holder seeks to exercise such warrant, a
      prospectus relating to the common stock issuable upon exercise of the warrants
      is current and the common stock has been registered or qualified or deemed
      to be
      exempt under the securities laws of the state of residence of the holder of
      the
      warrants. Under the terms of the warrant agreement between Continental Stock
      Transfer & Trust Company, as warrant agent, and us, we have agreed to use
      our best efforts to maintain a current prospectus relating to the common stock
      issuable upon exercise of our warrants until the expiration of our warrants.
      However, we cannot assure you that we will be able to do so. If the prospectus
      relating to the common stock issuable upon exercise of the warrants is not
      current or if the common stock is not qualified or exempt from qualification
      in
      the jurisdictions in which the holders of the warrants reside, our warrants
      may
      not be exercisable before they expire and we will not net-cash settle the
      warrants. Thus, our warrants may be deprived of any value. The market for our
      warrants may be limited, and the warrants may expire worthless and unredeemed.
      Even if warrant holders are not able to exercise their warrants because there
      is
      no current prospectus or the common stock is not qualified or exempt from
      qualification in the jurisdictions in which the holders of the warrants reside,
      we can exercise our redemption rights.




As
      of the
      date of this Annual Report on Form 10-K, there is no currently effective
      prospectus relating to the common stock issuable upon exercise of the warrants
      because certain audited financial statements of the business we acquired that
      are required to be included in the prospectus were not available prior to the
      filing of this Annual Report on Form 10-K. Although we intend to file promptly
      a
      post-effective amendment to our registration statement with the SEC containing
      such required financial statements, the post-effective amendment is subject
      to
      review by the SEC and must be declared effective before the warrants may be
      exercised. We cannot be certain when the SEC will declare this post-effective
      amendment effective and no warrants may be exercised until it does
      so.




***We
      may choose to redeem our outstanding warrants when a prospectus relating to
      the
      common stock issuable upon exercise of such warrants is not current and the
      warrants are not exercisable.***




We
      may
      redeem the warrants issued as a part of our units (including warrants issued
      and
      outstanding as a result of the exercise of the option to purchase units granted
      to ThinkEquity Partners LLC, or TEP, and EarlyBirdCapital Inc., or EBC, the
      underwriters of our initial public offering, and the warrants sold in the
      private placement to insiders of Highbury simultaneously with our initial public
      offering, referred to throughout this Annual Report on Form 10-K as the private
      placement) at any time after the warrants become exercisable in whole and not
      in
      part, at a price of $0.01 per warrant, upon a minimum of 30 days’ prior written
      notice of redemption, if and only if, the last sales price of our common stock
      equals or exceeds $8.50 per share for any 20 trading days within a 30 trading
      day period ending three business days before we send the notice of redemption.
      Redemption of the warrants could force the warrant holders (i) to exercise
      the warrants and pay the exercise price therefor at a time when it may be
      disadvantageous for the holders to do so, (ii) to sell the warrants at the
      then current market price when they might otherwise wish to hold the warrants
      or
      (iii) to accept the nominal redemption price which, at the time the
      warrants are called for redemption, is likely to be substantially less than
      the
      market value of the warrants. In addition, we may exercise our right to redeem
      outstanding warrants when a prospectus relating to the common stock issuable
      upon the exercise of such warrants is not current, thus rendering the warrants
      unexercisable.




***Our
      securities are registered only in specific states, and you may not be able
      to
      exercise your warrants if you are not located in one of such
      states.***




Your
      ability to exercise a warrant will depend on the availability of a state
      securities exemption for such exercise or on our having registered or qualified
      the offer and sale of the shares to be issued upon exercise of the warrant
      under
      the securities laws of the state in which you reside. We registered the sale
      of
      our securities, including the issuance of shares of common stock upon exercise
      of the warrants, in Colorado, Delaware, Illinois, Indiana, New York, Rhode
      Island and Wyoming. In addition, we have sold our securities in Hawaii,
      where both the initial sale and the exercise of warrants is exempt under Hawaii
      law. If you are a resident of any state other than the above referenced states,
      and there is no available exemption from the registration requirement of the
      state in which you reside, we may not be able to issue to you shares of common
      stock upon the exercise of your warrants. As such, the value of your warrant
      will be significantly reduced and the market for warrants in states for which
      we
      have not registered or qualified or received an exemption from state securities
      laws may be significantly impaired. Holders are not entitled to any cash
      settlement or other compensation as a result of their residency in any state
      in
      which we have not registered or qualified or received an exemption from state
      securities laws.




16




***Our
      outstanding warrants may be exercised in the future, which would increase the
      number of shares eligible for future resale in the public market and result
      in
      dilution to our stockholders. This might have an adverse effect on the market
      price of the common stock.***




Outstanding
      redeemable warrants to purchase an aggregate of 15,820,000 shares of common
      stock became exercisable on January 25, 2007. To the extent warrants are
      exercised, additional shares of our common stock will be issued, which will
      result in dilution to our stockholders and increase the number of shares
      eligible for resale in the public market. Sales of substantial numbers of such
      shares in the public market could adversely affect the market price of our
      shares.




**Risks
      Related to Ownership of our Common Stock**




***If
      our stockholders who acquired their shares prior to our initial public offering
      exercise their registration rights, it may have an adverse effect on the market
      price of our common stock.***




Our
      stockholders who acquired their shares prior to our initial public offering,
      or
      our initial stockholders, are entitled to demand that we register the resale
      of
      their shares of common stock owned prior to our initial public offering. The
      holders of the majority of these shares may elect to exercise these registration
      rights at any time after the date on which their shares of common stock are
      released from escrow, which will be January 31, 2009. In addition, our
      initial stockholders hold 1,891,667 shares that they purchased in a private
      placement contemporaneously with our initial public offering that are now
      eligible for registration. If all these shares are registered, there will be
      an
      additional 1,891,667 shares of common stock eligible for trading in the public
      market (and potentially another 333,334 shares of common stock issuable to
      our
      existing stockholders upon exercise of warrants). The presence of this
      additional number of shares of common stock eligible for trading in the public
      market may have an adverse effect on the market price of our common stock.




***Our
      securities are quoted on the OTC Bulletin Board, which limits the liquidity
      and
      price of our securities more than if our securities were quoted or listed on
      The
      Nasdaq Stock Market or a national exchange.***




Our
      securities are traded in the over-the-counter market. They are quoted on the
      OTC
      Bulletin Board, an inter-dealer automated quotation system for equity securities
      sponsored and operated by the National Association of Securities Dealers, Inc.,
      or NASD, but not included in The Nasdaq Stock Market. Quotation of our
      securities on the OTC Bulletin Board limits the liquidity and price of our
      securities more than if our securities were quoted or listed on The Nasdaq
      Stock
      Market or a national exchange. Lack of liquidity limits the price at which
      you
      are able to sell our securities or your ability to sell our securities at
      all.




***The
      market price for our common stock could be volatile and could decline, resulting
      in a substantial or complete loss of your investment.***




The
      stock
      markets on which our common stock trades have experienced significant price
      and
      volume fluctuations. As a result, the market price of our common stock could
      be
      similarly volatile and investors in our common stock may experience a decrease
      in the value of their shares, including decreases unrelated to our operating
      performance or prospects. The price of our common stock could be subject to
      wide
      fluctuations in response to a number of factors, including:




•
            our
                operating performance and the performance of other similar
                companies;




•
            actual
                or anticipated differences in our operating
                results;




•
            changes
                in our revenues or earnings estimates or recommendations by securities
                analysts;




•
            publication
                of research reports about us or our industry by securities
                analysts;




•
            additions
                and departures of key personnel;




•
            speculation
                in the press or investment
                community;




•
            actions
                by institutional or other
                shareholders;




17




•
            changes
                in accounting principles;




•
            terrorist
                acts; and




•
            general
                market conditions, including factors unrelated to our
                performance.




***Future
      sales of our common stock may depress the price of our common
      stock.***




As
      of
      March 15, 2007, there were 9,527,000 shares of our common stock outstanding.
      If
      the unit purchase option is exercised for cash, there will be 336,667 additional
      shares of our common stock outstanding. If the warrants underlying the units
      underlying the unit purchase option are exercised, there will be 673,334
      additional shares of our common stock outstanding. On January 25, 2007,
      15,820,000 warrants became exercisable. If all 15,820,000 warrants are
      exercised, 15,820,000 additional shares of our common stock may be issued.
      Sales
      of a substantial number of these shares in the public market could decrease
      the
      market price of our common stock. In addition, the perception that such sales
      might occur may cause the market price of our common stock to decline. Future
      issuances or sales of our common stock could have an adverse effect on the
      market price of our common stock.




**ITEM
              1B.**
            **UNRESOLVED
                STAFF COMMENTS**





None.





**ITEM
              2.**
            **PROPERT****IES**







We
      do not
      own any real estate or other physical properties. The facilities of Highbury
      are
      maintained at 999 Eighteenth Street, Suite 3000, Denver, Colorado 80202.
      Berkshire Capital has agreed that, commencing on January 25, 2006, it will
      make available to us such office space and certain general and administrative
      services as we may require from time to time. We have agreed to pay Berkshire
      Capital $7,500 per month for these services. We believe, based on rents and
      fees
      for similar services in the Denver, Colorado metropolitan area, that the fee
      charged by Berkshire Capital is at least as favorable as we could have obtained
      from an unaffiliated third party. The agreement is terminable by either party
      upon six months’ prior notice.





Through
      January 19, 2007, the facilities of Aston were maintained at 161 North Clark
      Street, 12th Floor, Chicago, Illinois 60601. On January 19, 2007, Aston
      relocated to 120 North LaSalle Street, Suite 2500, Chicago, Illinois
      60602.





We
      believe our office facilities are suitable and adequate for our business as
      it
      is presently conducted.




**ITEM
              3.**
            **LEGAL
                PROCEEDINGS**





Neither
      Highbury nor Aston is currently subject to any material legal proceedings,
      nor,
      to our knowledge, is any material legal proceeding threatened against either
      of
      them. From time to time, we may be a party to certain legal proceedings
      incidental to the normal course of our business. While the outcome of these
      legal proceedings cannot be predicted with certainty, we do not expect that
      these proceedings will have a material effect upon our financial condition
      or
      results of operations.




**ITEM
              4.**
            **SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY
                HOLDERS**




No
      matters were submitted to a vote of our stockholders during the quarter ended
      December 31, 2006, except at the annual meeting of stockholders held on November
      27, 2006. At that meeting, the stockholders approved:




(i)
            the
                adoption of the asset purchase agreement, dated as of April 20, 2006,
                among Highbury, Aston Asset Management LLC, ABN AMRO Asset Management
                Holdings, Inc., ABN AMRO Investment Fund Services, Inc., ABN AMRO
                Asset
                Management, Inc., Montag & Caldwell, Inc., Tamro Capital Partners LLC,
                Veredus Asset Management LLC, and River Road Asset Management, LLC,
                and
                the transactions contemplated thereby (referred to in this Annual
                Report
                on Form 10-K as the acquisition), for which voting at the meeting
                was as
                follows: 5,568,485 votes cast for; 1,589,900 votes cast against;
                0 shares
                abstaining; and 1,325,567 broker non-votes;




18




(ii)
              an
                  amendment to our Certificate of Incorporation to remove the preamble and
                  Sections A through G, inclusive, of Article Fifth from the Certificate
                  of
                  Incorporation from and after the closing of the acquisition, for
                  which
                  voting at the meeting was as follows: 5,568,485 votes cast for;
                  1,589,900
                  votes cast against; 0 shares abstaining; and 1,325,567 broker
                  non-votes;





(iii)
            the
                election of Russel L. Appel as Director to serve for a term of three
                years
                or until his successor is duly elected and qualified, for which voting
                at
                the meeting was as follows: 8,167,202 votes cast for; 316,750 votes
                withheld; and




(iv)
            the
                adjournment of the meeting to a later date(s), if necessary, to permit
                further solicitation and vote of proxies in the event there were
                not
                sufficient votes at the time of the annual meeting to adopt the proposal
                relating to the acquisition or the proposal to amend the Certificate
                of
                Incorporation described above, for which voting at the meeting was
                as
                follows: 5,568,485 votes cast for; 1,589,900 votes against; 0 shares
                abstaining; and 1,325,567 broker non-votes.




One
      Highbury stockholder owning 108,000 shares of Highbury common stock voted
      against the acquisition and exercised its right to convert those shares into
      a
      pro rata portion of the funds held in trust by Highbury. Consequently, the
      Company remitted to the stockholder approximately $618,972 in exchange for
      its
      shares.




19


**PART
      II**






**ITEM
                5.**
            **MARKET
                FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
                PURCHASES OF EQUITY
                SECURITIES**




**Market
      Price and Dividend Data for Highbury Securities**





Highbury’s
      units, common stock and warrants are traded on the Over-the-Counter Bulletin
      Board under the symbols HBRFU, HBRF and HBRFW, respectively. Each of Highbury’s
      units consists of one share of our common stock and two warrants. The following
      table sets forth the range of high and low closing bid prices for the units,
      common stock and warrants for the period indicated since such units, common
      stock and warrants commenced trading. The units commenced public trading on
      January 26, 2006. The common stock and warrants were approved for separate
      public trading on February 21, 2006 and such trading commenced on March 1,
      2006.
      The over-the-counter market quotations reflect inter-dealer prices, without
      retail mark-up, mark-down or commission and may not necessarily reflect actual
      transactions. Prior to January 26, 2006, there was no established public trading
      market for Highbury’s units. Prior to March 1, 2006, there was no established
      public trading market for our common stock or warrants.




**Units**
            
            **Common
                Stock**
            
            **Warrants****High**
            
            **Low**
            
            **High**
            
            **Low**
            
            **High**
            
            **Low****Quarter
                ended****March
                31, 2006**
            
            $
            6.75
            
            $
            6.00
            
            $
            5.50
            
            $
            5.32
            
            $
            0.66
            
            $
            0.53**June 30,
                2006**
            
            $
            8.72
            
            $
            6.79
            
            $
            6.05
            
            $
            5.45
            
            $
            1.31
            
            $
            0.64**September 30,
                2006**
            
            $
            7.40
            
            $
            6.70
            
            $
            5.65
            
            $
            5.46
            
            $
            0.93
            
            $
            0.61**December
                31, 2006**
            
            $
            9.45
            
            $
            7.30
            
            $
            5.93
            
            $
            5.60
            
            $
            1.69
            
            $
            0.81





We
      do not
      currently have any equity compensation plans under which our securities are
      authorized for issuance.





**Holders
      of Common Equity**




On
      March
      15, 2007, there was one holder of record of Highbury’s units, 13 holders of
      record of Highbury’s common stock and one holder of record of Highbury’s
      warrants, which does not include beneficial owners of Highbury’s securities.
      Highbury believes the beneficial holders of the units, common stock and warrants
      to be in excess of 25 persons each.




**Dividends**




Highbury
      has not paid any cash dividends on its common stock to date and does not intend
      to pay cash dividends in the foreseeable future. The payment of dividends in
      the
      future will be contingent upon our revenues and earnings, if any, capital
      requirements and general financial condition. The payment of any dividends
      will
      be within the discretion of our board of directors. It is the present intention
      of our board of directors to retain all earnings, if any, for use in our
      business operations and, accordingly, our board does not anticipate declaring
      any dividends in the foreseeable future.





Highbury
      is a holding company and, therefore, our ability to pay dividends, service
      our
      debt and meet our other obligations depends primarily on the ability of our
      sole
      subsidiary, Aston, to make distributions to us. Pursuant to the limited
      liability company agreement of Aston, 18.2% of the total revenue of Aston is
      allocated to Highbury, 9.8% of the total revenue is allocated to the other
      members of Aston and 72% of the total revenue will be retained for use in paying
      operating expenses of Aston. In addition, Aston’s payment of distributions to us
      may be subject to claims by Aston’s creditors and to limitations applicable to
      Aston under federal and state laws, including securities and bankruptcy laws.
      See “Risk Factors - Risks
      related to the Structure of our Business - The
      agreed upon expense allocation under our revenue sharing arrangement with Aston
      may not be large enough to pay for all of Aston’s operating expenses” and
“ - The
      failure to receive regular distributions from Aston will adversely affect us
      and
      our holding company structure will result in substantial structural
      subordination that may affect our ability to make payments on our obligations”
under Item 1A.




20




**Performance
      Graph**





The
      following graph provides a comparison of cumulative total stockholder return
      for
      the period from March 1, 2006, the day our common stock began trading
      separately, through December 31, 2006, among the Company, the MSCI US Micro
      Cap
      Index and an asset management industry composite index constructed and used
      by
      the Company, which we refer to as the Peer Group Index. The Peer Group Index
      is
      comprised of the following entities: Affiliated Managers Group, Inc., BlackRock,
      Inc., Eaton Vance Corp., Federated Investors, Inc., Franklin Resources, Inc.,
      GAMCO Investors, Inc., Janus Capital Group Inc., Nuveen Investments, Inc.,
      T.
      Rowe Price Group, Inc., Waddell & Reed Financial, Inc. and W.P. Stewart
& Co., Ltd. Prior to November 30, 2006, the date we completed the
      acquisition of the U.S. mutual fund business of ABN AMRO, we were a blank check
      company. Accordingly, we have only operated in the investment advisory industry
      during the portion of the period shown in the following graph commencing on
      November 30, 2006.





COMPARISON
      OF CUMULATIVE TOTAL RETURN*


AMONG
      THE
      COMPANY, THE MSCI US MICRO CAP INDEX,


AND
      THE
      PEER GROUP INDEX










*
            The stock performance graph assumes
              an
              investment of $100 in the common stock of the Company (at the per share
              closing price of the Company’s common stock on March 1, 2006) and both of
              the indices described above and assumes that all dividends paid by
              companies included in each index were reinvested. The historical
              information set forth above is not necessarily indicative of future
              performance. The cumulative total return for Highbury Financial Inc.
              (6.2%) and the Peer Group (6.4%) were virtually identical during the
              time
              period presented. As such, the two lines appear as one on the
              chart.




*The
      foregoing graph shall not be deemed to be “soliciting material” or “filed” or
      incorporated by reference in any previous or future documents filed by the
      Company with the SEC under the Securities Act or the Exchange Act, except to
      the
      extent that the Company specifically incorporates the information by reference
      in any such document.*




**Recent
      Sales of Unregistered Securities**




Highbury
      did not engage in any unregistered sales of securities during the three months
      ended December 31, 2006.




21




**Use
      of Proceeds from our Initial Public Offering**




The
      effective date of Highbury’s registration statement, which was filed on Form S-1
      under the Securities Act (File No. 333-127272), and which relates to the initial
      public offering of Highbury’s units, was January 25, 2006. Each unit consists of
      one share of common stock, $0.0001 par value per share, and two warrants, each
      to purchase one share of common stock. Pursuant to Highbury’s registration
      statement, Highbury also registered common stock and warrants. Each warrant
      is
      exercisable for one share of common stock. A total of 8,080,000 units, including
      1,010,000 units to cover any over-allotments and 336,667 units to cover an
      option granted to ThinkEquity Partners LLC and EarlyBirdCapital, Inc.,
      representatives of Highbury’s underwriters, were registered.





The
      offering closed on January 31, 2006. The co-lead managing underwriters for
      the
      offering were ThinkEquity Partners LLC and EarlyBirdCapital, Inc. A total of
      6,733,333 units were sold in the offering, generating gross proceeds of
      $40,399,998. On February 3, 2006, ThinkEquity Partners LLC and EarlyBirdCapital,
      Inc. acquired an additional 1,010,000 units pursuant to an over-allotment
      option, generating gross proceeds of $6,060,000. Each of Highbury’s units became
      separable into its constituent parts of common stock and warrants on February
      21, 2006.




Highbury
      paid a total of **** $3,079,039
      in underwriting discounts and commissions and the underwriters’ non-accountable
      expense allowance and incurred approximately $602,652 for other costs and
      expenses related to the offering. No underwriting discounts, commissions,
      expense allowance or other costs and expenses of our initial public offering
      were paid to any of our directors or officers or any of their respective
      affiliates. We did, however, repay an aggregate $70,000 to R. Bruce Cameron,
      Richard S. Foote, the Hillary Appel Trust, the Catey Lauren Appel Trust, R.
      Bradley Forth and Broad Hollow LLC who had advanced Highbury such amount to
      pay
      certain expenses related to our initial public offering. This amount was
      reflected in the offering expenses and did not reduce Highbury’s available funds
      of approximately $1,167,348 held outside the trust account described below.
      After deducting the underwriting discounts and commissions, the underwriters’
non-accountable expense allowance and the offering expenses, the total net
      proceeds to Highbury from its initial public offering were approximately
      $42,783,580.





Of
      the
      proceeds of the offering, $42,289,565 were placed in a trust account at Lehman
      Brothers, Inc., maintained by Continental Stock Transfer & Trust Company
      acting as trustee. This amount included the non-accountable expense allowance
      of
      approximately $673,333 that ThinkEquity Partners LLC and EarlyBirdCapital,
      Inc.
      agreed to defer until the consummation of our initial business combination.
      Highbury also placed all of the proceeds of the private placement consummated
      contemporaneously with the offering, $1,000,002, in the trust account for an
      initial total amount in the trust account of $43,289,567. Pursuant to Highbury’s
      Certificate of Incorporation, the proceeds placed in the trust account could
      not
      be released from the trust account until the earlier of the completion of our
      initial business combination or our liquidation. On November 30, 2006, we
      completed our initial business combination. At this time, approximately $38.6
      million of the proceeds of the offering deposited in the trust account was
      paid
      to AAAMHI, **** approximately
      $618,972 of the proceeds of the offering deposited in the trust account was
      distributed to a holder of Highbury’s common stock that voted against the
      acquisition and elected to exercise its conversion rights to receive its pro
      rata portion of the offering proceeds deposited in the trust account, and
      approximately $678,606 (consisting of the deferred non-accountable expense
      allowance of approximately $673,333, plus accrued interest on such amount,
      net
      of taxes payable, less approximately $0.11 for each share of our common stock
      that a public stockholder elected to convert in connection with our initial
      business combination) was paid to the underwriters. The remaining proceeds
      in
      the trust account were released to Highbury. Highbury used a portion of such
      proceeds to pay acquisition-related costs and deferred operating expenses and
      to
      provide a loan to Aston to finance its initial operations.





Between
      the consummation of Highbury’s initial public offering on January 31, 2006 and
      December 31, 2006, Highbury used the net proceeds not held in the trust account
      to pay for business, legal and accounting due diligence on prospective
      acquisitions and to pay general and administrative expenses.





During
      2006, Highbury used the gross proceeds of the initial public offering, initially
      totaling $46,459,998, as follows:




22




Costs
                related to the initial public offering
            
            $
            3,681,691Payment
                to shareholder electing conversion
            
            
            618,972Purchase
                price paid to AAAMHI
            
            
            38,600,000Costs
                related to the acquisition
            
            
            1,782,871Aston
                start-up costs and operating expenses
            
            
            698,940Estimated
                income tax payments
            
            
            460,000Directors’
                and officers’ insurance policy
            
            
            222,750Administrative
                and other operating costs
            
            
            204,889Professional
                fees
            
            
            189,885




As
      of
      December 31, 2006, the Company had used all of the gross proceeds from the
      initial public offering. However, at December 31, 2006, the total cash available
      to Highbury was $6,248,706. This total arises from the following inflows of
      cash
      received by the Company since its inception: $25,000 raised from the sale of
      common stock to the initial stockholders in August 2005; $1,000,002 raised
      from
      the sale of units to the initial stockholders in January 2006; $100 received
      from the underwriters in connection with the unit purchase option; $3,500,000
      received from AAAMHI in connection with the acquisition; $1,730,438 of
      investment income earned on the trust account; and $14,470 of interest income
      earned on the funds held outside of the trust account; less $21,304 paid for
      operating expenses. Highbury intends to use its cash going forward to cover
      its
      operating expenses and, to the extent possible, make additional acquisitions,
      service debt, if any, and, if appropriate, repurchase securities.





**Issuer
      Purchases of Equity Securities**





The
      table
      below sets forth the information with respect to purchases by us of our common
      stock during the fiscal quarter ended December 31, 2006.





**Period**
            **Total
                Number of Shares (or Units) Purchased**
            **Average
                Price Paid per Share (or Unit)**
            **Total
                Number of Shares (or Units) Purchased as Part of Publicly Announced
                Plans
                or Programs(1)**
            **Maximum
                Number (or Approximate Dollar Value) of Shares (or Units) that May
                Yet Be
                Purchased Under the Plans or Programs(1)**October
                1, 2006 to
              October
                31, 2006
            ---
            ---
            ---
            ---November
                1, 2006 to November 30, 2006
            108,000
            5.73
            108,000
            0December
                1, 2006 to December 31, 2006
            ---
            ---
            ---
            ---**Total**
            108,000
            5.73
            108,000
            0





(1) In
      connection with our acquisition, we offered each public stockholder the right
      to
      have such stockholder’s shares of common stock converted into cash if the
      stockholder voted against the acquisition and elected to convert. The actual
      per-share conversion price was approximately $5.73, equal to the amount in
      the
      trust account inclusive of any interest (calculated as of two business days
      prior to the consummation of the acquisition), net of taxes payable, and divided
      by the number of shares sold in our initial public offering (7,743,333). One
      Highbury stockholder owning 108,000 shares of common stock exercised its right
      to convert those shares into a pro rata portion of the funds held in trust
      by
      Highbury. Consequently, Highbury remitted to that stockholder approximately
      $618,972 in exchange for those shares. The conversion right was announced in
      connection with our initial public offering which closed on January 31, 2006.
      The right to request conversion expired on November 27, 2006, the date of the
      stockholders’ vote taken with respect to the acquisition.





**ITEM
              6.**
            **SELECTED
                FINANCIAL DATA**





The
      selected financial data below should be read in conjunction with, and is
      qualified in its entirety by reference to, the consolidated financial statements
      and accompanying notes and “Management’s Discussion and Analysis of Financial
      Condition and Results of Operations” included elsewhere in this Annual Report on
      Form 10-K.




23




Highbury
      was formed July 13, 2005 to acquire one or more businesses in the financial
      services industry. On November 30, 2006, the Company completed its acquisition
      of the U.S. mutual fund business of ABN AMRO. Selected financial information
      is
      presented below for the U.S. mutual fund business of ABN AMRO, or the acquired
      business, for the periods from January 1, 2003 through November 30, 2006, the
      date of the acquisition, and for Highbury for the periods from its inception
      (July 13, 2005) through December 31, 2006. Highbury’s 2006 consolidated
      financial results include the operations of the acquired business for the period
      from December 1, 2006 through December 31, 2006.





**Acquired
                Business**
            
            **Highbury**
            
            **Combined****(5)**Year
                Ended December 31, 2003
            
            Year
                Ended December 31, 2004
            
            Year
                Ended December 31, 2005
            
            Eleven
                Months Ended November 30, 2006
            
            Period
                from July 13, 2005 (inception) to December 31, 2005
            
            Year
                Ended December 31, 2006
            
            Year
                Ended December 31, 2006**Statement
                of Income Data**Operating
                revenue
            
            $
            39,677,535
            
            $
            49,247,963
            
            $
            48,927,074
            
            $
            38,476,882
            
            $
            —
            
            $
            3,828,100
            
            $
            42,304,982Distribution
                and advisory costs
            
            $
            (33,531,069
            )
            $
            (40,918,617
            )
            $
            (40,405,752
            )
            $
            (28,830,231
            )
            $
            —
            
            $
            (1,796,910
            )
            $
            (30,627,141
            )Compensation
                and related expenses
            
            $
            (3,920,966
            )
            $
            (4,416,624
            )
            $
            (5,194,449
            )
            $
            (3,999,963
            )
            $
            —
            
            $
            (21,109,331
            )
            $
            (25,109,294
            )Goodwill
                impairment
            
            $
            —
            
            $
            —
            
            $
            (13,344,050
            )
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —Intangible
                asset impairment
            
            $
            —
            
            $
            —
            
            $
            (10,425,533
            )
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —Other
                expenses
            
            $
            (1,625,837
            )
            $
            (2,398,696
            )
            $
            (3,318,263
            )
            $
            (3,552,847
            )
            $
            (2,452
            )
            $
            (1,162,875
            )
            $
            (4,715,722
            )Operating
                income (loss)
            
            $
            599,663
            
            $
            1,514,026
            
            $
            (23,760,973
            )
            $
            2,093,841
            
            $
            (2,452
            )
            $
            (20,241,016
            )
            $
            (18,147,175
            )Interest
                income
            
            $
            20,432
            
            $
            31,140
            
            $
            133,524
            
            $
            314,695
            
            $
            —
            
            $
            1,744,907
            
            $
            2,059,602Minority
                interest
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            6,647,715
            
            $
            6,647,715Income
                taxes
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            (614,812
            )
            $
            (614,812
            )Net
                income (loss)
            
            $
            620,095
            
            $
            1,545,166
            
            $
            (23,627,449
            )
            $
            2,408,536
            
            $
            (2,452
            )
            $
            (12,463,206
            )
            $
            (10,054,670
            )Earnings
                per share - basic and diluted
            
            
            n/a
            
            
            n/a
            
            
            n/a
            
            
            n/a
            
            $
            (0.00
            )
            $
            (1.38
            )Average
                shares outstanding - basic and diluted
            
            
            n/a
            
            
            n/a
            
            
            n/a
            
            
            n/a
            
            
            1,725,000
            
            
            9,045,773**Balance
                Sheet Data**Cash
                and cash equivalents
            
            
            n/a
            
            $
            3,158,266
            
            $
            5,239,747
            
            $
            7,966,323
            
            $
            36,902
            
            $
            6,248,705Accounts
                receivable
            
            
            n/a
            
            $
            4,193,370
            
            $
            4,074,486
            
            $
            3,480,736
            
            $
            —
            
            $
            3,646,422Intangible
                assets(1)
            
            
            n/a
            
            $
            56,333,333
            
            $
            32,563,750
            
            $
            32,563,750
            
            $
            —
            
            $
            36,426,412Other
                non-current assets
            
            
            n/a
            
            $
            3,159
            
            $
            1,635
            
            $
            1,635
            
            $
            483,492
            
            $
            810,810




24




Total
                assets(2)
            
            
            n/a
            
            $
            63,688,128
            
            $
            41,879,618
            
            $
            44,012,444
            
            $
            520,394
            
            $
            47,367,239Liabilities
            
            
            n/a
            
            $
            4,266,990
            
            $
            3,869,502
            
            $
            3,597,720
            
            $
            497,846
            
            $
            2,511,559Senior
                debt
            
            
            n/a
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —Senior
                convertible debt
            
            
            n/a
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —Mandatory
                convertible securities
            
            
            n/a
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —Other
                long-term obligations
            
            
            n/a
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —Stockholders'
                equity
            
            
            n/a
            
            $
            59,421,138
            
            $
            38,010,116
            
            $
            40,414,724
            
            $
            22,548
            
            $
            44,228,779**Cash
                Flow Data**Operating
                activities
            
            $
            280,014
            
            $
            1,420,696
            
            $
            (134,946
            )
            $
            2,730,504
            
            
            —
            
            $
            (12,229
            )Investing
                activities
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —
            
            
            —
            
            $
            (36,923,503
            )Financing
                activities
            
            $
            1,407,219
            
            $
            (833,060
            )
            $
            2,216,427
            
            $
            (3,928
            )
            $
            36,902
            
            $
            43,147,535**Other
                Financial Data**Adjusted
                EBITDA(3)
            
            
            n/a
            
            
            n/a
            
            
            n/a
            
            
            n/a
            
            $
            (2,452
            )
            $
            1,661,606Cash
                Net Income(4)
            
            
            n/a
            
            
            n/a
            
            
            n/a
            
            
            n/a
            
            $
            (2,452
            )
            $
            1,121,783Assets
                under management (at period end, in millions)Mutual
                funds
            
            $
            6,906
            
            $
            7,223
            
            $
            6,329
            
            $
            5,308
            
            $
            —
            
            $
            5,454Separate
                accounts
            
            
            —
            
            
            22
            
            
            149
            
            
            119
            
            
            —
            
            
            199Total
            
            $
            6,906
            
            $
            7,245
            
            $
            6,478
            
            $
            5,427
            
            $
            —
            
            $
            5,653





(1)
            Intangible
                assets have increased as a result of our acquisition of the U.S.
                mutual
                fund business of ABN AMRO on November 30, 2006. This acquisition
                is
                discussed in "Management's Discussion and Analysis of Financial Condition
                and Results of Operations."





(2)
            Total
                assets have increased as a result of our initial public offering
                which was
                consummated on January 31, 2006. Our initial public offering is discussed
                in "Management's Discussion and Analysis of Financial Condition and
                Results of Operations."





(3)
            Adjusted
                EBITDA means the sum of (a) net income determined in accordance with
                GAAP,
                plus (b) amortization of intangible assets, plus (c) interest expense,
                plus (d) depreciation, plus (e) other non-cash expenses, plus (f)
                taxes.This
                definition of Adjusted EBITDA is consistent with the definition of
                EBITDA
                used in our credit facility.We
                consider non-cash expenses to be expenses which we incur for financial
                reporting purposes for which there is no corresponding current or
                future
                cash expense. As a measure of liquidity, we believe that Adjusted
                EBITDA
                is useful as an indicator of our ability to service debt, make new
                investments and meet working capital requirements. Adjusted EBITDA
                is not
                a measure of liquidity under GAAP and should not be considered an
                alternative to cash flow from operations. Adjusted EBITDA, as calculated
                by us, may not be consistent with computations of EBITDA by other
                companies. Our use of Adjusted EBITDA, including reconciliations
                to cash
                flow from operations and Net Income, is discussed in greater detail
                in
                "Management's Discussion and Analysis of Financial Condition and
                Results
                of Operations."




25




(4)
            Cash
                Net Income means the sum of (a) net income determined in accordance
                with
                GAAP, plus (b) amortization of intangible assets, plus (c) deferred
                taxes
                related to intangible assets, plus (d) affiliate depreciation, plus
                (e)
                other non-cash expenses. We consider Cash Net Income an important
                measure
                of our financial performance, as we believe it best represents operating
                performance before non-cash expenses relating to the acquisition
                of our
                interest in our affiliated investment management firm. Cash Net Income
                is
                not a measure of financial performance under GAAP and, as calculated
                by
                us, may not be consistent with computations of Cash Net Income by
                other
                companies. Our use of Cash Net Income, including a reconciliation
                of Cash
                Net Income to Net Income, is discussed in "Management's Discussion
                and
                Analysis of Financial Condition and Results of Operations."





(5)
            The
                information presented in the “Combined” column for 2006 is the arithmetic
                sum of the operating results of Highbury for the year ended December
                31,
                2006, which includes the acquired business’ results from December 1, 2006,
                and the operating results of the acquired business for the 11 months
                ended
                November 30, 2006, which is prior to the date of acquisition. No
                pro forma
                or other adjustments have been made in the presentation of the “Combined”
                financial results.




**ITEM
              7.**
            **MANAGEMENT’S
                DISCUSSION AND ANALYSIS OF****FINANCIAL
                CONDITION AND RESULTS OF
                OPERATIONS**




*You
      should read this discussion and analysis of our financial condition and results
      of operations in conjunction with our audited consolidated financial statements
      and the related notes and the audited combined financial statements for the
      U.S.
      Mutual Fund Business of ABN AMRO Asset Management Holdings, Inc. and the related
      notes appearing elsewhere in this Annual Report on Form 10-K. The information
      in
      this section contains forward-looking statements (see “Forward-Looking
      Statements”). Our actual results may differ significantly from the results
      suggested by these forward-looking statements and our historical results. Some
      factors that may cause our results to differ are described in “Risk Factors”
under Item 1A of this Annual Report on Form 10-K. We wish to caution you not
      to
      place undue reliance on these forward-looking statements, which speak only
      as of
      the date made.*




**Overview**




Highbury
      is an investment management holding company providing permanent capital
      solutions to mid-sized investment management firms. We pursue acquisition
      opportunities and seek to establish accretive partnerships with high quality
      investment management firms. Highbury’s strategy is to provide permanent equity
      capital to fund buyouts from corporate parents, buyouts of founding or departing
      partners, growth initiatives, or exit strategies for private equity funds.
      This
      strategy includes leaving material equity interests with management teams to
      align the interests of management and Highbury’s shareholders and, in general,
      does not include integrating our acquisitions, although Highbury may execute
      add-on acquisitions for its current or future affiliates. We seek to augment
      and
      diversify our sources of revenue by asset class, investment style, distribution
      channel, client type and management team. We intend to fund future acquisitions
      with retained net income or the issuance of debt or equity.





Highbury
      was formed on July 13, 2005, for the purpose of acquiring or acquiring
      control of, through a merger, capital stock exchange, asset acquisition, stock
      purchase or other similar business combination, one or more financial services
      businesses. Highbury closed its initial public offering on January 31,
      2006. After deducting the underwriting discounts and commissions and the
      offering expenses, the total net proceeds to Highbury from the offering and
      the
      private placement that Highbury closed contemporaneously with its initial public
      offering, were approximately $43,783,582. Highbury deposited $42,616,234 of
      the
      net proceeds and the non-accountable expense allowance of $673,333, which the
      underwriters agreed to defer until consummation of our initial business
      combination, into a trust account at Lehman Brothers, Inc., or the trust
      account, maintained by Continental Stock Transfer & Trust Company
      acting as trustee, for an initial total of $43,289,567 in the trust account.
      On
      November 30, 2006, upon consummation of the acquisition, the trust account
      was liquidated.




26




*Business
      Combination* .
      On
      April 20, 2006 Highbury and Aston entered into an asset purchase agreement
      with the sellers. Pursuant to the asset purchase agreement on November 30,
      2006,
      we acquired substantially all of the sellers’ business of providing investment
      advisory, administration, distribution and related services to the target funds
      specified in the asset purchase agreement. In connection with the consummation
      of the acquisition, Aston entered into agreements with each of the sellers
      that
      managed the target funds prior to the acquisition, pursuant to which each such
      seller now acts as a sub-adviser to the applicable target fund, each of which
      is
      now rebranded an Aston Fund. Pursuant to the asset purchase agreement, the
      sellers have agreed not to terminate these agreements for a period of five
      years
      following the consummation of the acquisition.




Pursuant
      to the asset purchase agreement, Highbury and Aston paid $38.6 million in cash
      to AAAMHI. The asset purchase agreement provides for a contingent adjustment
      payment in cash on the second anniversary of the date of the closing of the
      acquisition, as follows: in the event the annualized investment advisory fee
      revenue generated under investment advisory contracts between Aston and the
      sellers applicable to the target funds for the six months prior to the second
      anniversary of the date of the closing of the acquisition, or the target
      revenue, (x) exceeds $41.8 million, we will pay to AAAMHI the difference
      between the target revenue and $41.8 million, up to a total aggregate payment
      of
      $3.8 million, or (y) is less than $34.2 million, AAAMHI will pay to us the
      difference between the $34.2 million and the target revenue, up to a total
      aggregate payment of $3.8 million.




The
      acquired business was founded in 1993 within Alleghany Asset Management, Inc.
      by
      employees of Aston to manage open-end investment funds for retail and
      institutional clients in the United States. Originally, the acquired business
      employed investment advisers affiliated with its parent to manage the assets
      of
      the funds, while it centralized the distribution, marketing, reporting and
      other
      operations of the fund family. As the business developed, the acquired business
      created new mutual funds managed by experienced independent investment advisers.
      As of December 31, 2006, Aston managed 20 no-load mutual funds, comprised of
      16
      equity funds and four fixed income funds, with approximately $5.5 billion of
      mutual fund assets under management. Historically, the acquired business
      utilized seven different entities to manage the equity funds, of which five
      are
      affiliates of the sellers and two are independent. Upon consummation of the
      acquisition, Aston entered into long-term contracts with each of these entities
      pursuant to which they will sub-advise the funds. The contracts with the
      sellers’ affiliates will not be terminable by the sub-advisers for five years.
      One existing fixed income manager and two new managers have been retained to
      manage three fixed income funds. Aston’s relationship with the sub-advisers is
      supported by limited non-compete provisions and certain capacity guarantees
      in
      certain products to benefit Aston. This arrangement is intended to ensure that
      the investment philosophies and processes guiding the mutual funds in the future
      are consistent with their historical investment philosophies and
      processes.




As
      of
      December 31, 2006, 12 of the mutual funds carried an overall Morningstar Rating
      of three stars or better, including five four-star funds. Four funds are
      relatively new and are not currently rated by Morningstar. The 16 equity funds
      are classified in seven of the nine Morningstar style boxes, giving Aston wide
      coverage of the public equity investment spectrum and multiple sources of
      revenue. Aston intends to expand its assets under management with a combination
      of internal growth, new product development and accretive acquisitions. The
      Company believes the development of new products will provide growth in the
      future. New products may include:




·
            additional
                open-end mutual funds with current or new
                sub-advisers;




·
            funds
                of funds;




·
            closed-end
                funds;




·
            wrap
                accounts; or




·
            an
                expanded separate account management
                program.




A
      fund of
      funds is a fund that invests in other commingled investment funds. Closed-end
      funds are funds that do not offer daily liquidity for investor purchases and
      sales at net asset value, but rather are typically listed on an exchange and
      traded in the secondary market. Wrap accounts are accounts offered by retail
      distribution firms that provide access to institutional investment management
      services without the use of a registered investment company. A separate account
      is an account managed for a single investor not commingled with the assets
      of
      other investors.




27




In
      addition, Aston may be able to develop new distribution channels
      including:




·
            arrangements
                with banks and insurance companies which, like ABN AMRO, elect to
                divest
                their mutual fund operations but enter into agreements with Aston
                to
                service their customers; and




·
            wholesalers
                focused on the traditional retail broker
                channel.




*Revenue
      Sharing Arrangement with Aston* .
      Highbury formed Aston on April 19, 2006 and became the sole member of
      Aston. In connection with Highbury and Aston entering into the asset purchase
      agreement, the limited liability company agreement of Aston was amended and
      eight employees of the acquired business and ABN AMRO were admitted as members
      of Aston (collectively referred to herein as the Aston management
      members).




Highbury
      owns 65% of the membership interests of Aston, and the Aston management members
      own 35% of the membership interests of Aston. Upon consummation of the
      acquisition, as a result of this amendment to the Aston limited liability
      company agreement to admit the new members, Aston incurred a one-time non-cash
      compensation expense of approximately $20.8 million for the value of such
      ownership interests. Since none of the Aston management members had any
      ownership interest in the acquired business prior to the consummation of the
      acquisition, the value of the ownership grant was deemed to be compensatory
      in
      nature and not purchase price consideration. To establish the $20.8 million
      compensation charge for financial reporting purposes, we used an asset-based
      approach. Based on the acquisition purchase price of $38.6 million, we
      determined that the minimum value of Highbury’s 65% manager membership interest
      in Aston was $38.6 million, and therefore the minimum valuation for 100% of
      Aston was approximately $59.4 million. We concluded that the value of the Aston
      management members’ 35% interest was equal to the difference between these two
      values, or approximately $20.8 million. In determining this estimate, we also
      reviewed the valuation analyses included in the fairness opinion prepared by
      Capitalink, L.C. in connection with the determination by our board of directors
      to submit the acquisition to our stockholders for approval.




Pursuant
      to the limited liability company agreement, 72% of the revenues, or the
      Operating Allocation, of Aston is used to pay operating expenses of Aston,
      including salaries and bonuses of all employees of Aston (including the Aston
      management members). The remaining 28% of the revenues, or Owners’ Allocation,
      of Aston is allocated to the owners of Aston. The Owners’ Allocation is
      allocated among the members of Aston according to their relative ownership
      interests. **** Currently,
      18.2% of total revenue is allocated to Highbury and 9.8% of total revenue is
      allocated to the Aston management members.




Highbury’s
      contractual share of revenues has priority over the distributions to the Aston
      management members in the event Aston’s actual operating expenses exceed the
      Operating Allocation. As a result, excess expenses first reduce the portion
      of
      the Owners’ Allocation allocated to the Aston management members until the Aston
      management members’ allocation is eliminated, then Highbury’s allocation is
      reduced. Any reduction in the distribution of revenues to be paid to Highbury
      is
      required to be paid to Highbury out of any future excess Operating Allocation
      and the portion of future Owners’ Allocation allocated to the Aston management
      members, with interest.




*Business
      Overview* .
      Commencing with the acquisition on November 30, 2006 of the acquired business,
      we derive most of our revenue from the provision of investment management and
      related services. Aston generates revenue by charging mutual funds an advisory
      fee and an administrative fee based on a percentage of invested assets. A
      portion of the fees are paid to the sub-advisers, to a third-party
      sub-administrator and to third-party distribution partners. Each fund typically
      bears all expenses associated with its operation and the issuance and redemption
      of its securities. In particular, each fund pays investment advisory fees (to
      Aston), shareholder servicing fees and expenses, fund accounting fees and
      expenses, transfer agent fees, custodian fees and expenses, legal and auditing
      fees, expenses of preparing, printing and mailing prospectuses and shareholder
      reports, registration fees and expenses, proxy and annual meeting expenses
      and
      independent trustee fees and expenses. Aston has guaranteed many of the funds
      that their expenses will not exceed a specified percentage of their net assets.
      Aston absorbs all advisory fees and other mutual fund expenses in excess of
      these self-imposed limits in the form of expense reimbursements or fee waivers
      and collects as revenue the advisory fee less reimbursements and waivers. As
      of
      December 31, 2006, Aston was reimbursing 14 mutual funds whose expenses exceed
      the applicable expense cap.




Relationships
      with a limited number of clients account for a significant majority of our
      revenue. We expect that Aston’s relationships with these clients will continue
      to account for a substantial portion of our total revenue in future periods.
      Aston’s client, the Aston Funds, a Delaware business trust, which accounts for
      approximately 96% of our assets under management, is comprised of 20 mutual
      funds that are currently managed by Aston. Because all these funds have the
      same
      trustees, it is possible that the contracts with them could be terminated
      simultaneously. Of these 20 funds, Aston/ABN AMRO Growth,
      Aston/Montag & Caldwell Growth, Aston/Optimum Mid Cap and Aston/Veredus
      Aggressive Growth each account for more than 10% of the revenues of Aston.
      Additionally, the assets under management that Aston sources through independent
      financial advisers using Schwab and Fidelity, as custodians, each generate
      more
      than 10% of revenues received by Aston. These various client concentrations
      leave us vulnerable to any adverse change in the financial condition of any
      of
      our major clients. The loss of any of these relationships may have a material
      adverse impact on our revenues.




28




Our
      level
      of profitability will depend on a variety of factors, including:




·
            those
                affecting the global financial markets generally and the equity markets
                particularly, which could potentially result in considerable increases
                or
                decreases in our assets under management;




·
            the
                level of revenue, which is dependent on our ability to maintain or
                increase assets under management by maintaining existing investment
                advisory relationships and fee structures, marketing our services
                successfully to new clients and obtaining favorable investment results;




·
            our
                ability to maintain certain levels of operating profit margins;




·
            the
                availability and cost of the capital with which we finance our existing
                and new acquisitions;




·
            our
                success in making new acquisitions and the terms upon which such
                transactions are completed;




·
            the
                level of intangible assets and the associated amortization expense
                resulting from our acquisitions;




·
            the
                level of expenses incurred for holding company operations; and




·
            the
                level of taxation to which we are
                subject.




**Key
      Operating Measures**




We
      use
      the following key measures to evaluate and assess our business:




•
            *Assets
                Under Management*.
                Aston is the investment manager for 20 open-end mutual funds, comprised
                of
                16 equity and four fixed income funds. Aston generates revenues by
                charging each fund investment advisory and administrative fees (collected
                in monthly installments), each of which are equal to a percentage
                of the
                daily weighted average assets under management of the fund. Assets
                under
                management change on a daily basis as a result of client investments
                and
                withdrawals and changes in the market value of securities held in
                the
                mutual funds. We carefully review net asset flows into the mutual
                funds,
                trends in the equity markets and the investment performance of the
                mutual
                funds, both absolutely and relative to their peers, to monitor their
                effects on the overall level of assets under management.




•
            *Total
                Revenue*.
                Total revenue for Aston is equal to the sum of the advisory fees
                and the
                administrative fees and money market service fees earned by the business
                in a given period. We operate Aston under a revenue sharing structure
                through which Highbury receives a fixed percentage (18.2%) of the
                total
                revenue earned by Aston. In addition, Highbury earns interest income
                on
                its cash balances which we recognize as non-operating income on the
                financial statements.




•
            *Weighted
                Average Fee Basis*.
                The weighted average fee basis is equal to the total revenue earned
                in a
                specific period divided by the weighted average assets under management
                for that period. Because each fund has a different fee schedule,
                the
                weighted average fee basis provides us with a single indicator of
                the
                business’ ability to generate fees on its total assets under management
                across all products.




•
            *Total
                Operating Expenses*.
                The total operating expenses include the operating expenses of Aston
                as
                well as Highbury. At the Aston level, we monitor total operating
                expenses
                relative to Aston’s total revenue to ensure there is sufficient operating
                margin to cover expenses. We expect total operating expenses (including
                distribution and sub-advisory costs) to equal approximately 72% of
                the
                total revenue of Aston, as provided in Aston’s limited liability company
                agreement. At the Highbury level, we incur operating expenses in
                connection with our pursuit of accretive acquisitions, including
                expenses
                for travel, entertainment and due diligence. We also incur legal
                and
                accounting expenses in connection with our SEC filing requirements
                and
                expenses of directors’ and officers’ insurance.




29




**Description
      of Certain Line Items**




Following
      is a description of the components of certain line items from our consolidated
      financial statements:




•
            *Operating
                Revenue*.
                Aston generates advisory fees based on a fixed percentage of the
                daily
                weighted average assets under management for each fund and receives
                these
                fees on a monthly basis. For many funds, Aston provides an expense
                cap
                which guarantees to investors that the total expenses of a fund will
                not
                exceed a fixed percentage of the total assets under management. For
                small
                funds, the fixed expenses for fund accounting, client reporting,
                printing
                and other expenses, when combined with the investment advisory fees
                and
                administrative fees, cause a fund’s total expenses to exceed the expense
                cap. In such cases, Aston reimburses the funds for the excess fixed
                expenses or waives a portion of the investment advisory fee, so as
                to keep
                the total expenses of the fund at or below the expense cap. Aston’s
                advisory fees include investment advisory fees from all of the funds,
                net
                of all fee waivers and expense reimbursements. Additionally, Aston
                generates administration fees for providing administration services.
                Such
                services include marketing and customer relations, bookkeeping and
                internal accounting functions, and legal, regulatory and board of
                trustees
                support. Finally, Aston earns monthly fees from AAAMHI in return
                for
                providing administration services to six money market funds which
                continue
                to be advised by AAAMHI.




•
            *Distribution
                and Sub-advisory Costs*.
                Aston has contracted on a non-exclusive basis with nearly 400 different
                institutions to sell its mutual funds, in exchange for a distribution
                fee,
                to retail and institutional investors. These distribution fees are
                generally equal to a fixed percentage of the assets invested by the
                retail
                or institutional investor. In addition, Aston employs third-party
                investment managers to perform the security research and investment
                selection processes for each of its mutual funds. Under this arrangement,
                Aston pays the third-party investment manager a sub-advisory fee,
                generally equal to 50% of the advisory fees for the mutual fund,
                net of
                fee waivers, expense reimbursements, and applicable distribution
                fees paid
                under the distribution agreements discussed above. Total distribution
                and
                sub-advisory fees represent the largest component of expenses for
                Aston.
                Since these fees are generally based on total assets under management,
                they increase or decrease proportionately with total assets under
                management.




•
            *Compensation
                and Related Expenses*.
                As of December 31, 2006, Aston employed 36 full-time employees which
                it
                hired from AAAMHI upon the consummation of the acquisition. The
                compensation and related expenses of Aston include the base salaries,
                incentive compensation, health insurance, retirement benefits and
                other
                costs related to the employees. These expenses increase and decrease
                with
                the addition or termination of employees. Highbury currently has
                no
                employees and provides no compensation to its officers or directors.




•
            *Other
                Operating Expenses*.
                The most significant components of other operating expenses include
                professional fees, insurance, occupancy, marketing and advertising,
                voice
                and data communication and travel and entertainment
                expenses.




**Critical
      Accounting Policies**




The
      Company’s discussion and analysis of its financial condition and results of
      operations for the purposes of this document are based upon its consolidated
      financial statements, which have been prepared in accordance with accounting
      principles generally accepted in the United States of America, or GAAP. The
      preparation of these financial statements requires management to make estimates
      and assumptions that affect the reported amounts of assets, liabilities,
      revenues, expenses and related disclosures. Actual results could differ from
      those estimates.




The
      Company’s significant accounting policies are presented in Note 4 to its audited
      consolidated financial statements included elsewhere herein, and the following
      summaries should be read in conjunction with the financial statements and the
      related notes. While all accounting policies affect the financial statements,
      certain policies may be viewed as critical. Critical accounting policies are
      those that are both most important to the portrayal of the financial statements
      and results of operations and that require management’s most subjective or
      complex judgments and estimates. We believe the policies that fall within this
      category are the policies related to principles of combination, goodwill and
      intangible assets, valuation, compensation and related expenses and income
      taxes.




*Principles
      of Consolidation* .
      The
      consolidated financial statements include the accounts of Highbury and Aston,
      in
      which Highbury has a controlling financial interest. Generally, an entity is
      considered to have a controlling financial interest when it owns a majority
      of
      the voting interest in an entity. Highbury is the manager member of Aston and
      owns 65% of Aston. Highbury has a contractual arrangement with Aston whereby
      a
      percentage of revenue is allocable to fund Aston’s operating expenses (referred
      to as the Operating Allocation), while the remaining portion of revenue
      (referred to as the Owners' Allocation) is allocable to Highbury and the other
      members, with a priority to Highbury. The portion of the income of Aston
      allocated to owners other than Highbury is included in minority interest in
      the
      Consolidated Statements of Income. Minority interest on the Consolidated Balance
      Sheets includes capital and undistributed income owned by the management members
      of Aston. All material intercompany balances and transactions have been
      eliminated.




30




*Goodwill
      and Intangible Assets* .
      The
      purchase price and the capitalized transaction costs incurred in connection
      with
      the acquisition of the acquired business are allocated based on the fair value
      of the assets acquired, which is primarily the acquired mutual fund advisory
      contract. In determining the allocation of the purchase price to the acquired
      mutual fund advisory contract, we have analyzed the present value of the
      acquired business’ existing mutual fund advisory contracts based on a number of
      factors including: the acquired business’ historical and potential future
      operating performance; the historical and potential future rates of new business
      from new and existing clients and attrition among existing clients; the
      stability and longevity of existing advisory and sub-advisory relationships;
      the
      acquired business’ recent, as well as long-term, investment performance; the
      characteristics of the acquired business’ products and investment styles; the
      stability and depth of the management team; and the acquired business’ history
      and perceived franchise or brand value.




We
      have
      determined that the acquired mutual fund advisory contract meets the indefinite
      life criteria outlined in Statement of Financial Accounting Standards No. 142,
      "Goodwill and Other Intangible Assets" ("SFAS 142"), because we expect both
      the
      contract and the cash flows generated by the contract to continue indefinitely
      due to the likelihood of continued renewal at little or no cost. Accordingly,
      we
      do not amortize this intangible asset, but instead review this asset at least
      annually for impairment. If the carrying amount of this intangible asset exceeds
      the fair value, an impairment loss would be recorded in an amount equal to
      that
      excess. Additionally, each reporting period, we assess whether events or
      circumstances have occurred which indicate that the indefinite life criteria
      are
      no longer met. If the indefinite life criteria are no longer met, we will
      amortize the intangible asset over its remaining useful life.




The
      excess of purchase price for the acquisition of the acquired business over
      the
      fair value of net assets acquired, including the acquired mutual fund advisory
      contract, is reported as goodwill. Goodwill is not amortized, but is instead
      reviewed for impairment. Highbury assesses goodwill for impairment at least
      annually, or more frequently whenever events or circumstances occur indicating
      that the recorded goodwill may be impaired. If the carrying amount of goodwill
      exceeds the fair value, an impairment loss would be recorded in an amount equal
      to that excess.





*Valuation.* In
      allocating the purchase price of the acquisition and testing our assets for
      impairment, we make estimates and assumptions to determine the value of our
      acquired client relationships. In these valuations, we make assumptions of
      the
      growth rates and useful lives of existing and prospective client accounts.
      Additionally, we make assumptions of, among other factors, projected future
      earnings and cash flow, valuation multiples, tax benefits and discount rates.
      The impacts of many of these assumptions are material to our financial condition
      and operating performance and, at times, are subjective. If we used different
      assumptions, the carrying value of our intangible assets and the related
      amortization could be stated differently and our impairment conclusions could
      be
      modified.





*Compensation
      and Related Expenses.* Upon
      consummation of the transaction, as a result of the amendment to the Aston
      limited liability company agreement to admit the Aston management members,
      we
      recorded a one-time, non-cash compensation charge of approximately $20.8 million
      for the value of such ownership interests. Since none of the Aston management
      members had any ownership interest in the acquired business prior to the
      consummation of the acquisition, the value of the ownership grant was deemed
      to
      be compensatory in nature for financial reporting purposes and not purchase
      price consideration. To establish the $20.8 million compensation charge for
      financial reporting purposes, we used an asset-based approach. Based on the
      acquisition purchase price of $38.6 million, we determined that the minimum
      value of Highbury’s 65% manager membership interest in Aston was $38.6 million,
      and therefore the minimum valuation for 100% of Aston was approximately $59.4
      million. We concluded that the value of the Aston management members’ 35%
      interest was equal to the difference between these two values, or approximately
      $20.8 million. In determining this estimate, we also reviewed the valuation
      analysis included in the fairness opinion prepared by Capitalink, L.C. in
      connection with the determination by our board of directors to submit the
      acquisition to our stockholders for approval.




31




*Income
      Taxes.* Deferred
      tax assets and liabilities are primarily the result of timing differences
      between the carrying value of assets and liabilities and the deductibility
      of
      operating expenses for financial reporting and income tax purposes. Deferred
      tax
      liabilities are primarily the result of tax deductions for the Company's
      intangible assets. We amortize acquired intangible assets over a 15-year period
      for tax purposes only, reducing their tax basis below their carrying value
      for
      financial statement purposes and generating deferred taxes each reporting
      period. We amortized $202,369 related to goodwill and intangible assets in
      December 2006. Additionally, at November 30, 2006, when Highbury ceased to
      be a
      corporation in the development stage, we had total deferred expenses of $440,342
      that will be amortized to tax purposes over a 15-year period. These expenses
      were currently deductible for financial statement purposes during Highbury’s
      development stage but were not deductible for tax purposes. Highbury amortized
      $2,446 of this deferred expense in December 2006.




The
      discussion and analysis of the acquired business’ financial condition and
      results of operations for the purposes of this document are based upon its
      consolidated financial statements, which have been prepared in accordance with
      GAAP. The acquired business’ significant accounting policies are presented in
      Note 2 to its audited combined financial statements included elsewhere herein,
      and the following summaries should be read in conjunction with the financial
      statements and the related notes included in this prospectus. The acquired
      business’ management believes the policies that fall within this category are
      the policies related to principles of combination and goodwill and intangible
      assets.




*Principles
      of Combination* .
      The
      accompanying combined statements of operations, cash flows and owner’s equity
      for the acquired business for the years ended December 31, 2003, 2004, and
      2005 and for the 11 months ended November 30, 2006 have been prepared on a
      carve-out basis. The combined financial statements have been prepared from
      AAAMHI’s historical accounting records on a carve-out basis to include the
      historical financial position, results of operations and cash flows applicable
      to the acquired business. The combined financial statements have been prepared
      as if the business had been a stand-alone operation, though they are not
      necessarily representative of results had the acquired business operated as
      a
      stand-alone operation. Revenues, expenses, assets and liabilities were derived
      from amounts associated with the acquired business in the AAAMHI financial
      records. The financial results include allocations based on methodologies that
      management believes are reasonable of corporate expenses from AAAMHI and
      allocations of other corporate expenses from AAAMHI’s parent company that may be
      different from comparable expenses that would have been incurred if the acquired
      business operated as a stand-alone business. Specifically, ABN AMRO Services
      Company, Inc., a wholly-owned subsidiary of ABN AMRO North America Holding
      Company, or AANAHC, provided the acquired business with certain IT,
      infrastructure and e-mail services. LaSalle Bank Corporation, also a
      wholly-owned subsidiary of AANAHC, provided the acquired business with payroll,
      benefits, general ledger maintenance, internal audit and accounts payable
      services. These services were charged based upon utilized quantities (typically
      number of employees, number of transactions processed, or hours worked). AAAMHI
      provided the acquired business with executive management, finance, human
      resources and personal trade compliance services. These services were charged
      based upon employee count or management time incurred. AAAMHI’s parent and its
      parent companies provided other executive management, technology, sales support,
      finance, compliance and human resources support services. These services were
      charged out on a formula basis that considers assets under management, number
      of
      employees and non-interest expense. The cost of these services is included
      under
      the caption “Related-party expense allocations” in the accompanying combined
      statements of operations. Certain cash receipts and cash payments related to
      the
      acquired business were handled through AAAMHI and affiliate cash accounts which
      are not included in the carve-out financial statements. “Net transfers from
      AAAMHI” in the combined statements of changes in owner’s equity reflects these
      cash transactions.




**Recently
      Issued Pronouncements**




The
      Financial Accounting Standards Board, or FASB, has issued interpretation
      No. 48, “Accounting for Uncertainty in Income Taxes - an Interpretation of
      FASB Statement No. 109,” or FIN 48, regarding accounting for, and
      disclosure of, uncertain tax positions. FIN 48 clarifies the accounting for
      uncertainty in income taxes recognized in an enterprise’s financial statements
      in accordance with FASB Statement No. 109, “Accounting for Income Taxes.”
FIN 48 prescribes a recognition threshold and measurement attribute for the
      financial statement recognition and measurement of a tax position taken or
      expected to be taken in a tax return. FIN 48 also provides guidance on
      derecognition, classification, interest and penalties, accounting in interim
      periods, disclosure, and transition. FIN 48 is effective for fiscal years
      beginning after December 15, 2006. We are currently evaluating the impact
      FIN 48 will have on Highbury’s results of operations and financial position. The
      cumulative effect of applying the provisions of FIN 48, if any, will be reported
      as an adjustment to the opening balance of retained earnings on January 1,
      2007.




32




In
      February 2007, FASB issued Statement of Financial Accounting Standards No.
      159,
“The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS
      No. 159”). SFAS No. 159 permits entities to choose to measure many financial
      instruments and certain other items at fair value. The objective of the
      statement is to improve financial reporting by providing entities with the
      opportunity to mitigate volatility in reported earnings caused by measuring
      related assets and liabilities differently without having to apply complex
      hedge
      accounting provisions. The provisions of SFAS No. 159 are effective for fiscal
      years beginning after November 15, 2007. We are currently evaluating this
      standard and its impact, if any, on our consolidated financial statements.




Management
      does not believe that any other recently issued, but not yet effective,
      accounting standards if currently adopted would have a material effect on the
      accompanying financial statements.




**Basis
      of Presentation**




Since
      the
      business combination was consummated on November 30, 2006, the financial
      statements for prior periods relate to U.S. mutual fund business of AAAMHI,
      which we refer to as the acquired business. These financial statements are
      presented on a carve-out basis. As a result, we believe that the financial
      statements for the acquired business are not comparable to the financial
      statements for the Company for periods following the business combination.




Prior
      to
      the completion of the business combination, the acquired business was a division
      of AAAMHI and was not a separate legal entity. Historically, the acquired
      business utilized two sub-advisers and five advisers affiliated with AAAMHI.
      Because the Aston Funds were introduced over a period of 13 years and are
      managed by five different affiliates of AAAMHI, the historical fee sharing
      agreements between the acquired business and each investment adviser with
      respect to each Aston Fund varied among the funds and over time. In addition,
      since the acquired business and the investment advisers were part of a commonly
      controlled corporate entity, the historical fee sharing arrangements were not
      reflective of market terms but rather internal allocations that also
      varied.




Subsequent
      to the completion of the business combination, the investment adviser affiliates
      of AAAMHI continue to perform the same investment management services for the
      Aston Funds as they had previously provided. However, as a result of the new
      sub-advisory agreements, they receive a smaller share of the net advisory fees
      after payments of third-party distribution fees than they received historically.
      These new sub-advisory agreements were determined based on arm’s length
      negotiation between the sub-advisers affiliated with AAAMHI and us and reflect
      market terms.




In
      addition, certain amounts included in the acquired business’ financial
      statements were allocated from AAAMHI or other related entities. We believe
      that
      these allocations are reasonable, but not necessarily indicative of costs that
      would have been incurred by the acquired business had it operated as a stand
      alone business for the same periods.




In
      the
“Results of Operations” section to follow, we discuss the actual consolidated
      financial results for the Company for 2006 which include the operations of
      the
      acquired business from December 1, 2006 through December 31, 2006. In addition
      we discuss the 2006 combined results for the Company and the acquired business,
      as presented in our selected financial data in Item 6 and defined in note 5
      thereto, compared to the acquired business’ 2005 results. For the reasons cited
      in note 5 to Item 6, the revenue and expenses of the acquired business as it
      operates within the Company are not consistent with the revenue and expenses
      of
      the acquired business on a historical basis. As such, it may be difficult to
      draw conclusions from a comparison of operating results from before and after
      the business combination. The comparison of the operating results for 2005
      and
      2004 reflects only the operations of the acquired business during those periods,
      as Highbury’s operations were immaterial in 2005.




**Results
      of Operations**




*Year
      ended December 31, 2006 compared to year ended December 31, 2005 for the
      Company*




For
      the
      year ended December 31, 2006, the Company had a net loss of $12,463,206 which
      resulted primarily from a one-time, non-cash compensation expense of $20,784,615
      related to the grant of Aston membership interests to the Aston management
      members. Following the consummation of the acquisition on November 30, 2006,
      Aston earned total revenue of $3,828,100 in the month of December. The following
      table summarizes the total fees, weighted average assets under management and
      the weighted average fee basis for the month of December 2006.




33




For
                the month ended December 31, 2006Total
                Fees
            
            Weighted
                Average Assets Under Management ($M)
            
            Weighted
                Average Fee Basis (Annualized)Net
                advisory fees
            
            $
            3,337,351
            
            $
            5,645(1
            )
            
            0.70
            %Net
                administrative fees
            
            
            432,886
            
            
            9,930(2
            )
            
            0.05
            %Money
                market service fees
            
            
            57,863
            
            
            4,444
            
            
            0.02%
            (3)Total
            
            $
            3,828,100
            
            
            5,645(4
            )
            
            0.80%
            (4)




(1)
            Includes
                long-term mutual fund and separate account assets under
                management.


(2)
            Aston
                provides administrative services to the Aston Funds, as well as six
                money
                market mutual funds managed by affiliates of
                AAAMHI.


(3)
            Aston
                receives a money market service fee from AAAMHI equal to $550,000
                per
                annum plus 0.0001% of the weighted average assets under management
                in the
                six money market mutual funds in excess of $3 billion. The fee is
                accrued
                and paid monthly.


(4)
            For
                an estimate of the overall weighted average fee basis, we use the
                total
                fees from all sources and the weighted average assets under management
                for
                which we provide investment advisory services (Note 1
                above).




The
      Company incurred $24,069,116 of total operating costs for the year ended
      December 31, 2006. This total consisted primarily of the one-time, non-cash
      compensation expense of $20,784,615 related to the grant of Aston membership
      interests to the management members. In the month of December, Aston incurred
      total distribution and sub-advisory expenses of $1,796,910, including $1,467,496
      payable to the sub-advisers (approximately 44% of the net advisory fees for
      the
      period) and $329,414 payable pursuant to third-party distribution agreements
      (approximately 10% of the net advisory fees for the period). Excluding the
      one-time compensation expense, Aston incurred employee compensation and related
      expenses of $324,716 in 2006. Highbury has no employees and did not pay
      compensation of any kind to its directors or officers in 2006. Highbury also
      incurred $1,162,875 of other operating expenses in 2006. These expenses include
      the operating expenses of Aston and Highbury for the period and consist
      primarily of legal, accounting, insurance, occupancy and administrative fees.
      Highbury’s direct operating expenses for the year were as follows:




Professional
                fees
            
            $
            320,195Insurance
            
            
            89,970Administrative
                fees
            
            
            83,952Travel
                and entertainment
            
            
            70,701Other
                expenses
            
            
            182,243$
            747,061




Non-operating
      income consists primarily of earnings on cash and cash equivalent balances.
      For
      the year ended December 31, 2006, Highbury earned interest income on cash
      balances held outside the trust account of $14,470 and investment income on
      the
      balance held in the trust account of $1,730,437. Prior to the consummation
      of
      the acquisition on November 30, 2006, Highbury did not generate any operating
      revenues. Highbury did not earn income of any kind in 2005.




The
      Company recorded a net loss of $18,496,109 before provisions for minority
      interest and income taxes for the year ended December 31, 2006. As a result
      of
      the Aston management members’ interest in Aston, **** the
      Company recorded a minority interest benefit of $6,647,715 for the year. As
      discussed above, this loss resulted primarily from the one-time non-cash
      compensation expense recorded in connection with the grant of Aston membership
      interests to the management members. We have determined that there is no
      equivalent expense, either currently or in the future, to be recognized for
      income tax purposes. The following table outlines Highbury’s income tax
      expenses.




34




July
                13, 2005 (inception) to December 31, 2005
            
            Year
                Ended December 31, 2006Current
            
            
            —
            
            
            702,088Deferred
                - intangible related
            
            
            —
            
            
            74,989Deferred
                - other
            
            
            —
            
            
            (162,265
            )Total
            
            
            —
            
            
            614,812




The
      sources of the Company’s deferred taxes are as follows:




July
                13, 2005 (inception) to December 31, 2005
            
            Year
                Ended December 31, 2006Amortization
                of intangibles
            
            
            —
            
            
            74,989Amortization
                of operating expenses deferred for income tax purposes
            
            
            —
            
            
            907Operating
                expenses deferred for income tax purposes
            
            
            —
            
            
            (163,172
            )Total
            
            
            —
            
            
            (87,276
            )




For
      further discussion of the Company’s income taxes, please refer to Note 12 of the
      consolidated financial statements included herewith.




For
      the
      period from July 13, 2005, the date of Highbury’s inception, to December 31,
      2005, Highbury had a net loss of $2,452. Total expenses for this period were
      $2,452, consisting of $456 in formation costs and $1,996 in franchise tax
      expenses. Additionally, we incurred deferred offering costs of approximately
      $483,492 in 2005. During this period, Highbury’s activities were limited to
      organizational activities. We had no income in 2005.




The
      Company had a net loss of $12,463,206 for the year ended December 31, 2006
      compared to a net loss of $2,452 for the period from July 13, 2005 (inception)
      to December 31, 2005.




*Combined
      results for year ended December 31, 2006 compared to year ended
      December 31, 2005*




The
      combined results for the year ended December 31, 2006 represent the sum of
      the
      operating results for the acquired business for the 11 months ended November
      30,
      2006 and for the Company for the year then ended. The Company’s consolidated
      results for this period include the operations of the acquired business for
      the
      period from December 1, 2006 through December 31, 2006. The results are compared
      to the results of operations for the acquired business in 2005.




In
      2006,
      mutual fund assets under management declined nearly $900 million
      (13.8%) from just over $6.3 billion at the end of 2005 to approximately
      $5.5 billion. During this period the acquired business experienced net client
      redemptions of approximately $1.1 billion balanced by approximately $200 million
      of positive market appreciation. Positive market appreciation means that the
      total net asset value of a fund, when excluding the effects of net client
      contributions, increased over a given period as a result of changes in the
      market value of securities held by the fund. After approximately $1.0 billion
      of
      net client redemptions in 2005, the high level of redemptions continued in
      2006.
      For the year, the broader equity markets posted solid gains with the S&P 500
      advancing 15.8% though the Russell Large Cap Growth Index rose only 9.2%. In
      2004, for comparison, the S&P 500 advanced 10.9% and the Russell Large Cap
      Growth Index grew 6.7%. A majority of the acquired business’ assets under
      management are managed in a large cap growth style. We believe the general
      underperformance of the large cap growth investment style relative to the market
      has been a factor in the recent high level of client redemptions. Furthermore,
      we believe investors continued to be concerned about relative investment
      performance in several of the acquired business’ large cap growth
      funds.




35




As
      a
      result of lower average asset levels, net advisory fees declined in 2006 to
      $40.5 million from $47.4 million in 2005. The weighted average fee basis
      remained approximately constant at 0.72% in 2005 and 2006. Administrative fees
      increased from $1.5 million in 2005 to $1.8 million in 2006. Following the
      business combination, Aston provides administration, marketing and compliance
      services to six money market mutual funds advised by AAAMHI. While the acquired
      business performed these functions historically, the revenue from such
      activities is not reflected in the carve out financial statements because,
      at
      the time the transaction was negotiated and the carve out financial statements
      were prepared, it was not contemplated that Aston would provide these services
      to the money market mutual funds after the business combination. The increase
      in
      administrative fees resulting from the administration, marketing and compliance
      services offset the effect of the decline in total assets under management
      on
      total administrative fees. For the year, total revenues decreased by $6.6
      million, or 13.5%, to $42.3 million from $48.9 million in 2005.




Distribution
      and advisory costs declined by $9.8 million, or 24.2%, to $30.6 million in
      2006
      from $40.4 million in 2005. This decline is primarily attributable to the 13.8%
      decline in mutual fund assets under management during 2006, as these expenses
      are directly related to the value of assets under management. The new
      sub-advisory agreements into which Aston entered at the closing of the business
      combination provide for substantially lower payments to the sub-advisers
      affiliated with AAAMHI than the historical fee-sharing agreements. Since the
      results for 2006 include only one month of operations under the new sub-advisory
      agreements, the effect of this change is not substantial in 2006. However,
      we
      expect these new agreements to substantially decrease the sub-advisory costs
      from pre-acquisition levels.




Combined
      compensation expense was $25.1 million in 2006, primarily attributable to the
      $20.8 million expense incurred in connection with the grant of a 35% membership
      interest in Aston to the management members. Excluding this expense, total
      compensation in 2006 was $4.3 million compared to $5.2 million in 2005. This
      decline is primarily attributable to a reduction in sales commissions paid
      in
      2006 relative to 2005 as a result of lower net asset flows and to the
      termination of three employees at the beginning of 2006.




In
      2005,
      the acquired business recorded a goodwill impairment of $13.3 million and an
      intangible asset impairment of $10.4 million. The facts and circumstances
      leading to the impairment charges to goodwill and intangible assets relate
      to
      AAAMHI’s assessment of declines in net assets in the target funds resulting from
      net share redemptions and unfavorable investment performance trends in 2005.
      The
      fair value of the acquired business used to determine the impairment of goodwill
      was determined with reference to the expected proceeds to be received upon
      the
      sale of the acquired business to Highbury. The fair value of the intangible
      asset related to the investment management contracts used to determine the
      amount of impairment of the intangible asset was determined based on a
      discounted cash flow analysis of the acquired contracts. No impairment of
      goodwill or intangibles was determined to be required for periods prior to
      2005.




The
      acquired business adopted the provisions of SFAS No. 142, “Goodwill and
      Other Intangible Assets”. Intangible assets, comprising the estimated value of
      investment management contracts, and goodwill, included in the combined
      financial statements of the acquired business relate to the acquisition of
      certain AAAMHI affiliates including the acquired business in 2001. These amounts
      reflect management’s best estimate of a reasonable allocation to the acquired
      business of such amounts included in the financial records of AAAMHI. The
      provisions of SFAS No. 142 require that goodwill and other intangible
      assets with indefinite lives no longer be amortized, but instead be tested
      at
      least annually for impairment and require reporting units to be identified
      for
      the purpose of assessing potential future impairments of goodwill. The acquired
      business’ acquired intangible management contract asset relates to the provision
      of investment advisory services to the target funds in exchange for fees that
      are based on a percentage of the average daily net assets of the funds. This
      management contract was acquired in 2001 as part of the acquisition of certain
      AAAMHI affiliates. The management contract is subject to annual renewal by
      the
      mutual funds’ board of trustees which is expected to continue indefinitely since
      this has been the experience for the target funds as well as for the mutual
      fund
      industry as a whole. Accordingly, the acquired business’ acquired intangible
      assets related to the target funds are considered to be of an indefinite life
      as
      there is no foreseeable limit on the contract period. We conduct annual testing
      of goodwill and intangible assets for impairment in the fourth quarter, unless
      events warrant more frequent testing.




36




Other
      operating expenses rose to $4.7 million in 2006 from $3.3 million in
      2005. Approximately half of this increase is attributable to
      Highbury’s 2006 operating expenses of approximately $0.7 million. There were no
      corresponding expenses incurred in 2005.




The
      operating loss declined to $18.1 million in 2006 from a loss of $23.8 million
      in
      2005. The $20.8 million compensation charge is approximately $2.9 million less
      than the aggregate impairment charges incurred in 2005. This difference accounts
      for more than half of the difference in the losses in these years. Furthermore,
      the substantial decline in distribution and advisory costs, which more than
      offset the decline in operating revenue, improved the operating
      results.




Because
      of the different capital structures and ownership structures of the acquired
      business before and after the business combination, comparisons of the
      differences in interest income, minority interest and income taxes are not
      meaningful.




*Year
      ended December 31, 2005 compared to year ended December 31, 2004 for
      the acquired business*




In
      2005,
      the assets under management of the acquired business declined approximately
      $900
      million (12.4%) from $7.2 billion at the end of 2004 to $6.3 billion.
      During this period the acquired business experienced net client redemptions
      of
      approximately $1.0 billion balanced by approximately $100 million of positive
      market appreciation. The high level of redemptions resulted primarily from
      concerns about relative investment performance in one of the acquired business’
large funds. Furthermore, the equity markets only posted moderate gains for
      the
      year with the S&P 500 advancing 4.9% and the Russell Large Cap Growth Index
      rising 5.3%. In 2004, for comparison, the S&P 500 advanced 10.9% and the
      Russell Large Cap Growth Index grew 6.7%.




As
      a
      result of lower average asset levels, net advisory fees declined from $47.8
      million in 2004 to $47.4 million in 2005. The effect of the net redemptions
      was
      balanced by an increase in the weighted average fee basis earned by the acquired
      business on its assets under management. The weighted average fee basis
      increased from 0.70% in 2004 to 0.72% in 2005 as a result of a shift in assets
      under management away from lower fee fixed income funds to higher fee equity
      funds. Administrative fees increased marginally from $1.4 million to $1.5
      million. The acquired business negotiated lower sub-administration fee payments
      to a vendor in 2005 which increased the administrative fee margin earned. This
      renegotiation of fees more than offset the effect of the decline in total assets
      under management. For the year, total revenues decreased by $0.3 million, or
      0.7%, to $48.9 million from $49.2 million in 2004.




Distribution
      and advisory costs declined by $0.5 million, or 1.3%, to $40.4 million in 2005
      from $40.9 million in 2004. A 14.9% decline in payments to affiliates ($34.4
      million in 2004 to $29.3 million in 2005) was offset by a 70.8% increase in
      payments to non-affiliates ($6.5 million in 2004 to $11.1 million in 2005).
      ABN
      AMRO sold its 401(k) business to Principal Financial on December 31, 2004.
      As a result of this divestiture, distribution fees paid by the acquired business
      to the 401(k) business were reclassified as payments to non-affiliates in 2005,
      whereas these payments were included in payments to affiliates in 2004. This
      is
      the primary reason for the shift in payments away from affiliates to
      non-affiliates relative to the prior period. In addition, the two funds
      sub-advised by non-affiliates experienced positive net sales in 2005 while
      the
      funds managed by affiliates experienced net redemptions.




All
      other
      operating expenses rose by $25.5 million in 2005 to $32.3 million from $6.8
      million in 2004, largely as a result of a $13.3 million charge for goodwill
      impairment and a $10.4 million charge for intangible asset
      impairment.




Over
      this
      period, compensation expense increased by $0.8 million from $4.4 million to
      $5.2
      million (17.6%). The acquired business hired three employees at the end of
      2004
      and two more employees in the summer of 2005. These hires increased the
      compensation expense. ABN AMRO also decided to reclassify certain sales
      incentives, previously recorded in distribution and sub-advisory costs, as
      compensation in 2005. Related party expense allocations increased by $0.6
      million from $1.9 million to $2.5 million (32.1%) as a result of a change
      in ABN AMRO’s internal expense allocation policy. Other operating expenses
      increased by $0.3 million to $0.8 million in 2005 from $0.5 million in 2004,
      an
      increase of 61.5%. This increase resulted primarily from increased legal fees
      related to the formation of three new funds in 2005 and a significant increase
      in international travel as a result of changes in ABN AMRO’s internal reporting
      structure.




37




Interest
      income rose to $133,524 in 2005 from $31,140 in 2004, an increase of $120,384,
      as a result of higher cash balances and higher interest rates earned on those
      balances. The cash balances held by the acquired business were controlled by
      ABN
      AMRO. In 2005, ABN AMRO elected to allow cash to build in the acquired business’
accounts.




Net
      loss
      for 2005 was $23.6 million as compared to net income of $1.5 million in
      2004.




***Supplemental
      Non-GAAP Performance Measure***




As
      supplemental information, we provide a non-GAAP performance measure that we
      refer to as Cash Net Income. This measure is provided in addition to, but not
      as
      a substitute for, GAAP Net Income. Cash
      Net
      Income means the sum of (a) net income determined in accordance with GAAP,
      plus
      (b) amortization of intangible assets, plus (c) deferred taxes related to
      intangible assets, plus (d) affiliate depreciation, plus (e) other non-cash
      expenses. We
      consider Cash Net Income an important measure of our financial performance,
      as
      we believe it best represents operating performance before non-cash expenses
      relating to the acquisition of our
      interest in our affiliated investment management firm. Cash Net Income is not
      a
      measure of financial performance under GAAP and, as calculated by us, may not
      be
      consistent with computations of Cash Net Income by other companies .
      Cash
      Net Income is used by our management and board of directors as a principal
      performance benchmark.




Since
      our
      acquired assets do not generally depreciate or require replacement by us, and
      since they generate deferred tax expenses that are unlikely to reverse, we
      add
      back these non-cash expenses to Net Income to measure operating performance.
      We
      will add back amortization attributable to acquired client relationships because
      this expense does not correspond to the changes in value of these assets, which
      do not diminish predictably over time. The portion of deferred taxes generally
      attributable to intangible assets (including goodwill) that we do not amortize
      but which generates tax deductions is added back, because these accruals would
      be used only in the event of a future sale of Aston or an impairment charge,
      which we consider unlikely. We will add back the portion of consolidated
      depreciation expense incurred by Aston because under Aston’s operating agreement
      we are not required to replenish these depreciating assets. We also add back
      expenses that we incur for financial reporting purposes for which there is
      no
      corresponding cash expense because such expenses cause our Net Income to be
      understated relative to our ability to generate cash flow to service debt,
      if
      any, finance accretive acquisitions, and repurchase securities, if
      appropriate.





Period
                from July 13, 2005 (inception) to December 31, 2005
            
            Year
                Ended December 31, 2006**Net
                Loss**
            
            $
            (2,452
            )
            $
            (12,463,206
            )Intangible
                amortization
            
            
            —
            
            
            —Intangible-related
                deferred taxes
            
            
            —
            
            
            74,989Affiliate
                depreciation
            
            
            —
            
            
            —Non-cash
                expensesCompensation
                expense for 35% interest in Aston
            
            
            —
            
            
            20,784,615Adjustment
                for minority interest
            
            
            —
            
            
            (7,274,615
            )**Cash
                Net Income**
            
            $
            (2,452
            )
            $
            1,121,783




**Agreements
      with Berkshire Capital**




Highbury
      occupies office space provided by Berkshire Capital Securities LLC, or Berkshire
      Capital. Messrs. Cameron, Foote and Forth, our executive officers, are
      affiliated with Berkshire Capital. Berkshire Capital has agreed to make such
      office space, as well as certain office and secretarial services, available
      to
      Highbury, as may be required by Highbury from time to time. Highbury has agreed
      to pay Berkshire Capital $7,500 per month for such services indefinitely. The
      agreement is terminable by either party upon six months’ prior notice. The
      statements of operations for the year ended December 31, 2006 include $83,952
      related to this agreement. Highbury did not incur any equivalent expenses for
      the period from July 13, 2005 (inception) to December 31, 2005.




38




We
      have
      engaged Berkshire Capital to act as our non-exclusive financial advisor in
      connection with possible future acquisitions. In such capacity, Berkshire
      Capital will assist us in structuring, negotiating and completing acquisitions
      of targets identified by us and acknowledged by both us and Berkshire Capital
      as
      being subject to Berkshire Capital’s engagement. If we enter into an agreement
      to acquire such a target company during the term of Berkshire Capital’s
      engagement or within two years thereafter, and such acquisition is completed,
      then we will pay Berkshire Capital a success fee at closing equal to the greater
      of (a) the sum of 3.0% of the first $15 million of the aggregate consideration
      in such transaction and 1.0% of the aggregate consideration in such transaction
      in excess of $15 million, and (b) $600,000. Upon the execution of a definitive
      agreement with respect to an acquisition, we will pay Berkshire Capital $200,000
      which will be credited against the success fee. We will also reimburse Berkshire
      Capital for its reasonable expenses in performing its services under the
      engagement letter and will indemnify Berkshire Capital for liabilities it incurs
      in performing such services, unless such liabilities are attributable to
      Berkshire Capital’s gross negligence or willful misconduct. We engaged Berkshire
      Capital in the first quarter of 2007 and, accordingly, as of December 31, 2006,
      we had not incurred any expenses related to this agreement.




**Impact
      of Inflation**




Our
      revenue is directly linked to the total assets under management within the
      20
      mutual funds and the separate accounts managed by Aston. Our total assets under
      management increase or decrease on a daily basis as a result of fluctuations
      in
      the financial markets and net asset flows from investors. While long-term
      returns in the financial markets have historically exceeded the rate of
      inflation, this may not be the case going forward. Our operating expenses are
      likely to be directly affected by inflation. Furthermore, we earn interest
      income on our cash balances. While the current interest rates available to
      us
      exceed the rate of inflation, this may not be the case going forward. In such
      cases, the impact of inflation will erode our purchasing power.




**Liquidity
      and Capital Resources**




Since
      its
      inception, Highbury has funded its business activities almost exclusively
      through cash flows from financing, including the debt and equity provided by
      the
      initial shareholders and the funds raised in our initial public offering. Going
      forward, Highbury expects to fund its business activities with a combination
      of
      operating income and the interest income earned on its cash balances and to
      fund
      future acquisitions with retained net income or the issuance of debt or equity.
      As of December 31, 2006, Highbury had no borrowings outstanding. In the future,
      however, we will closely review our ratio of debt to Adjusted EBITDA (our
      "leverage ratio") as an important gauge of our ability to service debt, make
      new
      investments and access capital. The leverage covenant of our credit facility
      currently limits our leverage ratio to 2.0 times Adjusted EBITDA. We believe
      this level is prudent for our business, although substantially higher levels
      of
      senior and subordinated debt in relation to Adjusted EBITDA may also be prudent
      to fund future acquisitions.




Historically,
      the acquired business funded its business activities almost exclusively with
      operating cash flow. We expect Aston will also fund its business activities
      almost exclusively with operating cash flow. Highbury may occasionally provide
      capital to Aston to help finance the development of new products or execute
      accretive acquisitions. Because Aston, like most investment management
      businesses, does not require a high level of capital expenditures, such as
      for
      purchases of inventory, property, plant or equipment, liquidity is less of
      a
      concern than for a company that sells physical assets. Historically, the amount
      of cash and cash equivalents held on the balance sheet of the acquired business
      was primarily influenced by the policies of its parent, AAAMHI. Prior to the
      acquisition, AAAMHI owned 100% of the acquired business and continues to own
      several other affiliates which also have low capital requirements. As such,
      cash
      balances often accumulated in the affiliates until AAAMHI decided to transfer
      them. These periodic cash transfers cause the value of cash and equivalents
      held
      by the business to fluctuate widely and without correlation to the underlying
      operations of the acquired business.




As
      of
      December 31, 2006, the Company had $6,248,705 of cash and $3,646,422 of accounts
      receivable. The accounts receivable are primarily related to the investment
      advisory fees, administrative fees and money market service fees earned by
      Aston
      in December. Aston receives its revenues generally within the first week of
      the
      month following the month in which they are earned. At December 31, 2006, the
      Company had accounts payable of $2,269,470, primarily attributable to the
      revenue sharing payments owed to Aston’s distribution partners and the
      investment sub-advisers. These payments are generally paid shortly after the
      receipt of the revenue discussed above. Because Aston is able to finance its
      day-to-day operations with operating cash flow, it does not need to retain
      a
      significant amount of cash on its balance sheet. Going forward, we expect Aston
      will distribute all of its excess cash on a monthly basis to its owners, so
      we
      do not expect large cash balances to accrue within Aston. Highbury will retain
      its cash, and we expect our cash balances will increase over time until the
      cash
      is used to pay operating expenses, fund acquisitions, service debt, if any,
      or
      repurchase our securities, if appropriate.




39




Management
      believes our existing liquid assets, together with the expected continuing
      cash
      flow from operations, our borrowing capacity under the current credit facility
      and our ability to issue debt or equity securities will be sufficient to meet
      our present and reasonably foreseeable operating cash needs and future
      commitments. In particular, we expect to finance future acquisitions through
      operating cash flows and the issuance of debt or equity securities.




*Cash
      Flow from Operating Activities* .
      Cash
      flow from operations generally represents net income plus non-cash charges
      for
      amortization, deferred taxes and depreciation as well as the changes in our
      consolidated working capital. In 2006, Highbury used $12,229 of net cash flow
      in
      its operating activities. Our net loss of $12,463,206 primarily resulted from
      the non-cash compensation charge we incurred in connection with the grant of
      a
      35% interest in Aston to the Aston management members. In the reconciliation
      to
      cash flow, we have added back this charge which was $20,784,615. We established
      a minority interest, equal to 35% of the non-cash compensation charge, in 2006
      related to this grant of interests in Aston. The minority interest was reduced
      to $626,901 during the period because we allocated a portion of the losses
      in
      Aston to the management members. Accounts receivables increased primarily in
      2006 related to Aston’s investment advisory and administration fees earned in
      December. Aston receives these fees in the first week of the month following
      the
      month in which they are earned. Since Highbury had no operations in 2005, we
      had
      no receivables at the end of the year. We also had an increase in accounts
      payable and accrued expenses, primarily related to Aston’s distribution and
      sub-advisory costs. Aston records expenses for distribution and sub-advisory
      costs in the month in which they are incurred, but it does not make any payments
      under these arrangements until after it receives its advisory fees the following
      month. At the end of 2005, Highbury’s accounts payable related only to expenses
      deferred during its registration process.




*Cash
      Flow from Investing Activities* .
      Changes
      in net cash flow from investing activities will result primarily from
      investments in new affiliates. In 2006, Highbury used net cash flow of
      $36,882,869 to purchase the acquired business from AAAMHI. We also spent $40,634
      for leasehold improvements related to Aston’s new location. Highbury did not
      have any cash flow from investing activities in 2005. The acquired business
      did
      not have any cash flows from investing activities in the periods
      presented.




*Cash
      Flow from Financing Activities* .
      Changes
      in net cash flow from financing activities will result primarily from the
      issuance of equity or debt or the repayment of any obligations which may arise
      thereunder. In 2006, Highbury received net cash flow of $43,147,535 from
      financing activities as a result of our initial public offering and private
      placement in January. Highbury received net cash flow of $36,902 in 2005 as
      a
      result of the issuance of equity and debt to the initial shareholders, reduced
      by the payment of costs of the offering. Historically, cash flows from financing
      activities for the acquired business were primarily influenced by the policies
      of its parent, AAAMHI. Prior to the acquisition, AAAMHI owned 100% of the
      acquired business and continues to own several other affiliates which also
      have
      low capital requirements. As such, cash balances often accumulated in the
      affiliates until AAAMHI decided to transfer them. These periodic cash transfers
      between AAAMHI and the acquired business, which resulted in cash flows from
      financing activities, fluctuated widely and without correlation to the
      underlying operations of the acquired business.




***Credit
      Facility***




We
      entered into a credit agreement with City National Bank on August 21, 2006,
      which provides for a revolving line of credit of up to $12.0 million. On
      November 9, 2006, we entered into a new credit agreement with City National
      Bank which amended and restated our initial credit agreement to amend the
      definitions of debt and net worth to exclude the effects of accounting for
      our
      outstanding common stock warrants and the underwriters’ unit purchase option as
      liabilities. We subsequently determined that we should account for these
      securities as equity. The credit facility will be used for working capital,
      general corporate purposes and repurchases of our outstanding securities, if
      appropriate.




Borrowings
      under our credit facility will bear interest, at our option, at either the
      fluctuating prime rate minus one-half of one percent (0.50%) per year or the
      LIBOR interest rate plus one and one-half percent (1.50%) per year. In
      addition, we will be required to pay annually a fee of one quarter of one
      percent (0.25%) on the average daily balance of the unused portion of the credit
      facility. We will have to make interest payments monthly for any prime rate
      borrowings. For any LIBOR borrowings, interest payments will be made at the
      end
      of any LIBOR contract or quarterly, whichever is sooner. Any outstanding
      principal is due at maturity on October 31, 2007. For so long as certain
      events of default continue, upon notice by City National Bank, the interest
      rate
      on any outstanding loans will increase by three percent (3%). As of
      December 31, 2006, we had no borrowings outstanding.




40




Our
      credit facility is secured by all of our assets. Our credit facility contains
      customary negative covenants which, among other things, limit indebtedness,
      asset sales, loans, investments, liens, mergers and acquisitions, sale and
      leaseback transactions and purchases of equity, other than repurchases of our
      outstanding securities. Our credit facility also contains affirmative covenants
      as to, among other things, financial statements, taxes, corporate existence
      and
      legal compliance. We are also required to maintain a minimum net worth and
      ratio
      of debt to EBITDA. As of December 31, 2006, we were in compliance with all
      of
      the covenant requirements under this credit facility.




***Contractual
      Obligations***




A
      summary
      of the Company’s contractual obligations as of December 31, 2006 and future
      periods in which such obligations are expected to be settled in cash is as
      follows:




**Payment
                  due by period****Contractual
                  Obligations**
              
              **Total**
              
              **Less
                  than 1 year**
              
              **1-3 years**
              
              **3-5 years**
              
              **More
                  than 5**
                **years**Long-term
                  debt
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              —Operating
                  leases
              
              
              2,197,741
              
              
              17,412
              
              
              437,477
              
              
              463,595
              
              
              1,279,257Capital
                  leases
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Purchase
                  Obligations
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Other
                  Long-Term Liabilities
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Total
              
              $
              2,197,741
              
              $
              17,412
              
              $
              437,477
              
              $
              463,595
              
              $
              1,279,257


***Supplemental
      Non-GAAP Liquidity Measure***






As
      supplemental information, we provide information regarding Adjusted EBITDA,
      a
      non-GAAP liquidity measure. This measure is provided in addition to, but not
      as
      a substitute for, cash flow from operations. Adjusted EBITDA means the sum
      of
      (a) net income determined in accordance with GAAP, plus (b) amortization of
      intangible assets, plus (c) interest expense, plus (d) depreciation, plus (e)
      other non-cash expenses, plus (f) taxes. This
      definition of Adjusted EBITDA
      is
      consistent with the definition of EBITDA used in our credit facility. Adjusted
      EBITDA, as calculated by us, may not be consistent with computations of Adjusted
      EBITDA by other companies. As a measure of liquidity, we believe that Adjusted
      EBITDA is useful as an indicator of our ability to service debt, make new
      investments and meet working capital requirements. We further believe that
      many
      investors use this information when analyzing the financial position of
      companies in the investment management industry.




The
      following table provides a reconciliation of cash flow from operations to
      Adjusted EBITDA:




Period
                from July 13, 2005 (inception) to December 31, 2005
            
            Year
                Ended December 31, 2006**Cash
                Flow from Operations**
            
            $
            (2,452
            )
            $
            (12,229
            )Interest
                expense
            
            
            —
            
            
            —Current
                income tax provision
            
            
            —
            
            
            702,088Changes
                in assets and liabilities
            
            
            —
            
            
            1,598,648Changes
                in minority interest
            
            
            —
            
            
            (626,901
            )**Adjusted
                EBITDA**
            
            $
            (2,452
            )
            $
            1,661,606




41




The
      following table provides a reconciliation of net income to Adjusted EBITDA:




Period
                from July 13, 2005 (inception) to December 31, 2005
            
            Year
                Ended December 31, 2006**Net
                Income**
            
            $
            (2,452
            )
            $
            (12,463,206
            )Income
                tax expense
            
            
            —
            
            
            614,812Interest
                expense
            
            
            —
            
            
            —Intangible
                amortization
            
            
            —
            
            
            —Depreciation
                and other amortization
            
            
            —
            
            
            —Other
                non-cash expensesCompensation
                expense for 35% interest in Aston
            
            
            —
            
            
            20,784,615Adjustment
                for minority interest
            
            
            —
            
            
            (7,274,615
            )**Adjusted
                EBITDA**
            
            $
            (2,452
            )
            $
            1,661,606




**Quantitative
      and Qualitative Disclosures About Market Risk**




The
      investment management business is, by its nature, subject to numerous and
      substantial risks, including volatile trading markets and fluctuations in the
      volume of market activity. Our revenue, which is based on a percentage of our
      assets under management, is largely dependent on the total value and composition
      of our assets under management. Consequently, our net income and revenues are
      likely to be subject to wide fluctuations, reflecting the effect of many
      factors, including: general economic conditions; securities market conditions;
      the level and volatility of interest rates and equity prices; competitive
      conditions; liquidity of global markets; international and regional political
      conditions; regulatory and legislative developments; monetary and fiscal policy;
      investor sentiment; availability and cost of capital; technological changes
      and
      events; outcome of legal proceedings; changes in currency values; inflation;
      credit ratings; and the size, volume and timing of transactions. These and
      other
      factors could affect the stability and liquidity of securities and future
      markets, and the ability of Highbury, Aston and other financial services firms
      and counterparties to satisfy their obligations.




Highbury
      is also exposed to market risk as it relates to changes in interest rates
      applicable to borrowings under Highbury’s line of credit and investment of
      Highbury’s cash balances. Because Highbury had no outstanding debt under its
      line of credit as of December 31, 2006, it does not view this interest rate
      risk
      as a material risk. Certain
      of Highbury’s outstanding cash balances are invested in money market mutual
      funds. We do not have significant exposure to changing interest rates on
      invested cash at December 31, 2006. As a result, the interest rate market
      risk implicit in these investments at December 31, 2006, if any, is
      low.




**Off-Balance
      Sheet Arrangements**




Options
      and warrants issued in conjunction with our initial public offering are equity
      linked derivatives and accordingly represent off-balance sheet arrangements.
      The
      options and warrants meet the scope exception in paragraph 11(a) of FAS 133
      and
      are accordingly not accounted for as derivatives for purposes of FAS 133, but
      instead are accounted for as equity. See Notes 2 and 11 to the financial
      statements for a discussion of the options and warrants.





**ITEM
              7A.**
            **QUANTITATIVE
                AND QUALITATIVE DISCLOSURES ABOUT MARKET
                RISK**




For
      quantitative and qualitative disclosures about how we are affected by market
      risk, see “Management’s Discussion and Analysis of Financial Condition and
      Results of Operations - Quantitative and Qualitative Disclosures About Market
      Risk” in Item 7.





**ITEM
              8.**
            **FINANCIAL
                STATEMENTS****AND SUPPLEMENTARY
                DATA**




This
      information appears following Item 15 of this Report and is incorporated herein
      by reference.




**ITEM
              9.**
            **CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                DISCLOSURE**




None.




**ITEM
              9A.**
            **CONTROLS
                AND PROCEDURES**




**Disclosure
      Controls and Procedures**





We
      carried out an evaluation, under the supervision and with the participation
      of
      our management, including our chief executive officer and our principal
      financial officer, of the effectiveness of our disclosure controls and
      procedures as of December 31, 2006. Based on that evaluation, our chief
      executive officer and our principal financial officer concluded that our
      disclosure controls and procedures are effective as of the end of the period
      covered by this report to ensure that information required to be disclosed
      by us
      in reports that we file or submit under the Exchange Act, as amended, is
      recorded, processed, summarized and reported within the time periods specified
      in SEC rules and forms.





**Internal
      Control Over Financial Reporting**





During
      the fiscal quarter ended December 31, 2006, there has been no change in our
      internal control over financial reporting that has materially affected, or
      is
      reasonably likely to materially affect, our internal control over financial
      reporting.




**ITEM
              9B.**
            **OTHER
                INFORMATION**




None.




42




**PART
      III**




**ITEM
              10.**
            **DIRECTORS,
                EXECUTIVE OFFICERS AND CORPORATE
                GOVERNANCE**




**Directors
      and Executive Officers**




Highbury’s
      current directors and executive officers are as follows:




**Name**
            ****
            **Age**
            ****
            **Position**R.
                Bruce Cameron
            
            50
            
            Chairman
                of the BoardRichard
                S. Foote
            
            43
            
            President,
                Chief Executive Officer and DirectorR.
                Bradley Forth
            
            27
            
            Executive
                Vice President, Chief Financial Officer and SecretaryRussell
                L. Appel
            
            46
            
            Director





***R.
      Bruce Cameron, CFA*** has
      been
      our chairman of the board since our inception. Mr. Cameron has been the
      president and chief executive officer of Berkshire Capital Securities LLC,
      a New
      York-based investment banking firm, since its formation in May 2004.
      Mr. Cameron co-founded Berkshire Capital Corporation, the predecessor firm
      to Berkshire Capital Securities LLC, in 1983 as the first independent investment
      bank covering the financial services industry, with a focus on investment
      management and capital markets firms. Mr. Cameron is responsible for the
      overall development and direction of the firm and is actively involved in
      working with the firm’s major clients. Mr. Cameron heads the firm’s
      management committee and is a frequent speaker at industry conferences and
      events. Mr. Cameron and his partners have advised on approximately 207
      mergers and acquisitions of financial services companies, including high net
      worth managers, institutional investment managers, mutual fund managers, real
      estate managers, brokerage firms, investment banks and capital markets firms
      with aggregate client assets under management of nearly $390 billion and
      aggregate transaction value in excess of $9.3 billion. Mr. Cameron is the
      managing member of Broad Hollow LLC, which owns 776,250 shares of our common
      stock and 75,000 of our units. Prior to forming Berkshire Capital Corporation,
      Mr. Cameron was an associate director of Paine Webber Group Inc.’s
      Strategic Planning Group from 1981 through 1983. At Paine Webber,
      Mr. Cameron executed several internal acquisitions for the company.
      Mr. Cameron began his career at Prudential Insurance Company from 1978
      through 1980, working first in the Comptroller’s Department and then in the
      Planning & Coordination Group. Mr. Cameron was graduated from Trinity
      College, where he received a B.A. in Economics, and from Harvard Business
      School, where he received an M.B.A. Mr.  Cameron also attended the London
      School of Economics. Mr. Cameron is a CFA charterholder and is on the
      membership committee of the New York Society of Security Analysts.
      Mr. Cameron is a director of Capital Counsel LLC in New York City, a high
      net worth investment management firm he advised when it was established.
      Mr. Cameron is a Fellow of the Life Management Institute. He is also a past
      trustee of the Securities Industry Institute.




***Richard
      S. Foote, CFA*** has
      been
      our president and chief executive officer and a member of our board of directors
      since our inception. Mr. Foote has been a managing director of Berkshire
      Capital Securities LLC since its formation in May 2004 and a managing
      director, principal and vice president of Berkshire Capital Corporation, the
      predecessor firm to Berkshire Capital Securities LLC, since 1994. Throughout
      his
      career, Mr. Foote has specialized in providing investment banking services
      to the financial services industry, including mergers and acquisitions, public
      offerings and private placements of debt and equity securities, and negotiation
      and implementation of private equity capital coinvestment commitments. At
      Berkshire Capital Securities LLC and its predecessor, Mr. Foote has advised
      owners of institutional equity and fixed income managers, high net worth
      managers, mutual fund managers and capital markets firms in mergers and
      acquisitions. Mr. Foote has developed the firm’s alternative investment
      management industry practice, with the dominant market share in mergers and
      acquisitions of real estate investment management and services firms and
      operating companies. Since 1994, Mr. Foote has advised on 27 completed
      mergers and acquisitions of financial services companies, including high net
      worth managers, institutional investment managers, mutual fund managers, real
      estate managers, brokerage firms, investment banks and capital markets firms
      with aggregate client assets under management of approximately $113 billion
      and aggregate transaction value of approximately $2.0 billion.
      Mr. Foote is a director of Berkshire Capital and serves on its compensation
      committee, commitment committee and technology committee. From 1991 through
      1994, Mr. Foote was a co-founder and partner of Knightsbridge Capital
      Partners, a partnership engaged in investment banking and merchant banking
      activities. From 1985 to 1991, Mr. Foote was a vice president, an
      associate, and an analyst in the investment banking division of PaineWebber
      Incorporated, primarily working on mergers, acquisitions and the issuance of
      equity and debt securities. Mr. Foote was graduated from Harvard College, *cum
      laude* ,
      in 1985
      with an A.B. in Economics. Mr. Foote is a CFA charterholder and a member of
      the CFA Institute, the New York Society of Security Analysts, the Pension Real
      Estate Association and the National Council of Real Estate Investment
      Fiduciaries.




43




***R.
      Bradley Forth, CFA*** has
      been
      our executive vice president, chief financial officer and secretary since our
      inception. Mr. Forth has been an associate at Berkshire Capital Securities
      LLC since its formation in May 2004 and an associate and analyst at
      Berkshire Capital Corporation, the predecessor firm to Berkshire Capital
      Securities LLC, since 2001. Mr. Forth has specialized in merger,
      acquisition and valuation advisory activities for institutional investment
      managers, high net worth managers, multi-family offices, mutual fund managers,
      hedge fund of funds managers, retail brokerage firms and real estate investment
      management and services firms. Mr. Forth has advised on 17 mergers and
      acquisitions of financial services companies with aggregate transaction value
      of
      approximately $1.3 billion. He was graduated from Duke University in 2001
      with a B.S. in Economics and a B.A. in Chemistry. Mr. Forth is a CFA
      charterholder and a member of the CFA Institute and the New York Society of
      Security Analysts.





***Russell
      L. Appel*** has
      been
      a member of our board of directors since our inception. Mr. Appel is a
      founder and the president of The Praedium Group LLC, a private equity real
      estate investment firm focusing on underperforming and undervalued assets
      throughout North America that began operations as a part of Credit Suisse First
      Boston, now known as Credit Suisse. In 1991, Mr. Appel established a team
      at Credit Suisse to acquire distressed real estate assets for Credit Suisse’s
      proprietary account. As a result of this group’s achievements, Praedium was
      formed in 1994 as a third-party investment management group affiliated with
      Credit Suisse. Since 1991, this group has completed more than $6 billion of
      real
      estate transactions in a series of private equity vehicles. The firm’s clients
      include public and corporate pension plan sponsors, foundations, endowments,
      and
      other institutional and high net worth individual investors. In 1999, Praedium
      separated from Credit Suisse and presently operates as an independent investment
      firm. In addition to his responsibilities with Praedium, Mr. Appel ran
      Credit Suisse’s Commercial Mortgage Finance business from 1991 to 1994, where he
      became a managing director. At Credit Suisse, Mr. Appel supervised the
      execution of numerous commercial and multi-family asset securitization and
      sale
      advisory assignments. Prior to joining Credit Suisse in 1991 and his association
      with Praedium, Mr. Appel was a vice president in the Real Estate Department
      of Goldman Sachs & Co. from 1986 to 1991. At Goldman Sachs, he was involved
      in real estate-related sales, financings, mergers and acquisitions and capital
      markets transactions. Mr. Appel holds a B.S. in Economics, *magna
      cum laude* ,
      and an
      M.B.A. with distinction from the Wharton School of the University of
      Pennsylvania. Mr. Appel is the treasurer of the Pension Real Estate
      Association and serves on its board of directors.




**Number
      and Terms of Directors**




Highbury’s
      board of directors has three directors and is divided into three classes with
      only one class of directors being elected in each year and each class serving
      a
      three-year term. The term of office of the first class of directors, consisting
      of Russell L. Appel, expired at our first annual meeting of stockholders held
      on
      November 27, 2006. Mr. Appel was re-elected for a three-year term. The term
      of
      office of the second class of directors, consisting of R. Bruce Cameron, will
      expire at the second annual meeting. The term of office of the third class
      of
      directors, consisting of Richard S. Foote, will expire at the third annual
      meeting. Each of our current directors has served on our board since our
      inception on July 13, 2005.




**Section
      16(a) Beneficial Ownership Reporting Compliance**




Section
      16(a) of the Exchange Act requires Highbury’s officers and directors, and
      persons who own more than ten percent of Highbury’s common stock, to file
      reports of ownership and changes in ownership on Forms 3, 4 and 5 with the
      SEC.
      Such persons are required by the SEC regulations to furnish us with copies
      of
      all Forms 3, 4 and 5 that they file. Based on our review of the Forms 3, 4
      and
      5, filed by such persons, we believe that all Section 16(a) filing requirements
      applicable to Highbury’s officers, directors and greater than ten percent
      beneficial owners were complied with during the fiscal year ended December
      31,
      2006, with the following exceptions. The Form 3 filed by R. Bradley Forth,
      our
      Executive Vice President, Chief Financial Officer and Secretary, in connection
      with our initial public offering, which was required to be filed no later than
      January 25, 2006, the day of the effectiveness of our initial public
      offering, was not electronically transmitted to the SEC until after 10:00 p.m.
      on January 25, and therefore has a filing date of January 26,
      2006.  The Form 3s filed by Jack Silver and Nisswa Master Fund Ltd., each a
      beneficial owner of more than 10% of Highbury’s outstanding common stock, filed
      on December 29, 2006 and January 26, 2007 respectively, may have been filed
      after the expiration of the applicable filing periods. A Form 4 filed by Nisswa
      Master Fund Ltd. was filed after the expiration of the applicable filing periods
      with respect to five transactions in 2006. A Form 5 filed on February 27, 2007
      reported that Context Capital Management, LLC, Context Advantage Master Fund,
      L.P., Michael S. Rosen and William D. Fertig became beneficial owners of more
      than 10% of Highbury’s outstanding common stock on November 30, 2006. The Form 3
      filed to report this event was filed after the expiration of the applicable
      filing period  and
      five
      additional transactions that should have been reported on Form 4 in 2006 were
      reported on Form 5 in 2007. Wellington Management Company, LLP, a beneficial
      owner of more than 10% of Highbury’s outstanding common stock has not filed
      Forms 3, 4 or 5 to date.




44




**Code
      of Ethics**




Our
      board
      of directors has adopted a Code of Ethics for our officers and directors. The
      text of this Code of Ethics may be found on our website at
      http://www.highburyfinancial.com. Amendments to and waivers from the Code of
      Ethics that require disclosure under applicable SEC rules will be posted on
      our
      website.





**Committees
      of the Board of Directors**





*Audit
      Committee.* Highbury
      has not established an audit committee. Highbury’s entire board of directors
      currently carries out the functions customarily undertaken by the Audit
      Committee. Highbury’s board of directors has determined that R. Bruce Cameron
      and Richard S. Foote each qualify as an “audit committee financial expert” as
      that term is defined under Item 407(d)(5)(ii) of Regulation S-K of the
      Securities and Exchange Act of 1934, as amended. However, since Messrs. Cameron
      and Foote are officers of Highbury, neither is “independent” as that term is
      defined under Nasdaq’s listing requirements.





*Compensation
      Committee* .
      Highbury’s entire board of directors currently carries out the functions
      customarily undertaken by the Compensation Committee.





*Nominating
      Committee* .
      Highbury’s entire board of directors currently carries out the functions
      customarily undertaken by the Nominating Committee. Our board of directors
      does
      not have a formal policy for selection of nominees. The members of our board
      of
      directors make recommendations on the basis of our best interests.





**ITEM
              11.**
            **EXECUTIVE
                COMPENSATION**




**Executive
      and Director Compensation**




No
      executive officer or director of Highbury has ever received any compensation
      for
      services rendered since Highbury’s inception on July 13, 2005, including during
      the fiscal year ended December 31, 2006. No compensation of any kind, including
      finder’s and consulting fees, has been paid by us to any of our initial
      stockholders, including our officers and directors, or any of their respective
      affiliates, for services rendered prior to or in connection with the
      acquisition. However, these individuals were reimbursed for out-of-pocket
      expenses incurred in connection with activities on our behalf such as
      identifying potential target businesses and performing due diligence on suitable
      business combinations and Berkshire Capital received $7,500 per month for office
      space and general and administrative services commencing on January 25,
      2006. In addition, we have engaged Berkshire Capital to act as our non-exclusive
      financial advisor in connection with possible future acquisitions. See “Certain
      Relationships And Related Transactions, And Director Independence - Financial
      Advisor Engagement” under Item 13.




**Compensation
      Committee Interlocks and Insider Participation**




Highbury’s
      entire board of directors currently carries out the functions customarily
      undertaken by the Compensation Committee. Two members of Highbury’s board of
      directors, Messrs. Cameron and Foote, were executive officers of Highbury during
      the fiscal year ended December 31, 2006. **** In
      addition, Messrs. Cameron and Foote are executive officers of, and serve on
      the
      compensation committee of Berkshire Capital Securities LLC, or Berkshire
      Capital. For a description of certain transactions between us and Messrs.
      Cameron and Foote, see “Certain Relationships And Related Transactions, And
      Director Independence - Share Issuances to Initial Stockholders” under Item 13.
      For a description of certain transactions between us and Berkshire Capital,
      which will benefit Messrs. Cameron and Foote to the extent of their interest
      in
      Berkshire Capital, see “Certain Relationships and Related Transactions, And
      Director Independence - Office Services Agreement” and “– Financial Advisor
      Engagement” under Item 13. During the fiscal year ended December 31, 2006, none
      of Highbury’s officers or employees participated in deliberations of Highbury’s
      board of directors concerning executive officer compensation.




45





**COMPENSATION
      COMMITTEE REPORT**





Because
      none of the Company’s named executive officers received any compensation from
      the Company for the fiscal year ended December 31, 2006, the Company has
      not included a Compensation Discussion and Analysis, as described in Regulation
      S-K Item 402(b), in its Annual Report on Form 10-K for such period. 
Accordingly, the board of directors has neither reviewed and discussed such
      a
      Compensation Discussion and Analysis with management nor made any recommendation
      regarding the inclusion of such a Compensation Discussion and Analysis in the
      Company’s Annual Report on Form 10-K, Proxy Statement on Schedule 14A or
      Information Statement on Schedule 14C.




Respectfully
      submitted by:




R.
      Bruce
      Cameron


Richard
      S. Foote


Russell
      L. Appel


*
      *
      *




*The
      foregoing Compensation Committee Report shall not be deemed to be “soliciting
      material” or “filed” or incorporated by reference in any previous or future
      documents filed by the Company with the SEC under the Securities Act or the
      Exchange Act, except to the extent that the Company specifically incorporates
      the Report by reference in any such document.*




**ITEM
                12.**
              **SECURITY
                  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
                  STOCKHOLDER MATTERS**




The
      following table sets forth information as of March 15, 2007 in respect of
      beneficial ownership of Highbury’s common stock by each director, by each named
      executive officer and by all directors and executive officers of Highbury as
      a
      group, and each person known by us, as a result of such person’s public filings
      with the SEC and the information contained therein, to be the beneficial owner
      of more than 5% of Highbury’s outstanding shares of common stock. The
      percentages of common stock beneficially owned are based on 9,527,000 shares
      of
      common stock outstanding as of March 15, 2007.




Unless
      otherwise indicated, we believe that all persons named in the table have sole
      voting and investment power with respect to all shares of common stock
      beneficially owned by them.




46





**Name
                and address of beneficial owner(1)**
            
            **Amount and Nature of**
              **Beneficial
                Ownership**
            
            **Approximate**
              **Percentage of**
              **Outstanding
                Common**
              **Stock**R.
                Bruce Cameron(2)
            
            
            1,223,751
            
            
            12.6
            %Richard
                S. Foote(3)
            
            
            667,500
            
            
            6.9
            %R.
                Bradley Forth(4)
            
            
            111,249
            
            
            1.2
            %Russell
                L. Appel(5)
            
            
            222,501
            
            
            2.3
            %Context
                Capital Management, LLC(6)
            
            
            2,515,700
            
            
            22.1
            %Jack
                Silver(7)
            
            
            2,025,500
            
            
            17.5
            %Wellington
                Management Company, LLP(8)
            
            
            1,328,548
            
            
            14.0
            %Nisswa
                Master Fund Ltd.(9)
            
            
            1,235,900
            
            
            11.9
            %Woodbourne
                Partners, L.P.(10)
            
            
            1,100,000
            
            
            11.6
            %Second
                Curve Capital, LLC(11)
            
            
            1,000,000
            
            
            10.5
            %Broad
                Hollow LLC(12)
            
            
            1,001,250
            
            
            10.4
            %Potomac
                Capital Management LLC(13)
            
            
            936,500
            
            
            9.8
            %Royce
                & Associates, LLC(14)
            
            
            892,900
            
            
            9.4
            %Talon
                Opportunity Partners, L.P.(15)
            
            
            558,000
            
            
            5.8
            %All
                executive officers and directors as a group (four
                individuals)(2)(16)
            
            
            2,225,001
            
            
            22.6
            %





(1)
            Unless
                otherwise noted, the business address of each stockholder listed
                in this
                table is c/o Berkshire Capital Securities LLC, 535 Madison Avenue,
                19th
                Floor, New York, New York 10022.(2)
            Includes
                851,250 shares owned of record by Broad Hollow LLC and 150,000 shares
                issuable upon exercise of warrants held by Broad Hollow LLC that
                became
                exercisable on January 25, 2007 that are attributed to Mr. Cameron,
                according to Section 13(d) of the Exchange Act, due to his position
                as the managing member of Broad Hollow LLC, and 33,334 shares issuable
                upon exercise of warrants held by Mr. Cameron that became exercisable
                on
                January 25, 2007.(3)
            Includes
                100,000 shares issuable upon exercise of warrants that became exercisable
                on January 25, 2007.(4)
            The
                business address of Mr. Forth is c/o Berkshire Capital Securities
                LLC, 999 Eighteenth Street, Suite 3000, Denver, CO 80202. Includes
                16,666
                shares issuable upon exercise of warrants that became exercisable
                on
                January 25, 2007. These share numbers include 43,125 shares held by
                Mr. Forth, which are subject to a call in favor of Broad Hollow LLC,
                if Mr. Forth’s employment by Berkshire Capital is terminated for
                certain reasons before the second anniversary of our initial business
                combination.(5)
            These
                shares are owned of record by the Hillary Appel Trust and the Catey
                Lauren
                Appel Trust, of which Mr. Appel’s wife is the trustee. Mr. Appel
                disclaims beneficial ownership of all such shares. Includes 33,334
                shares
                issuable upon exercise of warrants that became exercisable on
                January 25, 2007. The business address of Mr. Appel is c/o The
                Praedium Group LLC, 825 Third Avenue, 36th Floor, New York, NY
                10022.(6)
            As
                reported in the Form 4 filed with the SEC on February 27, 2007 and
                a
                Schedule 13D filed with the SEC on February 6, 2006 by Context Capital
                Management, LLC, Context Advantage Master Fund, L.P., Michael S.
                Rosen and
                William D. Fertig. The business address of Context Capital Management,
                LLC
                is 12626 High Bluff Drive, Suite 440, San Diego, CA 92130. Michael
                S.
                Rosen and William D. Fertig are the control persons of Context Capital
                Management, LLC and have shared voting power and shared dispositive
                power
                with respect to these shares. Includes 1,841,700 shares issuable
                upon the
                exercise of warrants that became exercisable on January 25,
                2007.(7)
            As
                reported in the Form 4 and a Schedule 13G, each of which was filed
                with
                the SEC on December 29, 2006 by Jack Silver. The business address
                of Mr.
                Silver is c/o SIAR Capital LLC, 660 Madison Avenue, New York, New
                York
                10021.  The 2,025,500 shares beneficially owned by Mr. Silver include
                (i) 1,625,500 shares issuable upon the exercise of warrants that
                became
                exercisable on January 25, 2007 held by Sherleigh Associates Inc.
                Profit
                Sharing Plan, a trust of which Mr. Silver is the trustee; and (ii)
                400,000
                shares issuable upon the exercise of warrants that became exercisable
                on
                January 25, 2007 held by Sherleigh Associates Inc. Defined Benefit
                Pension
                Plan, a trust of which Mr. Silver is the
                trustee.




47




(8)
            As
                reported in the Schedule 13G/A filed with the SEC on February 14,
                2007 by
                Wellington Management Company, LLP. The business address of Wellington
                Management Company, LLP is 75 State Street, Boston, MA 02109. The
                Schedule
                13G does not disclose the natural persons that would be deemed the
                control
                persons of Wellington Management Company, LLP. Based on a Form ADV
                filed
                by Wellington Management Company, LLP, with the SEC on August 4, 2006
                the control persons of Wellington Management Company, LLP are Nicholas
                Adams, Laurie Gabriel, Paul Hamel, Saul Pannell, John Ryan, Perry
                Traquina
                and Phillip Perelmuter.(9)
            As
                reported in the Schedule 13G filed with the SEC on January 26, 2007
                by
                Brian Taylor, Pine River Capital Management L.P., and Nisswa Master
                Fund
                Ltd, and the Form 4 filed with the SEC on January 26, 2007 by Nisswa
                Master Fund Ltd. The business address of each of these persons is
                c/o Pine
                River Capital Management L.P., 800 Nicollet Mall, Suite 2850, Minneapolis,
                MN 55402.  Brian Taylor and Pine River Capital Management L.P. have
                shared voting power and shared dispositive power over 1,235,900 shares;
                and Nisswa Master Fund Ltd. has shared voting power and shared dispositive
                power over 875,900 of these 1,235,900 shares.  Includes 875,900
                shares issuable upon exercise of warrant that became exercisable
                on
                January 25, 2007.(10)
            As
                reported in the Form 4 filed with the SEC on February 2, 2007 by
                Woodbourne Partners L.P., and the Schedule 13G filed with the SEC
                on
                January 23, 2007 by Woodbourne Partners L.P., Clayton Management
                Company
                and John D. Weil. The business address of Woodbourne Partners, L.P.
                is 200
                North Broadway, Suite 825, St. Louis, Missouri 63102.  The
                controlling person of Woodbourne Partners, L.P. is Clayton Management
                Company, its General Partner, and Mr. John Weil is the President
                and
                controlling person of Clayton Management Company.(11)
            As
                reported in a Schedule 13G filed with the SEC on February 14, 2007
                by
                Second Curve Capital, LLC, Thomas K. Brown and Second Curve Opportunity
                Fund, LP.  The business address of each of these persons is 405
                Lexington Avenue, 52ndFloor, New York, NY 10174. Second Curve Capital, LLC and Thomas Brown
                have
                shared voting power and shared dispositive power with respect to
                these
                shares.  Second Curve Opportunity Fund, LP has shared voting power
                and shared dispositive power with respect to 746,730 of these
                shares.(12)
            Includes
                150,000 shares issuable upon exercise of warrants that became exercisable
                on January 25, 2007.(13)
            As
                reported in the Schedule 13G filed with the SEC on February 16, 2007
                by
                Potomac Capital Management LLC, Potomac Capital Management Inc. and
                Paul
                J. Solit. The business address of Potomac Capital Management LLC
                is 825
                Third Avenue, 33rd Floor, New York, New York 10022. Potomac Capital
                Management LLC, Potomac Capital Management Inc. and Paul J. Solit
                have
                shared voting power and shared dispositive power with respect to
                these
                shares.(14)
            As
                reported in the Schedule 13G filed with the SEC on January 22, 2007
                by
                Royce & Associates, LLC.The
                business address of Royce & Associates, LLC is 1414 Avenue of the
                Americas, New York, NY 10019.  The Schedule 13G does not disclose the
                natural persons that would be deemed the control persons of Royce
&
                Associates, LLC. Based on a Form ADV filed by Royce & Associates, LLC
                with the SEC on June 28, 2006, the control persons of Royce &
                Associates, LLC are Charles Royce, John Diederich, Mark Fetting,
                Raymond
                Mason, John Denneen, Legg Mason, Inc. and Peter Bain.


(15)
            As
                reported in the Schedule 13G filed with the SEC on December 6, 2006
                by
                Talon Opportunity Partners, L.P., Talon Opportunity Managers, L.L.C.
                and
                Talon Asset Management, LLC.The
                business address of each of these entities is One North Franklin,
                Suite
                900, Chicago, Illinois 60606. Talon Opportunity Partners, L.P., Talon
                Opportunity Managers, L.L.C., the general partner of Talon Opportunity
                Partners, L.P. and Talon Asset Management, LLC, the Manager of Talon
                Opportunity Managers. L.L.C., have shared voting power and shared
                dispositive power with respect to these shares. The shares are held
                by
                Talon Asset Management, LLC on behalf of Talon Opportunity Partners,
                L.P.,
                as manager of Talon Opportunity Managers, L.L.C., the general partner
                of
                Talon Opportunity Partners, L.P. From time to time, Talon Opportunity
                Partners, L.P. may make distributions of partnership income to limited
                partners, none of which has an interest relating to more than 5%
                of the
                class. The Schedule 13G does not disclose the natural persons that
                would
                be deemed the control persons of Talon Asset Management, LLC. Based
                on a
                Form ADV filed by Talon Asset Management, LLC with the SEC on May 10,
                2006, the control persons of Talon Asset Management, LLC are Terry
                Diamond, Alan Wilson, Barbara Rumminger, William Wolf, Bruce Beerbower,
                Talon Asset Management Inc. and Diamond JJJD Enterprises, LLC. Includes
                80,000 shares issuable upon exercise of warrants that became exercisable
                on January 25, 2007.




48




(16)
            Includes
                333,334 shares issuable upon exercise of warrants that became exercisable
                on January 25, 2007.




**ITEM
              13.**
            **CERTAIN
                RELATIONSHIPS AND RELATED TRANSACTIONS****,
                AND DIRECTOR
                INDEPENDENCE**




**Share
      Issuances to Initial Stockholders**





On
      August 1, 2005, we issued 1,500,000 shares of our common stock to the
      persons set forth below for an aggregate of $25,000 in cash, at an average
      purchase price of approximately $0.0167 per share. These shares were allocated
      as follows:





**Name**
            ****
            **Number
                of Shares**
            ****
            **Relationship
                to Us**R.
                Bruce Cameron
            
            150,000
            
            Chairman
                of the BoardRichard
                S. Foote
            
            450,000
            
            President,
                Chief Executive Officer and DirectorR.
                Bradley Forth
            
            75,000
            
            Executive
                Vice President, Chief Financial Officer and SecretaryThe
                Hillary Appel Trust
            
            75,000
            
            Stockholder(1)The
                Catey Lauren Appel Trust
            
            75,000
            
            Stockholder(1)Broad
                Hollow LLC
            
            675,000
            
            Stockholder(2)




(1)
            The
                Hillary Appel Trust and The Catey Lauren Appel Trusts are trusts
                of which
                the wife of Mr. Appel, one of our Directors, is the trustee.


(2)
            Mr.
                Cameron, our Chairman of the Board, is the managing member of Broad
                Hollow
                LLC.





Subsequent
      to the issuance of the 1,500,000 shares, we authorized a stock dividend of
      0.15
      shares of common stock for each outstanding share of common stock as of January
      13, 2006.





The
      holders of the majority of these shares are entitled to make up to two demands
      that we register these shares and any warrants they may own, pursuant to an
      agreement signed on January 31, 2006. The holders of the majority of these
      shares can elect to exercise these registration rights at any time after the
      date on which their shares of common stock are released from escrow, which
      will
      be January 31, 2009. In addition, these stockholders have certain “piggy-back”
registration rights on registration statements filed subsequent to such date.
      We
      will bear the expenses incurred in connection with the filing of any such
      registration statements.




All
      of
      the shares of our common stock outstanding prior to the date of the prospectus
      for our initial public offering (January 25, 2006) were placed in escrow with
      Continental Stock Transfer & Trust Company as escrow agent, until the
      earliest of:





·
                three
                    years following the date of the closing of our initial public
                    offering
                    (January 31, 2006);


·
            our
                liquidation; and


·
            the
                consummation of a liquidation, merger, stock exchange, stock purchase
                or
                other similar transaction which results in all of our stockholders
                having
                the right to exchange their shares of common stock for cash, securities
                or
                other property subsequent to our consummating a business combination
                with
                a target business.





During
      the escrow period, the holders of these shares will not be able to sell or
      transfer their securities except among our initial stockholders (including
      upon
      exercise by Broad Hollow LLC of its call option), to their spouses and children
      or trusts established for their benefit, by virtue of the laws of decent and
      distribution, upon the death of any initial stockholder or pursuant to a
      qualified domestic relations order but will retain all other rights as our
      stockholders, including, without limitation, the right to vote their shares
      of
      common stock and the right to receive cash dividends, if declared. If dividends
      are declared and payable in shares of common stock, such dividends will also
      be
      placed in escrow.




49




Our
      initial stockholders purchased an aggregate of 166,667 units in the private
      placement. The shares and warrants comprising such units may be sold, assigned
      or transferred by them now that we have consummated the acquisition, subject
      to
      applicable securities laws. The holders of a majority of the units purchased
      in
      the private placement are entitled to make up to two demands that Highbury
      register the shares, warrants and shares underlying the warrants comprising
      such
      units at any time. In addition, the initial stockholders have certain
      "piggy-back" registration rights with respect to such securities on registration
      statements filed by Highbury. We will bear the expenses incurred in connection
      with the filing of any of the foregoing registration statements.





**Office
      Services Agreement**





Commencing
      on January 25, 2006, Berkshire Capital has made available to us such office
      space and certain general and administrative services as we have required from
      time to time. We paid Berkshire Capital $7,500 per month for these services.
      On
      November 30, 2006, we replaced this agreement with an office services
      agreement with Berkshire Capital. The office services agreement provides for
      a
      monthly fixed fee for office services of $7,500. Either party may terminate
      the
      office service agreement at any time with six months’ notice to the other party.
      R. Bruce Cameron, our Chairman of the Board, Richard S. Foote, our President,
      Chief Executive Officer and Director, and R. Bradley Forth, our Executive Vice
      President, Chief Financial Officer and Secretary are employees or equity owners
      of Berkshire Capital. As a result of these affiliations, these individuals
      will
      benefit from the transaction to the extent of their interest in Berkshire
      Capital. However, this arrangement is solely for our benefit and is not intended
      to provide any of our executive officers compensation in lieu of a salary.
      We
      believe, based on rents and fees for similar services in the Denver, Colorado
      metropolitan area, that the fee charged by Berkshire Capital is at least as
      favorable as we could have obtained from an unaffiliated third party. This
      agreement was ratified in accordance with our Related Person Policy described
      below.





**Financial
      Advisor Engagement**





We
      have
      engaged Berkshire Capital to act as our non-exclusive financial advisor in
      connection with possible acquisitions. In such capacity, Berkshire Capital
      will
      assist us in structuring, negotiating and completing acquisitions of targets
      identified by us and acknowledged by both us and Berkshire Capital as being
      subject to Berkshire Capital’s engagement. If we enter into an agreement to
      acquire such a target company during the term of Berkshire Capital’s engagement
      or within two years thereafter, and such acquisition is completed, then we
      will
      pay Berkshire Capital a success fee at closing equal to the greater of (a)
      the
      sum of 3.0% of the first $15 million of the aggregate consideration in such
      transaction and 1.0% of the aggregate consideration in such transaction in
      excess of $15 million, and (b) $600,000. Upon the execution of a definitive
      agreement with respect to an acquisition, we will pay Berkshire Capital $200,000
      which will be credited against the success fee. We will also reimburse Berkshire
      Capital for its reasonable expenses in performing its services under the
      engagement letter and will indemnify Berkshire Capital for liabilities it incurs
      in performing such services, unless such liabilities are attributable to
      Berkshire Capital’s gross negligence or willful misconduct. Messrs. Cameron,
      Foote and Forth, our executive officers, are affiliated with Berkshire Capital.
      As a result of these affiliations, these individuals will benefit from the
      transaction to the extent of their interest in Berkshire Capital. We believe,
      based on discussions with other investment banks, that the terms of our
      engagement of Berkshire Capital are at least as favorable as we could have
      obtained from an unaffiliated third party. This transaction was approved in
      accordance with our Related Person Policy described below.





**Conflicts
      of Interest**





Our
      public stockholders should be aware of the following potential conflicts of
      interest. Our
      officers and directors are not required to commit their full time to our affairs
      and, accordingly, they may have conflicts of interest in allocating management
      time among various business activities. Furthermore, Messrs. Cameron, Foote
      and
      Forth, our executive officers, are affiliated with Berkshire Capital, a
      registered broker-dealer that provides financial advisory services to clients
      in
      connection with mergers and acquisitions in the financial services industry.
      Berkshire Capital’s clients may compete with us for acquisitions in the
      financial services industry, and Berkshire Capital may have a duty to present
      certain acquisition opportunities to its clients before it presents them to
      us.




50




**Policies
      and Procedures for Review, Approval or Ratification of Transactions with Related
      Persons**





Our
      board
      of directors has adopted certain written policies and procedures for the
      review, approval and ratification of related party transactions, which we refer
      to as our Related Person Policy. Among other things, our Related Party
      Policy provides that any transaction, arrangement or relationship (or any
      series of similar transactions, arrangements or relationships) in which we
      (including any of our subsidiaries) were, are or will be a participant and
      the amount involved exceeds $120,000, and in which any related person had,
      has or will have a direct or indirect material interest, must be
      reported to our board of directors prior to the consummation or amendment
      of the transaction. A related person, as defined in our Related Party Policy,
      means any
      person who is, or at any time since the beginning of our last fiscal year was,
      a
      director or executive officer of the Company or a nominee to become a director
      of the Company; any person who is known to be the beneficial owner of more
      than
      5% of any class of our voting securities; any immediate family member of any
      of
      the foregoing persons, which means any child, stepchild, parent, stepparent,
      spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law,
      brother-in-law, or sister-in-law of the director, executive officer, nominee
      or
      more than 5% beneficial owner, and any person (other than a tenant or employee)
      sharing the household of such director, executive officer, nominee or more
      than
      5% beneficial owner; and any firm, corporation or other entity in which any
      of
      the foregoing persons is employed or is a general partner or principal or in
      a
      similar position or in which such person has a 5% or greater beneficial
      ownership interest. Our
      board
      of directors reviews these related party transactions and considers
      all of the relevant facts and circumstances available to the board,
      including (if applicable) but not limited to: the benefits to us; the
      availability of other sources of comparable products or services; the terms
      of
      the transaction; and the terms available to unrelated third parties or to
      employees generally. The board of directors may approve only those related
      party transactions that are in, or are not inconsistent with, the best
      interests of us and of our stockholders, as the board determines in good faith.
      At the beginning of each fiscal year, the board will review any previously
      approved or ratified related party transactions that remain ongoing and have
      a
      remaining term of more than six months. The Board will consider all of the
      relevant facts and circumstances and will determine if it is in the best
      interests of us and our stockholders to continue, modify or terminate these
      related party transactions.





The
      transactions described under the caption “Share Issuances to Initial
      Stockholders” were not approved or ratified in accordance with our Related Party
      Policy, which was not in effect at the time such transactions were
      consummated.  Because all of our directors had an interest in such
      transactions, it was not possible to have them approved or ratified by
      disinterested directors. ****





**Independence
      of Directors**





Highbury
      currently does not have, and is not required to have, a majority of independent
      directors. Should Highbury decide to list on a securities exchange, we will
      be
      required to adhere to the independence requirements of that exchange. We believe
      that only one of our current three directors, Mr. Appel, would meet the
      independence requirements applicable to companies listed on Nasdaq, including
      those applicable to audit, compensation and nominating committee members. Our
      other two directors, Messrs. Cameron and Foote, would not meet the director
      independence requirements of Nasdaq. Highbury’s entire board of directors,
      including Messrs. Cameron and Foote who are not independent directors, carries
      out the functions customarily undertaken by audit, compensation and nominating
      committees.







**ITEM
              14.**
            **PRINCIPAL
                ACCOUNTANT FEES AND
                SERVICES**




The
      firm
      of Goldstein Golub Kessler LLP, or GGK, acts as our principal accountant.
      Through September 30, 2005 GGK had a continuing relationship with American
      Express Tax and Business Services Inc., or TBS, from which it leased auditing
      staff who were full time, permanent employees of TBS and through which its
      partners provide non-audit services. Subsequent to September 30, 2005, this
      relationship ceased and the firm established a similar relationship with RSM
      McGladrey, Inc., or RSM. GGK has no full time employees and therefore, none
      of
      the audit services performed were provided by permanent full-time employees
      of
      GGK. GGK manages and supervises the audit and audit staff, and is exclusively
      responsible for the opinion rendered in connection with its examination. We
      did
      not pay any fees to GGK or RSM for services that fall under the categories
      “Audit Related Fees” or “All Other Fees,” as such categories are defined in the
      rules promulgated by the SEC. The following is a summary of fees paid or to
      be
      paid to GGK and RSM for services rendered.




51




**Audit
      Fees**




Fees
      incurred in connection with our initial public offering, including related
      audits, totaled $42,500. During the fiscal year ended December 31, 2006, we
      incurred $109,148 in fees for services provided principally in connection with
      our Annual Report on Form 10-KSB for the fiscal year ended December 31, 2005,
      our Quarterly Reports on Form 10-QSB for the first three quarters of the 2006
      fiscal year, our proxy filings in connection with the acquisition consummated
      on
      November 30, 2006, and the financial statements included in the Current Report
      on Form 8-K filed following the consummation of the acquisition. In addition,
      we
      expect to incur approximately $$110,000 in fees for services provided in
      connection with our Annual Report on Form 10-K for the fiscal year ended
      December 31, 2006.





**Tax
      Fees**





In
      2006,
      we paid RSM $2,500 in connection with the preparation of our 2005 tax
      returns.




**Pre-Approval
      of Fees**




Our
      full
      board of directors is responsible for appointing, setting compensation, and
      overseeing the work of the independent auditor. In recognition of this
      responsibility, the board of directors has established a policy to pre-approve
      all audit and permissible non-audit services provided by the independent
      auditor.




52




**ITEM
              15.**
            **EXHIBITS
                AND FINANCIAL STATEMENT
                SCHEDULES**




1.
            **Financial
                Statements:**





Index
                to Financial Statements**Highbury
                Financial Inc.**Report
                of Independent Registered Public Accounting FirmConsolidated
                Balance Sheets at December 31, 2006 and December 31,
                2005Consolidated
                Statements of Operations for the period from July 13, 2005 (inception)
                through December 31, 2005 and for the year ended December 31,
                2006Consolidated
                Statements of Stockholders’ Equity for the period from July 13, 2005
                (inception) through December 31, 2005 and for the year ended December
                31,
                2006Consolidated
                Statements of Cash Flows for the period from July 13, 2005 (inception)
                through December 31, 2005 and for the year ended December 31,
                2006Notes
                to Consolidated Financial Statements**U.S.
                Mutual Fund Business of ABN AMRO Asset Management Holdings,
                Inc.**Report
                of Independent Registered Public Accounting FirmCombined
                Statements of Financial Condition as of December 31, 2005 and
                2004Combined
                Statements of Operations for years ended December 31, 2005, 2004
                and
                2003Combined
                Statements of Changes in Owner’s Equity for years ended December 31, 2005,
                2004 and 2003Combined
                Statements of Cash Flows for years ended December 31, 2005, 2004
                and
                2003Notes
                to Combined Financial StatementsReport
                of Independent Registered Public Accounting FirmCombined
                Statement of Financial Condition as of November 30,
                2006Combined
                Statement of Operations for the 11 months ended November 30,
                2006Combined
                Statement of Changes in Owner’s Equity for the 11 months ended November
                30, 2006Combined
                Statement of Cash Flows for the 11 months ended November 30,
                2006Notes
                to Combined Financial Statements





2.
            **Financial
                Statement Schedule(s):**





No
      financial statement schedules are filed herewith because (i) such schedules
      are
      not required or (ii) the information required has been presented in the
      aforementioned finance statements.





3.
            **Exhibits:**





The
      following Exhibits are filed as part of this report:





**Exhibit 
                No.**
            
            **Description**3.1(1)
            
            Restated
                certificate of incorporation.3.2(2)
            
            By-laws.4.1(2)
            
            Specimen
                Unit Certificate.4.2(2)
            
            Specimen
                Common Stock Certificate.4.3(2)
            
            Specimen
                Warrant Certificate.4.4(2)
            
            Warrant
                Agreement between Continental Stock Transfer & Trust Company and the
                Company.4.5(2)
            
            Unit
                Purchase Option.




53




10.1(2)
            
            Subscription
                Agreement between the Registrant and R. Bruce Cameron.10.2(2)
            
            Subscription
                Agreement between the Registrant and Richard S. Foote.10.3(2)
            
            Subscription
                Agreement between the Registrant and R. Bradley Forth.10.4(2)
            
            Subscription
                Agreement between the Registrant and The Hillary Appel
                Trust.10.5(2)
            
            Subscription
                Agreement between the Registrant and The Catey Lauren Appel
                Trust.10.6(2)
            
            Subscription
                Agreement between the Registrant and Broad Hollow LLC.10.7(2)
            
            Form
                of Letter Agreement between the Registrant and each of R. Bruce Cameron,
                Richard S. Foote, R. Bradley Forth, The Hillary Appel Trust, The
                Catey
                Lauren Appel Trust, Broad Hollow LLC (the initial stockholders) and
                Russell L. Appel10.8
            
            [Intentionally
                omitted].10.9(2)
            
            Form
                of Stock Escrow Agreement between the Registrant and Continental
                Stock
                Transfer and Trust Company.10.10(2)
            
            Registration
                Rights Agreement between the Registrant and the initial
                stockholders.10.11(2)
            
            Form
                of Placement Unit Purchase Agreement among the Registrant, ThinkEquity
                Partners LLC, and the initial stockholders.10.12(3)
            
            Asset
                Purchase Agreement, dated as of April 20, 2006, by and among the
                Registrant, ABN AMRO Asset Management Holdings, Inc., ABN AMRO Investment
                Fund Services, Inc., ABN AMRO Asset Management, Inc., Montag &
                Caldwell, Inc., Tamro Capital Partners LLC, Veredus Asset Management
                LLC,
                River Road Asset Management LLC and Aston Asset Management
                LLC.10.13(3)
            
            Side
                Letter Agreement, dated as of April 20, 2006, by and among Registrant,
                Aston Asset Management LLC and Veredus Asset Management
                LLC.10.14(3)
            
            Side
                Letter Agreement, dated as of April 20, 2006, by and among Registrant,
                Aston Asset Management LLC and River Road Asset Management
                LLC.10.15(1)
            
            Side
                Letter Agreement, dated as of November 30, 2006, by and among Registrant,
                Aston Asset Management LLC and Montag & Caldwell,
                Inc.10.16(3)
            
            Side
                Letter Agreement, dated as of April 20, 2006, by and among Registrant,
                Aston Asset Management LLC and ABN AMRO Asset Management Holdings,
                Inc.10.17(3)
            
            Amended
                and Restated Limited Liability Company Agreement of Aston Asset Management
                LLC, dated as of April 20, 2006.10.18(4)
            
            Credit
                Agreement, dated as of November 9, 2006, between City National Bank
                and
                Registrant.10.19(1)
            
            Office
                Service Agreement, between Registrant and Berkshire Capital, dated
                November 30, 2006.10.20(1)
            
            Promissory
                Note issued by Aston in favor of Registrant, dated November 30,
                2006.10.21(2)
            
            Administrative,
                Compliance and Marketing Services Agreement, dated as of September
                1,
                2006, between ABN AMRO Asset Management, Inc., and Aston Asset Management
                LLC.**10.22(2)
            
            Form
                of Investment Advisory Agreement, between the Aston Funds and Aston
                Asset
                Management LLC.10.23
            
            Letter
                Agreement, dated February 2, 2007, by and between Registrant and
                Berkshire
                Capital Securities LLC.21.1
            
            Subsidiaries
                of Registrant31.1
            
            Certification
                by Principal Executive Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.31.2
            
            Certification
                by Principal Financial Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.32
            
            Certification
                of Principal Executive and Financial Officers 18 U.S.C.
                1350.99.1
            
            Amendment
                to Unit Purchase Option, dated December 15, 2006, by and between
                Registrant and ThinkEquity Partners LLC.99.2
            
            Amendment
                to Unit Purchase Option, dated December 15, 2006, by and between
                Registrant and EarlyBirdCapital, Inc.99.3
            
            Amended
                and Restated Warrant Clarification Agreement, dated December 15,
                2006, by
                and between Registrant and Continental Stock Transfer and Trust
                Company.





(1)
            Incorporated
                by reference from our Current Report on Form 8-K filed with the SEC
                on
                December 6, 2006.(2)
            Incorporated
                by reference from our Registration Statement on Form S-1 (SEC File
                No. 333-127272).(3)
            Incorporated
                by reference from our Current Report on Form 8-K filed with the SEC
                on
                April 21, 2006.(4)
            Incorporated
                by reference from our Quarterly Report on Form 10-QSB filed with
                the SEC
                on November 14, 2006.





54


**SIGNATURES**




Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the Registrant has duly caused this Report to be signed on its behalf
      by
      the undersigned, thereunto duly authorized.




**HIGHBURY
                FINANCIAL INC.**By:
            /s/ Richard
              S. FooteRichard
              S. FootePresident
                and Chief Executive
                Officer




Date: March
      23,
      2007





Pursuant
      to the requirement of the Securities Exchange Act of 1934, this Report has
      been
      signed below by the following persons on behalf of the Registrant and in the
      capacities and on the dates indicated.




**SIGNATURE**
              
              **TITLE**
              
              **DATE**/s/
                  R. Bruce Cameron
              
              Chairman
                  of the Board
              
              March
                  23, 2007R.
                  Bruce Cameron/s/
                  Richard S. Foote
              
              President
                  and Chief Executive Officer and
              
              March
                  23, 2007Richard
                  S. Foote
              
              Director
                  (principal executive officer)/s/
                  R. Bradley Forth
              
              Executive
                  Vice President, Chief Financial
              
              March
                  23, 2007R.
                  Bradley Forth
              
              Officer
                  and Secretary (principal financial and accounting officer)/s/
                  Russell L. Appel
              
              Director
              
              March
                  23, 2007Russell
                  L. Appel




55




**Index
        to Financial Statements**
 Report
                    of Independent Registered Public Accounting Firm
                F-2Consolidated
                    Balance Sheets at December 31, 2006 and December 31, 2005
                F-3
 Consolidated
                      Statements of Operations for the period from July 13, 2005
                      (inception)
                      through December 31, 2005 and for the year ended December 31,
                      2006
                  F-4Consolidated
                      Statements of Stockholders’ Equity for the period from July 13, 2005
                      (inception) through December 31, 2005 and for the year ended
                      December 31,
                      2006
                  F-5Consolidated
                      Statements of Cash Flows for the period from July 13, 2005
                      (inception)
                      through December 31, 2005 and for the year ended December 31,
                      2006
                  F-6Notes
                      to Consolidated Financial Statements
                  F-7**U.S.
                      Mutual Fund Business of ABN AMRO Asset Management Holdings,
                      Inc.**Report
                      of Independent Registered Public Accounting Firm
                  F-24Combined
                      Statements of Financial Condition as of December 31, 2005 and
                      2004
                  F-25Combined
                      Statements of Operations for years ended December 31, 2005,
                      2004 and
                      2003
                  F-26Combined
                      Statements of Changes in Owner’s Equity for years ended December 31, 2005,
                      2004 and 2003
                  F-27Combined
                      Statements of Cash Flows for years ended December 31, 2005,
                      2004 and
                      2003
                  F-28Notes
                      to Combined Financial Statements
                  F-29Report
                      of Independent Registered Public Accounting Firm
                  F-34Combined
                      Statement of Financial Condition as of November 30, 2006
                  F-35Combined
                      Statement of Operations for the 11 months ended November 30,
                      2006
                  F-36Combined
                      Statement of Changes in Owner’s Equity for the 11 months ended November
                      30, 2006
                  F-37Combined
                      Statement of Cash Flows for the 11 months ended November 30,
                      2006
                  F-38Notes
                      to Combined Financial Statements
                  F-39
 F-1
  **REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
  To
        the
        Board of Directors and Stockholders
 Highbury
        Financial Inc.
  We
        have
        audited the accompanying consolidated balance sheets of Highbury Financial
        Inc.
        and Subsidiary as of December 31, 2006 and 2005, and the related consolidated
        statements of operations, stockholders’ equity and cash flows for the year ended
        December 31, 2006 and the period from July 13, 2005 (inception) to December
        31,
        2005. These financial statements are the responsibility of the Company’s
        management. Our responsibility is to express an opinion on these financial
        statements based on our audits.
 
 We
        conducted our audits in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audits to obtain reasonable assurance about whether the
        financial statements are free of material misstatement. An audit includes
        examining, on a test basis, evidence supporting the amounts and disclosures
        in
        the financial statements. An audit also includes assessing the accounting
        principles used and significant estimates made by management, as well as
        evaluating the overall financial statement presentation. We believe that
        our
        audits provide a reasonable basis for our opinion.
 
 In
        our
        opinion, the financial statements referred to above present fairly, in all
        material respects, the consolidated financial position of Highbury Financial
        Inc. and Subsidiary as of December 31, 2006 and 2005, and the consolidated
        results of their operations and their cash flows for the year ended December
        31,
        2006 and the period from July 13, 2005 (inception) to December 31, 2005 in
        conformity with United States generally accepted accounting
        principles.
 
 
 /s/
        Goldstein Golub Kessler LLP
 **GOLDSTEIN
        GOLUB KESSLER LLP**
 New
        York,
        New York
 
 March
        21,
        2007
 
 F-2
  Highbury
          Financial Inc. and Subsidiary
 
 Consolidated
          Balance Sheets
 
 **December
                    31, 2005**
                
                **December
                    31, 2006**Current
                    assets:Cash
                    and equivalents
                
                $
                36,902
                
                $
                6,248,705Accounts
                    receivable (Note 14)
                
                
                -
                
                
                3,646,422Prepaid
                    expenses
                
                
                -
                
                
                221,220Other
                    current assets
                
                
                -
                
                
                13,670Total
                    current assets
                
                
                36,902
                
                
                10,130,017Fixed
                    assets, net (Notes 3, 4, 5)
                
                
                -
                
                
                573,534Identifiable
                    intangibles (Notes 3, 4)
                
                
                -
                
                
                26,753,000Goodwill
                    (Notes 3, 4)
                
                
                -
                
                
                9,673,412Deferred
                    registration costs (Note 4)
                
                
                483,492
                
                
                -Deferred
                    income taxes (Notes 4, 12)
                
                
                -
                
                
                87,276Other
                    long term assets
                
                
                -
                
                
                150,000Total
                    assets
                
                $
                520,394
                
                $
                47,367,239Current
                    liabilities:Accounts
                    payable and accrued expenses (Note 7)
                
                $
                427,846
                
                $
                2,269,470Income
                    taxes payable (Note 12)
                
                
                -
                
                
                242,089Notes
                    payable, stockholders (Note 8)
                
                
                70,000
                
                
                -Total
                    liabilities
                
                
                497,846
                
                
                2,511,559Commitments
                    and contingencies (Note 10)Minority
                    interest (Note 3)
                
                
                -
                
                
                626,901Stockholders'
                    equity (Notes 2, 3, 11):Preferred
                    stock, $0.0001 par value, authorized 1,000,000shares;
                    none issued
                
                
                -
                
                
                -Common
                    stock, $0.0001 par value, authorized 50,000,000shares;
                    9,527,000 shares issued and outstanding as ofDecember
                    31, 2006 and 1,725,000 shares issued andoutstanding
                    as of December 31, 2005
                
                
                173
                
                
                953Additional
                    paid-in capital
                
                
                24,827
                
                
                56,693,484Retained
                    earnings (Accumulated deficit)
                
                
                (2,452
                )
                
                (12,465,658
                )Total
                    stockholders' equity
                
                
                22,548
                
                
                44,228,779Total
                    liabilities and stockholders' equity
                
                $
                520,394
                
                $
                47,367,239
  See
          Notes
          to Financial Statements
 
 F-3
  Highbury
          Financial Inc. and Subsidiary
 
 Consolidated
          Statements of Operations
 
 **Period
                    from****July
                    13, 2005****(inception)
                    to**
                
                **Year
                    Ended****December
                    31, 2005**
                
                **December
                    31, 2006**Revenue
                    (Note 14)
                
                $
                -
                
                $
                3,828,100Operating
                    expenses:Distribution
                    and sub-advisory costs (Note 4)
                
                $
                -
                
                $
                (1,796,910
                )Compensation
                    and related expenses (Notes 3, 4)
                
                
                -
                
                
                (21,109,331
                )Amortization
                    of intangible assets
                
                
                -
                
                
                -Depreciation
                    and other amortization
                
                
                -
                
                
                -Other
                    operating expenses
                
                
                (2,452
                )
                
                (1,162,875
                )Total
                    expenses
                
                
                (2,452
                )
                
                (24,069,116
                )Operating
                    loss
                
                
                (2,452
                )
                
                (20,241,016
                )Non-operating
                    income:Interest
                    income
                
                
                -
                
                
                1,744,907Total
                    non-operating income
                
                
                -
                
                
                1,744,907Loss
                    before minority interest
                
                
                (2,452
                )
                
                (18,496,109
                )Minority
                    interest (Notes 3, 4)
                
                
                -
                
                
                6,647,715Loss
                    before provision for income taxes
                
                
                (2,452
                )
                
                (11,848,394
                )Provision
                    for income taxes (Note 12):Current
                
                
                -
                
                
                (702,088
                )Deferred –
                    Intangible-related
                
                
                -
                
                
                (74,989
                )Deferred –
                    Other
                
                
                -
                
                
                162,265Total
                    income taxes
                
                
                -
                
                
                (614,812
                )Net
                    loss for the period
                
                $
                (2,452
                )
                $
                (12,463,206
                )Weighted
                    average shares outstanding, basic and diluted
                
                
                1,725,000
                
                
                9,045,773Net
                    loss per share, basic and diluted
                
                $
                (0.00
                )
                $
                (1.38
                )
  See
          Notes
          to Financial Statements
  F-4
  Highbury
          Financial Inc. and Subsidiary
 
 Consolidated
          Statements of Stockholders' Equity
 
 **Common
                    Stock****Shares**
                
                **Amount**
                
                **Additional****Paid-In****Capital**
                
                **Retained**
                  **Earnings****(AccumulatedDeficit)**
                
                **Total**Sale
                    of 1,725,000 shares of common stock to initial stockholders on
                    August 1,
                    2005at $0.0145 per share (Note 5)
                
                
                1,725,000
                
                $
                173
                
                $
                24,827
                
                $
                -
                
                $
                25,000Net
                    loss for the period
                
                
                -
                
                
                -
                
                
                -
                
                
                (2,452
                )
                
                (2,452
                )Balance
                    at December 31, 2005
                
                
                1,725,000
                
                $
                173
                
                $
                24,827
                
                $
                (2,452
                )
                $
                22,548Sale
                    of 166,667 units in a private placement
                
                
                166,667
                
                
                17
                
                
                999,985
                
                
                -
                
                
                1,000,002Sale
                    of 7,743,333 units, net of underwriters' discount and offering
                    expenses
                
                
                7,743,333
                
                
                774
                
                
                42,777,533
                
                
                -
                
                
                42,778,307Proceeds
                    from issuance of underwriters' purchase option
                
                
                -
                
                
                -
                
                
                100
                
                
                -
                
                
                100Proceeds
                    distributed upon conversion (108,000 shares)
                
                
                (108,000
                )
                
                (11
                )
                
                (618,961
                )
                
                -
                
                
                (618,972
                )Increase
                    in capital related to grant of interest Aston
                
                
                -
                
                
                -
                
                
                13,510,000
                
                
                -
                
                
                13,510,000Net
                    loss for the period
                
                
                -
                
                
                -
                
                
                -
                
                
                (12,463,206
                )
                
                (12,463,206
                )Balance
                    at December 31, 2006
                
                
                9,527,000
                
                $
                953
                
                $
                56,693,484
                
                $
                (12,465,658
                )
                $
                44,228,779
  See
          Notes
          to Financial Statements
 
 F-5
  Highbury
          Financial Inc. and Subsidiary
 
 Consolidated
          Statements of Cash Flows
 
 **Period
                    from July 13, 2005 (inception) to**
                  **December
                    31, 2005**
                
                **Year
                    Ended**
                  **December
                    31, 2006**Cash
                    flows from operating activities:Net
                    loss for the period
                
                $
                (2,452
                )
                $
                (12,463,206
                )Adjustments
                    to reconcile net income tonet
                    cash used in operating activities:(Increase)
                    / decrease in deferred taxes
                
                
                -
                
                
                (87,276
                )Addback:
                    expense related to grant of minority interest in Aston (Note
                    3)
                
                
                -
                
                
                20,784,615Addback:
                    minority interest
                
                
                -
                
                
                (6,647,715
                )Changes
                    in operating assets and liabilities:(Increase)
                    / decrease in accounts receivable
                
                
                -
                
                
                (3,646,422
                )(Increase)
                    / decrease in prepaid expenses
                
                
                -
                
                
                (221,220
                )(Increase)
                    / decrease in other current assets
                
                
                -
                
                
                (13,670
                )(Increase)
                    / decrease in other long term assets
                
                
                -
                
                
                (150,000
                )Increase
                    / (decrease) in accounts payable and accrued expenses
                
                
                2,452
                
                
                2,190,576Increase
                    / (decrease) in income taxes payable
                
                
                -
                
                
                242,089Net
                    cash used in operating activities
                
                
                -
                
                
                (12,229
                )Cash
                    flows from investing activities: (Note 3)Payment
                    for acquisition
                
                
                -
                
                
                (38,600,000
                )Receipt
                    of cash for working capital in acquisition
                
                
                -
                
                
                3,500,000Payment
                    of costs of the acquisition
                
                
                -
                
                
                (1,782,869
                )Capital
                    expenditures
                
                
                -
                
                
                (40,634
                )Net
                    cash used in investing activities
                
                
                -
                
                
                (36,923,503
                )Cash
                    flows from financing activities: (Note 2)Proceeds
                    from sale of shares of common stock
                
                
                25,000
                
                
                47,460,000Proceeds
                    from issuance of option
                
                
                -
                
                
                100Proceeds
                    from notes payable, stockholders
                
                
                70,000
                
                
                -Payments
                    of notes payable, stockholders
                
                
                -
                
                
                (70,000
                )Payment
                    of costs of public offering
                
                
                (58,098
                )
                
                (2,944,987
                )Payment
                    of deferred underwriting fees
                
                
                -
                
                
                (678,606
                )Payment
                    to shareholder electing conversion
                
                
                -
                
                
                (618,972
                )Net
                    cash provided by financing activities
                
                
                36,902
                
                
                43,147,535Net
                    increase in cash
                
                
                36,902
                
                
                6,211,803Cash
                    at beginning of period
                
                
                -
                
                
                36,902Cash
                    at end of period
                
                $
                36,902
                
                $
                6,248,705Supplemental
                    schedule of non-cash financing and investing activities:Accrual
                    of costs of public offering
                
                $
                425,394
                
                $
                -Accrual
                    of acquisition costs
                
                
                -
                
                
                76,443Supplemental
                    disclosure of cash flow information:Cash
                    paid for taxes
                
                $
                -
                
                $
                462,146
 
 See
          Notes
          to Financial Statements
 
 F-6
  **Highbury
          Financial Inc. and Subsidiary**
 
 **Notes
          to Audited Consolidated Financial Statements**
 
 **1.
          Organization and Business Operations**
 
 Highbury
          Financial Inc. (“Highbury” or the “Company”) is an investment management holding
          company providing permanent capital solutions to mid-sized investment management
          firms. The Company pursues acquisition opportunities and seeks to establish
          accretive partnerships with high quality investment management firms. Highbury’s
          strategy is to provide permanent equity capital to fund buyouts from corporate
          parents, buyouts of founding or departing partners, growth initiatives,
          or exit
          strategies for private equity funds. This strategy includes leaving material
          equity interests with management teams to align the interests of management
          and
          Highbury’s shareholders and, in general, does not include integrating future
          acquisitions, although Highbury may execute add-on acquisitions for its
          current
          or future affiliates. The Company seeks to augment and diversify its sources
          of
          revenue by investment style, asset class, distribution channel, client
          type and
          management team.
 
 The
          financial statements at December 31, 2006 and for the year ended December
          31,
          2006 and at December 31, 2005 and for the period from July 13, 2005 (inception)
          to December 31, 2005 have been audited and include the accounts of Highbury
          and
          its majority-owned subsidiary, Aston Asset Management LLC (“Aston”). On November
          30, 2006, Highbury and Aston completed the acquisition of the U.S. mutual
          fund
          business of ABN AMRO Asset Management Holdings, Inc. (“AAAMHI”) from AAAMHI and
          certain of its affiliates. See Note 3 for additional information. Until
          November
          30, 2006, Highbury was a corporation in the development stage. Upon the
          completion of the acquisition the Company ceased to be a corporation in
          the
          development stage.
 
 The
          financial statements are prepared in accordance with accounting principles
          generally accepted in the United States ("U.S. GAAP"). The consolidated
          financial statements include the accounts of Highbury and Aston, in which
          the
          Company has a controlling financial interest. Generally, an entity is considered
          to have a controlling financial interest when it owns a majority of the
          voting
          interest in an entity. Highbury owns 65% of Aston and is its manager member.
          Highbury has a contractual arrangement with Aston whereby a percentage
          of
          revenue is allocable to fund Aston’s operating expenses, including compensation,
          while the remaining portion of revenue is allocable to the Company and
          the other
          members, with a priority to Highbury. The portion of the income of Aston
          allocated to owners other than Highbury (eight individuals collectively
          referred
          to herein as the “Management Members”) is included in minority interest in the
          Consolidated Statements of Income. Minority interest on the Consolidated
          Balance
          Sheets includes capital and undistributed income owned by the Management
          Members
          of Aston. All material intercompany balances and transactions have been
          eliminated.
  **2.
          Initial Public Offering**
 
 Highbury
          Financial Inc. was incorporated in Delaware on July 13, 2005 to acquire,
          or
          acquire control of, operating businesses in the financial services industry
          that
          may provide significant opportunities for growth, with a particular focus
          on
          investment management and securities firms (“Business Combination”).
 
 The
          registration statement for the Company's initial public offering ("Offering")
          was declared effective January 25, 2006. The Company consummated the Offering,
          including full exercise of the over-allotment option, on January 31, 2006
          and
          February 3, 2006, respectively. Simultaneously with the Offering, all of
          the
          Company's stockholders prior to the Offering (the “Initial Stockholders”),
          including all of the officers and directors of the Company, purchased an
          aggregate of 166,667 units from the Company in a private placement (the
“Private
          Placement”). The units sold in the Private Placement were identical to the units
          sold in the Offering, but the purchasers in the Private Placement waived
          their
          rights to conversion and to receipt of distribution on liquidation in the
          event
          the Company did not complete a Business Combination.
 
 The
          Company sold 7,910,000 units ("Units") in the Private Placement and the
          Offering, which included the 1,010,000 Units subject to the underwriters’
over-allotment option. Each Unit consists of one share of the Company's
          common
          stock, $0.0001 par value (“Common Stock”), and two redeemable common stock
          purchase warrants ("Warrants"). Each Warrant entitles the holder to purchase
          from the Company one share of Common Stock at an exercise price of $5.00
          commencing January 25, 2007 and expiring four years from the effective
          date of
          the Offering (January 25, 2010). The Warrants will be redeemable, at the
          Company's option, at a price of $0.01 per Warrant upon 30 days' notice
          after the
          Warrants become exercisable, only in the event that the last sale price
          of the
          Common Stock is at least $8.50 per share for any 20 trading days within
          a 30
          trading day period ending on the third day prior to the date on which notice
          of
          redemption is given. Separate trading of the Common Stock and Warrants
          underlying the Company’s Units was permitted on February 21, 2006 and commenced
          on March 1, 2006.
  F-7
  **Highbury
          Financial Inc. and Subsidiary**
 
 **Notes
          to Audited Consolidated Financial Statements**
 
 
 Under
          the
          terms of the Warrants, the Company is required to use its best efforts
          to
          maintain the effectiveness of the registration statement covering the shares
          of
          Common Stock underlying the Warrants. However, the Company is not obligated
          to
          deliver securities, and there are no contractual penalties for failure
          to
          deliver securities, if a registration statement is not effective at the
          time of
          exercise. Additionally, in the event that a registration statement is not
          effective at the time of exercise, the holder of such Warrant shall not
          be
          entitled to exercise such Warrant. The Company entered into an Amended
          and
          Restated Clarification Agreement on December 15, 2006, which clarifies
          that in
          no event (whether in the case of a registration statement not being effective
          or
          otherwise) is the Company required to net cash settle the Warrants.
          Consequently, the Warrants will expire unexercised and unredeemed if there
          is no
          effective registration statement covering the shares of Common Stock issuable
          upon exercise of the Warrants.
 
 In
          connection with the Offering, the Company issued an option, for $100, to
          the
          underwriters to purchase 336,667 Units at an exercise price of $7.50 per
          Unit.
          The option is exercisable beginning on January 25, 2007 and expires on
          January
          25, 2010. The Company has accounted for the fair value of the option, inclusive
          of the receipt of the $100 cash payment, as an expense of the public offering
          resulting in a charge directly to stockholders' equity. The Company estimates
          that the fair value of this option was approximately $423,000 ($1.26 per
          Unit)
          using a Black-Scholes option pricing model. The fair value of the option
          granted
          to the underwriters was estimated as of the date of grant using the following
          assumptions: (1) expected volatility of 29.0%, (2) risk-free interest rate
          of
          4.34% and (3) expected life of four years. The option may be exercised
          for cash
          or on a "cashless" basis, at the holder's option, such that the holder
          may use
          the appreciated value of the option (the difference between the exercise
          prices
          of the option and the underlying Warrants and the market price of the units
          and
          underlying securities) to exercise the option without the payment of any
          cash.
          In addition, the Warrants underlying such Units are exercisable at $6.25
          per
          share.
 
 The
          holder of the unit purchase option is not entitled to exercise the unit
          purchase
          option or the Warrants underlying the unit purchase option unless a registration
          statement covering the securities underlying the unit purchase option is
          effective or an exemption from registration is available. On December 15,
          2006,
          the Company entered into Amended Unit Purchase Options, which clarify that
          the
          option and underlying Warrants will expire unexercised and unredeemed if
          there
          is no effective registration statement covering the securities issuable
          upon
          exercise of the option. In addition, there are no circumstances under which
          the
          Company is required to net cash settle the purchase option or the underlying
          Warrants.
 
 The
          Company received proceeds from the Private Placement and the Offering,
          net of
          the underwriters’ discount and commissions and offering expenses, of
          approximately $43,783,582. An amount of $42,616,234 of the net proceeds
          of the
          Offering and the Private Placement and approximately $673,333 of compensation
          for the underwriters of the Offering, which was deferred until the consummation
          of a Business Combination (net of approximately $0.11 for each share of
          common
          stock converted in connection with the Business Combination as described
          below)
          but which would be forfeited if a Business Combination was not consummated,
          was
          placed in an interest-bearing trust account ("Trust Account") until the
          earlier
          of (i) the consummation of a Business Combination or (ii) liquidation of
          the
          Company. Under the agreement governing the Trust Account, funds were only
          invested in United States "government securities" within the meaning of
          Section
          2(a)(16) of the Investment Company Act of 1940 with a maturity of 180 days
          or
          less. The remaining net proceeds (not held in the Trust Account) have been
          used
          to pay for business, legal and accounting due diligence on prospective
          acquisitions and general and administrative expenses of the Company.
 
 On
          April
          20, 2006, the Company and Aston (together with Highbury, the “Highbury
          Entities”), entered into an Asset Purchase Agreement (“Asset Purchase
          Agreement”) with AAAMHI, ABN AMRO Investment Fund Services, Inc. (“AAIFS”), ABN
          AMRO Asset Management, Inc., (“AAAMI”), Montag & Caldwell, Inc., (“Montag”),
          Tamro Capital Partners LLC, (“TAMRO”), Veredus Asset Management LLC,
          (“Veredus”), and River Road Asset Management, LLC, (“River Road” and together
          with AAAMHI, AAIFS, AAAMI, Montag, TAMRO and Veredus individually referred
          to as
          a “Seller” and collectively as “Sellers”) to acquire substantially all of the
          Sellers’ business of providing investment advisory, administration, distribution
          and related services to the U.S. mutual funds (the “Target Funds”) specified in
          the Asset Purchase Agreement (collectively, the “Business”). After entering into
          the Asset Purchase Agreement, Highbury submitted the transaction for stockholder
          approval.
 
 F-8
 **Highbury
          Financial Inc. and Subsidiary**
 
 **Notes
          to Audited Consolidated Financial Statements**
 
 
 The
          Initial Stockholders agreed to vote their 1,725,000 founding shares of
          common
          stock (Note 11), as well as the 166,667 shares of common stock included
          in the
          units they purchased in the Private Placement, in accordance with the vote
          of
          the majority in interest of all other stockholders of the Company ("Public
          Stockholders") with respect to any Business Combination. After the consummation
          of the Business Combination, these voting safeguards are no longer applicable.
 
 With
          respect to a Business Combination which was approved and consummated, any
          Public
          Stockholder who voted against the Business Combination had the right to
          demand
          that the Company convert his shares. The per share conversion price was
          equal to
          the amount in the Trust Account, net of taxes payable, calculated as of
          two
          business days prior to the consummation of the Business Combination, divided
          by
          the number of shares of common stock held by Public Stockholders at the
          consummation of the Offering. Such Public Stockholders were entitled to
          receive
          their per-share interest, net of taxes payable, in the Trust Account computed
          excluding the shares held by Initial Stockholders.
 
 The
          stockholders approved the Business Combination at the Company’s annual meeting
          of stockholders on November 27, 2006, and the Business Combination was
          subsequently consummated on November 30, 2006. The Company used approximately
          $40,459,312 of the proceeds of the Offering and the Private Placement to
          consummate the Business Combination with the Sellers. In connection with
          the
          consummation of the Business Combination, the Company converted 108,000
          shares
          to cash for one Public Stockholder at a cost of $618,972, or approximately
          $5.73
          per share. These shares were subsequently retired by the Company. On November
          30, 2006, the Company paid the underwriters approximately $678,606, inclusive
          of
          the deferred interest, net of taxes payable, and less approximately $11,670
          for the shares of common stock which were converted. The Company has recorded
          the deferred underwriting fees payable to the underwriters as an expense
          of the
          public offering resulting in a charge directly to stockholders'
          equity. **** See
          Note
          3 for more information about the acquisition.
  **3.
          Acquisition**
 
 *Summary
          of the Acquisition*
 
 On
          April
          20, 2006, the Highbury Entities entered into the Asset Purchase Agreement
          with
          the Sellers to acquire substantially all of the Sellers’ business of providing
          investment advisory, administration, distribution and related services
          to the
          Target Funds. Upon the consummation of the Business Combination on November
          30,
          2006, the Highbury Entities acquired 100% of the assets necessary to operate
          the
          Business. Highbury owns a 65% interest in Aston, and eight employees of
          Aston
          own the balance of the membership interests. The Highbury Entities did
          not
          acquire any research and development assets in the acquisition. The results
          of
          the Business are included in Highbury’s consolidated statement of operations
          from December 1, 2006 through December 31, 2006.
 
 Upon
          the
          consummation of the Business Combination, substantially all of the Business’
management and staff were hired by Aston. A senior officer of AAAMHI and
          three
          other individuals also joined Aston in connection with the acquisition
          of the
          Business. In
          connection with the consummation of the Business Combination, Aston entered
          into agreements with each of the Sellers that previously managed the Target
          Funds pursuant to which each such Seller now acts as a sub-advisor to the
          applicable Target Fund. In connection with the consummation of the Business
          Combination, Aston re-branded the Target Funds as the Aston Funds. Pursuant
          to
          the Asset Purchase Agreement, the Sellers have agreed not to terminate
          these
          agreements for a period of five years following the consummation of the
          Business
          Combination.
 
 Aston
          provides investment advisory services to a family of 20 no-load, open-end
          mutual
          funds which managed approximately $5.5 billion in client assets as of December
          31, 2006. Aston’s mutual fund platform is built upon providing advisory, sales,
          marketing, compliance and operating resources to mutual funds using sub-advisers
          that produce institutional quality investment products. Aston also has
          a
          separate account management platform with approximately $199 million of
          assets
          under management as of December 31, 2006.
  F-9
 
 **Highbury
          Financial Inc. and Subsidiary**
 
 **Notes
          to Audited Consolidated Financial Statements**
  *Purchase
          Price Allocation*
 
 The
          Highbury Entities purchased the Business from the Sellers for a cash payment
          of
          $38,600,000 at the closing. Highbury did not issue any equity interests
          to the
          Sellers in connection with the transaction. The purchase price and the
          other
          costs of the acquisition of the acquired business are allocated based on
          the
          fair value of net assets acquired. In addition to the purchase price, Highbury
          incurred approximately $1,859,312 of costs directly attributable to the
          transaction. As such, the total cost of the acquisition was as
          follows:
 
 Costs
                    of the acquisition:Purchase
                    price
                
                $
                38,600,000Transaction
                    costs
                
                
                1,859,312Total
                    costs
                
                $
                40,459,312
  Highbury
          has determined that the allocation of the fair values of the assets acquired
          in
          the transaction is as follows:
 
 Allocation
                    of assets received in the acquisition:Identifiable
                    intangibles (mutual fund advisory contract)
                
                $
                26,753,000Goodwill
                
                
                9,673,412Working
                    capital (cash)
                
                
                3,500,000Receivable
                    from Sellers
                
                
                301,989Fixed
                    assets
                
                
                230,911Total
                    costs
                
                $
                40,459,312
  The
          purchase price (i) excludes up to $3.8 million that will be payable if
          the
          annualized investment advisory fee revenue generated under investment advisory
          contracts for the six months prior to the second anniversary of the closing
          of
          the acquisition exceeds $41.8 million and (ii) includes up to $3.8 million
          that
          will be refundable if the annualized investment advisory fee revenue generated
          under investment advisory contracts for the six months prior to the second
          anniversary of the closing of the Business Combination is less than $34.2
          million. This increase or decrease in consideration will be recorded when
          the
          contingency is resolved and additional consideration is receivable or
          refundable. Highbury will record any additional consideration issued as
          an
          additional cost of the acquired entity and such amount will increase the
          allocation to goodwill. If Highbury receives a refund of amounts paid,
          the
          amount refunded will be recorded as a decrease in the cost of the acquired
          entity and such amount will decrease the allocation to goodwill.
 
 *Acquired
          Assets*
 
 The
          assets acquired in the Businesses Combination are accounted for under the
          purchase method of accounting and recorded at their fair values at the
          dates of
          acquisition. The excess of the purchase price over the estimated fair values
          of
          the net assets acquired is recorded as increases in identifiable intangibles
          and
          goodwill. The results of operations of the Business have been included
          in the
          Consolidated Financial Statements beginning as of December 1, 2006.
 
 The
          Company has determined that the acquired mutual fund advisory contract
          meets the
          indefinite life criteria outlined in FAS No. 142, "Goodwill and Other Intangible
          Assets" ("FAS 142"), because the Company expects both the contract and
          the cash
          flows generated by the contract to continue indefinitely due to the likelihood
          of continued renewal at little or no cost. Accordingly, the Company does
          not
          amortize this intangible asset, but instead assesses, each reporting period,
          whether events or circumstances have occurred which indicate that the indefinite
          life criteria are no longer met. If
          the
          Company determines the indefinite life criteria are no longer met, the
          Company
          will amortize the asset over its remaining useful life. The
          Company reviews this asset for impairment at least annually, or more frequently
          whenever events or circumstances occur indicating that the recorded intangible
          asset may be impaired. If Highbury concludes that the carrying value of
          the
          asset exceeds its fair value, an impairment loss will be recorded in an
          amount
          equal to any such excess.
  F-10
  **Highbury
          Financial Inc. and Subsidiary**
 
 **Notes
          to Audited Consolidated Financial Statements**
  The
          excess of purchase price for the acquisition of the Business over the fair
          value
          of net assets acquired, including the acquired mutual fund advisory contract,
          is
          reported as goodwill. Goodwill is not amortized, but is instead reviewed
          for
          impairment. The Company assesses goodwill for impairment at least annually,
          or
          more frequently whenever events or circumstances occur indicating that
          the
          recorded goodwill may be impaired. If the carrying amount of goodwill exceeds
          the fair value, an impairment loss would be recorded in an amount equal
          to that
          excess.
 
 The
          balance of the fixed assets acquired will be depreciated on a straight-line
          basis over their useful lives.
 
 For
          income tax purposes, Highbury expects to amortize $36,426,412 of goodwill
          and
          intangibles over a 15-year period.
 
 *Limited
          Liability Company Agreement*
 
 Highbury
          formed Aston Asset Management LLC on April 19, 2006 and became the sole
          member
          of Aston. In connection with Highbury and Aston entering into the asset
          purchase
          agreement, the limited liability company agreement of Aston was amended
          and the
          Management Members were admitted as members of Aston. Highbury owns 65%
          of the
          membership interests of Aston, and the Management Members own 35% of the
          membership interests of Aston.
 
 Pursuant
          to the limited liability company agreement, 72% of the revenues (the “Operating
          Allocation”) of Aston is used to pay operating expenses of Aston. The remaining
          28% of the revenues the (the “Owners’ Allocation”), of Aston is allocated to the
          owners of Aston. The Owners’ Allocation is allocated among the members of Aston
          according to their relative ownership interests. Currently, 18.2% of total
          revenue is allocated to Highbury and 9.8% of total revenue is allocated
          to the
          Management Members.
 
 Highbury’s
          contractual share of revenues has priority over the distributions to the
          Management Members in the event Aston’s actual operating expenses exceed the
          Operating Allocation. As a result, excess expenses first reduce the portion
          of
          the Owners’ Allocation allocated to the Management Members until the Management
          Members’ allocation is eliminated, then Highbury’s allocation is reduced. Any
          reduction in the distribution of revenues to be paid to Highbury is required
          to
          be paid to Highbury out of any future excess Operating Allocation and the
          portion of future Owners’ Allocation allocated to the Management Members with
          interest.
  *Pro
          Forma Financial Results*
 
 Unaudited
          pro forma financial results are set forth below, giving consideration to
          the
          Business Combination, as if the transaction had occurred as of the beginning
          of
          2006 and as of the beginning of 2005.
 
 Year
                    Ended December 31,2005
                
                2006Revenue
                
                $
                48,927,074
                
                $
                42,304,982Net
                    loss
                
                
                (20,654,285
                )
                
                (11,707,229
                )Earnings
                    per share – basic
                
                $
                (2.17
                )
                $
                (1.23
                )
 
 In
          2005,
          the acquired business recorded a goodwill impairment of $13.3 million and
          an
          intangible asset impairment of $10.4 million. These impairment charges
          are
          expected to be non-recurring in nature. The facts and circumstances leading
          to
          the impairment charges to goodwill and intangible assets relate to AAAMHI’s
          assessment of declines in net assets in the Target Funds resulting from
          net
          share redemptions and unfavorable investment performance trends in 2005.
          The
          fair value of the acquired business used to determine the impairment of
          goodwill
          was determined with reference to the expected proceeds to be received upon
          the
          sale of the acquired business to Highbury. The fair value of the intangible
          asset related to the investment management contracts used to determine
          the
          amount of impairment of the intangible asset was determined based on a
          discounted cash flow analysis of the acquired contracts. No impairment
          of
          goodwill or intangibles was determined to be required for periods prior
          to 2005.
          In 2006, Aston recorded a one-time, non-cash compensation expense of $20.8
          million in connection with the grant of a 35% membership interest in Aston
          to
          the Management Members.
  F-11
  **Highbury
          Financial Inc. and Subsidiary**
 
 **Notes
          to Audited Consolidated Financial Statements**
  **4.
          Significant Accounting Policies**
 
 *Use
          of Estimates*
 
 The
          consolidated financial statements are prepared in accordance with accounting
          principles generally accepted in the United States of America, which require
          management to make assumptions and estimates that affect the amounts reported
          in
          the financial statements and accompanying notes, including intangible assets
          and
          goodwill, liabilities for losses and contingencies and income taxes. Management
          believes that the estimates used are reasonable, although actual amounts
          could
          differ from the estimates and the differences could have a material impact
          on
          the consolidated financial statements.
 
 *Cash
          and Cash Equivalents*
 
 The
          Company considers all highly liquid investments, including money market
          mutual
          funds, with original maturities of three months or less to be cash equivalents.
          Certain cash accounts are maintained at large financial institutions and,
          at
          times, may exceed federally insured limits.
 
 *Restricted
          Cash*
 
 Under
          the
          terms of the letter of credit provided to the lessor in connection with
          Aston’s
          lease agreement, the Company is required to maintain $150,000 on deposit
          with
          the bank.
 
 *Fixed
          Assets*
 
 Fixed
          assets are recorded at cost and depreciated using the straight-line method
          over
          their estimated useful lives. The estimated useful lives of office equipment
          and
          furniture and fixtures generally range from three to eleven years. Computer
          software developed or obtained for internal use is amortized using the
          straight-line method over the estimated useful life of the software, generally
          three years or less. The costs of improvements that extend the life of
          a fixed
          asset are capitalized, while the cost of repairs and maintenance are expensed
          as
          incurred. Leasehold improvements are amortized over the shorter of their
          expected useful lives or the remaining term of the lease for which they
          are
          incurred.
 
 The
          balance of fixed assets as of December 31, 2006 does not reflect any accumulated
          depreciation. The Company will begin depreciating its fixed assets once
          they are
          in use in Aston’s new location. Under the terms of Highbury’s credit facility
          (Note 9), these fixed assets are collateral for borrowings under the credit
          facility.
 
 *Goodwill
          and Intangible Assets*
 
 The
          purchase price and the capitalized transaction costs incurred in connection
          with
          the acquisition of the Business, are allocated based on the fair value
          of the
          assets acquired, which is primarily the acquired mutual fund advisory contract.
          In determining the allocation of the purchase price to the acquired mutual
          fund
          advisory contract, Highbury has analyzed the present value of the acquired
          business’ mutual fund advisory contract based on a number of factors including:
          the acquired business’ historical and potential future operating performance;
          the historical and potential future rates of new business from new and
          existing
          clients and attrition among existing clients; the stability and longevity
          of
          existing advisory and sub-advisory relationships; the acquired business’ recent,
          as well as long-term, investment performance; the characteristics of the
          acquired business’ products and investment styles; the stability and depth of
          the management team; and the acquired business’ history and perceived franchise
          or brand value.
  F-12
  **Highbury
          Financial Inc. and Subsidiary**
 
 **Notes
          to Audited Consolidated Financial Statements**
  The
          Company has determined that the acquired mutual fund advisory contract
          meets the
          indefinite life criteria outlined in FAS No. 142, "Goodwill and Other Intangible
          Assets" ("FAS 142"), because the Company expects both the contract and
          the cash
          flows generated by the contract to continue indefinitely due to the likelihood
          of continued renewal at little or no cost. Accordingly, the Company does
          not
          amortize this intangible asset, but instead assesses, each reporting period,
          whether events or circumstances have occurred which indicate that the indefinite
          life criteria are no longer met. If the Company determines the indefinite
          life
          criteria are no longer met, the Company will amortize the asset over its
          remaining useful life. The Company reviews this asset for impairment at
          least
          annually, or more frequently whenever events or circumstances occur indicating
          that the recorded intangible asset may be impaired. If Highbury concludes
          that
          the carrying value of the asset exceeds its fair value, an impairment loss
          will
          be recorded in an amount equal to any such excess.
 
 The
          excess of purchase price for the acquisition of the Business over the fair
          value
          of net assets acquired, including the acquired mutual fund advisory contract,
          is
          reported as goodwill. Goodwill is not amortized, but is instead reviewed
          for
          impairment. The Company assesses goodwill for impairment at least annually,
          or
          more frequently whenever events or circumstances occur indicating that
          the
          recorded goodwill may be impaired. If the carrying amount of goodwill exceeds
          the fair value, an impairment loss would be recorded in an amount equal
          to that
          excess.
 
 *Deferred
          Income Taxes*
 
 Deferred
          income taxes reflect the expected future tax consequences of temporary
          differences between the bases of assets and liabilities for financial reporting
          and income tax purposes. During the Company’s development stage, which ended on
          November 30, 2006, many of its expenses were not deductible for income
          tax
          purposes. Since the Company is no longer in the development stage, most
          of its
          expenses are currently deductible for income tax purposes. The Company
          will
          amortize the non-deductible expenses it incurred during its development
          stage
          for income tax purposes over the next 15 years. A valuation allowance may
          be
          established when necessary to reduce deferred tax assets to the amount
          expected
          to be realized. Highbury’s deferred income taxes principally relate to the
          amortization of intangible assets and non-deductible expenses.
 
 *Minority
          Interest*
 
 Highbury
          owns 65% of Aston and is its manager member. Highbury has a contractual
          arrangement with Aston whereby a percentage of revenue is allocable to
          fund
          Aston’s operating expenses, including compensation (the Operating Allocation),
          while the remaining portion of revenue (the Owners' Allocation) is allocable
          to
          the Company and the other members, with a priority to Highbury. The portion
          of
          the income or loss of Aston allocated to owners other than Highbury is
          included
          in minority interest in the Consolidated Statements of Income. Minority
          interest
          on the Consolidated Balance Sheets includes capital and undistributed income
          owned by the Management Members.
 
 *Revenue
          Recognition*
 
 Highbury
          derives its operating revenues from Aston, its majority-owned subsidiary.
          Highbury also earns interest income on its cash balances.
 
 Aston
          earns investment advisory and administrative fees for services provided
          to the
          Aston Funds, six money market funds advised by AAAMHI and a limited number
          of
          separately managed accounts. These fees are primarily based on predetermined
          percentages of the market value of the assets under management and are
          billed in
          arrears of the period in which they are earned. These fees are recognized
          over
          the period in which services are performed unless facts and circumstances
          would
          indicate that collectibility of the fees is not reasonably assured. Expense
          reimbursements to certain of the Aston Funds in accordance with agreements
          are
          reported as an offset to investment advisory fees.
  F-13
  **Highbury
          Financial Inc. and Subsidiary**
 
 **Notes
          to Audited Consolidated Financial Statements**
  Substantially
          all of Aston’s revenues are derived from the Aston Funds for which Aston is the
          investment advisor. Management has determined that no allowance for doubtful
          accounts is necessary due to all fees being collected within one month
          from the
          date of invoice.
 
 *Distribution
          and Advisory Costs*
 
 Included
          in distribution and advisory costs in the accompanying financial statements
          are
          fees paid to the Sellers and other non-affiliated entities pursuant to
          contracts
          related to the management and distribution of the Aston Funds and managed
          account assets. Such costs are recorded in the period incurred. Aston pays
          five
          affiliates of AAAMHI (AAAMI, Montag, TAMRO, Veredus and River Road) investment
          advisory fees pursuant to management contracts with these entities under
          which
          the affiliates provide investment sub-advisory services to the Aston Funds.
          Aston also pays four third-party investment management firms, MFS Institutional
          Advisors, Inc., Optimum Investment Advisors, LLC, Taplin, Canida & Habacht,
          Inc. and McDonnell Investment Management LLC, investment sub-advisory fees
          pursuant to management contracts with these entities under which these
          firms
          provide investment sub-advisory services to six of the Aston Funds. Aston
          has
          entered into nearly 400 selling/service agreements through which independent
          third parties sell the Aston Funds and/or provide other services to their
          clients in exchange for certain payments. Unless paid pursuant to the Aston
          Funds’ Rule 12b-1 Plan, these payments, as well as certain sales and marketing
          costs, are included within distribution and sub-advisory costs.
 
 *Compensation
          and Related Expenses*
 
 Upon
          consummation of the transaction, as a result of the amendment to the limited
          liability company agreement to admit the Management Members, Aston recorded
          a
          one-time, non-cash compensation charge of approximately $20,784,615 for
          the
          value of such ownership interests. Since none of the Management Members
          had any
          pre-transaction ownership interest in the acquired business, the value
          of the
          ownership grant was deemed to be compensatory in nature and not purchase
          price
          consideration. To establish the compensation charge for financial reporting
          purposes, the Company used an asset-based approach. Based on the purchase
          price
          of $38.6 million, the Company determined that the minimum value of Highbury’s
          65% manager membership interest in Aston was $38.6 million, and therefore
          the
          minimum valuation for 100% of Aston was approximately $59.4 million. Highbury
          then concluded that the value of the Management Members’ 35% interest was equal
          to the difference between these two values. To conclude that this charge
          was
          reasonable, Highbury reviewed several additional analyses including an
          income-based valuation approach and the fairness opinion provided by Capitalink,
          L.C. in connection with the determination by our board of directors to
          submit
          the acquisition to our stockholders for approval.
 
 *Leases*
 
 Aston
          currently leases office space for its primary office in Chicago and for
          two
          satellite offices in New Jersey and California under various leasing
          arrangements. As these leases expire, it can be expected that in the normal
          course of business they will be renewed or replaced. All leases and subleases
          are accounted for under Statement of Financial Accounting Standard ("FAS")
          No.
          13, "Accounting for Leases." These leases are classified as operating leases.
          Most lease agreements classified as operating leases contain renewal options,
          rent escalation clauses or other inducements provided by the landlord.
          Rent
          expense is accrued to recognize lease escalation provisions and inducements
          provided by the landlord, if any, on a straight-line basis over the lease
          term.
 
 *Loss
          Contingencies*
 
 Highbury
          accrues estimates for loss contingencies related to legal actions,
          investigations and proceedings when it is probable that a liability has
          been
          incurred and the amount of loss can be reasonably estimated. Currently,
          the
          Company is unaware of any legal actions, investigations or proceedings
          which
          could result in a loss to Highbury. As such, the Company has not accrued
          for any
          such contingencies.
 
 *Loss
          Per Common Share*
 
 Loss
          per
          share is computed by dividing net loss by the weighted average number of
          shares
          of common stock outstanding during the period. The dilutive effects of
          the
          Company’s 15,820,000 outstanding Warrants and the 336,667 Units included in the
          underwriters’ purchase option have not been considered in diluted loss per share
          calculations for the periods because in each period Highbury had a net
          loss, and
          the effect would be anti-dilutive.
  F-14
  **Highbury
          Financial Inc. and Subsidiary**
 
 **Notes
          to Audited Consolidated Financial Statements**
  *Deferred
          Registration Costs*
 
 Deferred
          registration costs consist of legal, accounting and other fees incurred
          through
          the balance sheet date that were related to the Offering and that were
          charged
          to capital upon the consummation of the Offering.
 
 *Fair
          Value*
 
 Financial
          Accounting Standard No. 107 ("FAS 107"), "Disclosures about Fair Value
          of
          Financial Instruments," requires Highbury to disclose the estimated fair
          values
          for certain of its financial instruments. Financial instruments include
          items
          such as accounts receivable, accounts payable, loans, interest rate contracts,
          notes payable and other items as defined in FAS 107.
 
 Fair
          value of a financial instrument is the amount at which the instrument could
          be
          exchanged in a current transaction between willing parties, other than
          in a
          forced or liquidation sale. Quoted market prices are used when available;
          otherwise, management estimates fair value based on prices of financial
          instruments with similar characteristics or by using valuation techniques
          such
          as discounted cash flow models. Valuation techniques involve uncertainties
          and
          require assumptions and judgments regarding prepayments, credit risk and
          discount rates. Changes in these assumptions will result in different valuation
          estimates. The fair value presented would not necessarily be realized in
          an
          immediate sale nor are there typically plans to settle liabilities prior
          to
          contractual maturity. Additionally, FAS 107 allows companies to use a wide
          range
          of valuation techniques; therefore, it may be difficult to compare the
          Company's
          fair value information to other companies' fair value information.
 
 The
          carrying amounts of cash and equivalents, accounts receivable and accounts
          payable approximates fair value because of the short-term nature of these
          instruments.
 
 *Segment
          Information*
 
 SFAS
          No.
          131, “Disclosures about Segments of an Enterprise and Related Information,”
establishes disclosure requirements relating to operating segments in annual
          and
          interim financial statements. Management has determined that the Company
          operates in one business segment, namely as an investment adviser managing
          mutual funds and separate accounts.
 
 *Share-Based
          Compensation*
 
 In
          December 2004, the Financial Accounting Standards Board issued SFAS No.
          123R,
“Share-Based Payment”, (“SFAS No. 123R” or the “Statement”). This Statement is a
          revision of SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS
          123”), and supersedes Accounting Principles Board Opinion No. 25, “Accounting
          for Stock Issued to Employees” (“APB No. 25”) and its related implementation
          guidance. On January 1, 2006, we adopted the provisions of SFAS No. 123R
          using
          the modified prospective method. The Statement requires entities to recognize
          compensation expense for awards of equity instruments to employees based
          on the
          grant-date fair value of those awards (with limited exceptions). SFAS No.
          123R
          also requires the benefits of tax deductions in excess of recognized
          compensation expense to be reported as financing cash flows.
 
 *Recent
          Accounting Pronouncements*
 
 **Income
          Taxes:**
 The
          Financial Accounting Standards Board (“FASB”) has issued interpretation No. 48,
“Accounting for Uncertainty in Income Taxes—An Interpretation of FASB Statement
          No. 109” (“FIN 48”), regarding accounting for, and disclosure of, uncertain tax
          positions. FIN 48 clarifies the accounting for uncertainty in income taxes
          recognized in an enterprise’s financial statements in accordance with FASB
          Statement No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a
          recognition threshold and measurement attribute for the financial statement
          recognition and measurement of a tax position taken or expected to be taken
          in a
          tax return. FIN 48 also provides guidance on derecognition, classification,
          interest and penalties, accounting in interim periods, disclosure, and
          transition. FIN 48 is effective for fiscal years beginning after December
          15,
          2006. We are currently evaluating the impact FIN 48 will have on the Company’s
          results of operations and financial position. The cumulative effect of
          applying
          the provisions of FIN 48, if any, will be reported as an adjustment to
          the
          opening balance of retained earnings accumulated during the development
          stage on
          January 1, 2007.
  F-15
 **Highbury
          Financial Inc. and Subsidiary**
 
 **Notes
          to Audited Consolidated Financial Statements**
  **Fair
          Value Option for Financial Assets and Financial
          Liabilities:**
 In
          February 2007, the Financial Accounting Standards Board (“FASB”) issued
          Statement of Financial Accounting Standards (“SFAS”) No. 159, “The Fair Value
          Option for Financial Assets and Financial Liabilities.” SFAS No. 159 permits
          entities to choose to measure many financial instruments and certain other
          items
          at fair value. The objective of the statement is to improve financial reporting
          by providing entities with the opportunity to mitigate volatility in reported
          earnings caused by measuring related assets and liabilities differently
          without
          having to apply complex hedge accounting provisions. The provisions of
          SFAS No.
          159 are effective for fiscal years beginning after November 15, 2007. Management
          is currently evaluating this standard and its impact, if any, on the Company’s
          consolidated financial statements.
 
 Management
          does not believe that any other recently issued, but not yet effective,
          accounting standards if currently adopted would have a material effect
          on the
          accompanying financial statements.
  **5.
          Fixed Assets and Lease Commitments**
 
 Fixed
          assets consisted of the following:
 
 At
                    December 31,2006Office
                    furniture receivable
                
                $
                250,000Computer
                    equipment
                
                
                123,011Computer
                    equipment receivable
                
                
                51,989Office
                    equipment
                
                
                86,400Leasehold
                    improvements
                
                
                40,634Computer
                    software
                
                
                21,500Fixed
                    assets
                
                $
                573,534
 
 In
          connection with the Business Combination, the Sellers agreed to purchase
          up to
          $250,000 of office furniture and up to $175,000 of computer equipment for
          Aston.
          As of December 31, 2006, Aston has received only $123,011 of computer equipment
          under this arrangement, so the outstanding balances are reported as receivables.
          The Company received the balance of the fixed assets under this arrangement
          in
          January 2007.
 
 Highbury
          did not incur any rent expense in 2005. Rent expense in 2006, which totaled
          $32,713, was solely related to Aston’s operations in 2006. Aston currently
          leases office space for its primary office in Chicago and for two satellite
          offices in New Jersey and California under various leasing arrangements.
          The
          lease for the office in New Jersey expires in May 2007. The lease for the
          office
          in California is on a month-to-month basis. At December 31, 2006, the Company's
          aggregate future minimum payments for the Chicago lease, which carries
          an eleven
          year term, are payable as follows:
  F-16
  **Highbury
          Financial Inc. and Subsidiary**
 
 **Notes
          to Audited Consolidated Financial Statements**
  Year
                    ending December 31,
                
                Required
                    Minimum Payments
                
                Annual
                    Lease Expense2007
                
                $
                17,412
                
                $
                206,5642008
                
                
                215,474
                
                
                219,1742009
                
                
                222,003
                
                
                219,1742010
                
                
                228,533
                
                
                219,1742011
                
                
                235,062
                
                
                219,174Thereafter
                
                
                1,279,257
                
                
                1,114,481Total
                
                $
                2,197,741
                
                $
                2,197,741
  In
          addition to the base rent, Aston is required to pay its pro rata share
          of the
          real estate taxes and operating expenses of its building. The figures in
          the
          table above reflect the base annual rent payments and the base annual rent
          expense on a straight line basis in accordance with SFAS 13. Under the
          terms of Aston’s lease, Aston is entitled to an abatement of the base rent and
          real estate taxes and operating expenses for a period of 11 months at the
          beginning of the lease term. This abatement period will end in December
          2007. Management has estimated that the abatement relating to real estate
          taxes and operating expenses is approximately $190,000. In addition, the
          lessor
          will contribute approximately $500,000 to the construction costs in connection
          with the build-out of the office space. This construction allowance and
          the
          aforementioned abatement of the real estate taxes and operating expenses
          will be
          recorded as deferred rent and amortized as a reduction to rent expense
          over the
          term of the lease in accordance with SFAS 13. The amortization of these
          deferred
          rent amounts are not included in the annual rent expense schedule above.
          Also,
          Aston has an option to extend the lease under the same terms and conditions
          for
          a single additional five-year period.
  **6.
          Benefit Plans**
 
 Highbury
          does not have any benefit plans.
 
 In
          2006,
          Aston established a qualified defined contribution retirement plan covering
          substantially all of its full-time employees. Under the plan, Aston is
          able to
          make discretionary contributions for the benefit of qualified plan participants
          up to IRS limits. The consolidated expense related to Aston’s plan in 2006 was
          $1,200.
  **7.
          Accounts Payable and Accrued Expenses**
 
 Accounts
          payable and accrued expenses consisted of the following:
 
 At
                    December 31,
                
                At
                    December 31,2005
                
                2006Payable
                    to sub-advisors
                
                $
                —
                
                $
                1,556,961Payable
                    to brokers
                
                
                —
                
                
                239,949Other
                    payables
                
                
                427,846
                
                
                472,560$
                427,846
                
                $
                2,269,470
  **8.
          Notes Payable, Stockholders**
 
 The
          Company issued unsecured promissory notes in the aggregate amount of $70,000
          to
          all of its Initial Stockholders. The notes were non-interest-bearing and
          were
          repaid immediately following the consummation of the Offering from the
          net
          proceeds of the Offering.
 
 F-17
 
 **Highbury
          Financial Inc. and Subsidiary**
 
 **Notes
          to Audited Consolidated Financial Statements**
  **9.
          Credit Facility**
 
 Highbury
          entered into a credit agreement with City National Bank on August 21, 2006,
          which provides for a revolving line of credit of up to $12.0 million. On
          November 9, 2006, the Company entered into a new credit agreement with
          City
          National Bank which amended and restated the initial credit agreement to
          amend
          the definitions of debt and net worth to exclude the effects of accounting
          for
          the Company’s outstanding common stock warrants and the underwriters’ unit
          purchase option as liabilities. Highbury subsequently determined that it
          should
          account for these securities as equity. The credit facility will be used
          for
          working capital, general corporate purposes and repurchases of the Company’s
          outstanding securities, if appropriate.
 
 The
          Company’s borrowing under the credit facility bears interest, at Highbury’s
          option, at either the fluctuating prime rate minus 0.50% or LIBOR plus
          1.50%. In
          addition, Highbury will pay annually a fee of 0.25% on the average daily
          balance
          of the unused portion of the credit facility. The Company will have to
          make
          interest payments monthly for any prime rate borrowings. For any LIBOR
          borrowings, interest payments will be made at the end of any LIBOR contract
          or
          quarterly, whichever is sooner. Any outstanding principal is due at maturity
          on
          October 31, 2007.
 
 The
          credit facility is secured by all of our assets and contains customary
          and
          appropriate affirmative and negative covenants for financings of its type
          (subject to customary exceptions). The financial covenants include a maximum
          total leverage ratio of 2.0x EBITDA and a minimum net worth of $20 million.
          Other covenants will, among other things, limit our ability to incur liens
          or
          other encumbrances, make certain investments, dispose of assets, enter
          into
          mergers or acquisitions and incur indebtedness.
 
 There
          were no borrowings outstanding under this facility at any point in 2006,
          including at December 31, 2006. Highbury has maintained compliance with
          the
          applicable covenants of this facility.
  **10.
          Commitments and Contingencies**
 
 The
          Asset
          Purchase Agreement provides for a contingent adjustment payment payable
          in cash
          shortly after the second anniversary of the closing of the Business Combination.
          In the event the
          annualized investment advisory fee revenue generated under investment advisory
          contracts between Aston and the Target Funds or any other funds advised
          by Aston
          and sub-advised by the Sellers for
          the
          six months prior to the second anniversary of the date of the closing of
          the
          acquisition, or the Target Revenue:
 
 ·
              exceeds
                  $41.8 million, Aston and Highbury will collectively pay to AAAMHI
                  the
                  difference between the Target Revenue and $41.8 million, up to
                  a total
                  aggregate payment of $3.8 million; or ·
              is
                  less than $34.2 million, AAAMHI will pay to Aston and Highbury
                  the
                  difference between the $34.2 million and the Target Revenue, up
                  to a total
                  aggregate payment of $3.8 million. 
 The
          future annualized revenue will be determined based on the definition of
          “Approved Target Funds” which includes the existing funds and new funds or
          classes of funds which are advised by Aston and sub-advised by the Sellers.
          As a
          result, in the event that Highbury were to acquire other mutual fund investment
          managers and the trustees of those mutual funds were to retain sub-advisers
          affiliated with the Sellers, such revenues would be counted for purposes
          of
          calculation of the future annualized revenue. For the six-month period
          ended
          December 31, 2006 the annualized investment advisory fee revenue generated
          under
          investment advisory contracts between Aston and the Target Funds was $39.0
          million. As such, Highbury has not accrued any liability for this
          contingency.
 
 The
          Company presently occupies office space provided by an affiliate of several
          of
          our Initial Stockholders. Such affiliate has agreed that it will make such
          office space, as well as certain office and secretarial services, available
          to
          the Company, as may be required by the Company from time to time. The Company
          has agreed to pay such affiliate $7,500 per month for such services commencing
          on January 26, 2006. The statement of operations for the year ended December
          31,
          2006 includes $83,952 related to this agreement. The agreement is terminable
          by
          either party upon six months’ prior notice.
  F-18
 **Highbury
          Financial Inc. and Subsidiary**
 
 **Notes
          to Audited Consolidated Financial Statements**
  The
          Initial Stockholders are entitled to registration rights with respect to
          the
          shares of common stock and warrants of the Company owned by them. The holders
          of
          the majority of the founding shares are entitled to make up to two demands
          that
          the Company register these shares and any other warrants or shares of the
          Company owned by them (excluding the shares purchased in the Private Placement)
          at any time commencing on the date the founding shares are released from
          escrow.
          In addition, the Initial Stockholders have certain "piggy-back" registration
          rights with respect to such securities on registration statements filed
          subsequent to the date the founding shares are released from escrow. The
          holders
          of a majority of the units purchased in the Private Placement are entitled
          to
          make up to two demands that the Company register the shares, warrants and
          shares
          underlying the warrants comprising such units at any time commencing on
          the date
          the Company consummates a Business Combination. In addition, the Initial
          Stockholders have certain "piggy-back" registration rights with respect
          to such
          securities on registration statements filed subsequent to the date the
          Company
          consummates a Business Combination. The Company will bear the expenses
          incurred
          in connection with the filing of any of the foregoing registration
          statements.
 
 The
          founding shares have been placed in escrow until the earliest of: (1) January
          25, 2009; (2) the Company's liquidation; and (3) the consummation of a
          liquidation, merger or stock exchange, stock purchase or other similar
          transaction which results in all of the Company's stockholders having the
          right
          to exchange their shares of common stock for cash, securities or other
          property.
          During the escrow period, the Initial Stockholders may not sell or transfer
          their founding shares except among the Initial Stockholders, to their spouses
          and children or trusts established for their benefit, by virtue of the
          laws of
          decent and distribution upon the death of any Initial Stockholder or pursuant
          to
          a qualified domestic relations order, but the Initial Stockholders retain
          all
          other rights as stockholders, including, without limitation, the right
          to vote
          their shares and receive cash dividends, if declared.
 
 The
          Company paid fees and issued securities to the underwriters in the Offering
          as
          described above in Note 2.
 
 Highbury
          and Aston are subject to claims, legal proceedings and other contingencies
          in
          the ordinary course of their business activities. Each of these matters
          is
          subject to various uncertainties, and it is possible that some of these
          matters
          may be resolved in a manner unfavorable to the Company or Aston. Highbury
          and
          Aston establish accruals for matters for which the outcome is probable
          and can
          be reasonably estimated. Management is not aware of any claims, legal
          proceedings and other contingencies that could result in a loss to Highbury
          or
          Aston. As such, no contingencies have been accrued.
  **11.
          Stockholders’ Equity**
 
 *Preferred
          Stock*
 
 The
          Company is authorized to issue 1,000,000 shares of preferred stock, par
          value
          $0.0001 per share, with such designations, voting and other rights and
          preferences as may be determined from time to time by the Board of Directors.
          As
          of December 31, 2006, no shares of preferred stock have been
          issued.
 
 *Common
          Stock*
 
 The
          Company’s initial stockholders purchased 1,500,000 common shares for $25,000 on
          August 1, 2005. On January 13, 2006, the Board of Directors authorized
          a stock
          dividend of 0.15 shares of common stock for each share of common stock
          outstanding, bringing the initial outstanding shares to 1,725,000. All
          references in the accompanying financial statements to the number of shares
          of
          stock outstanding have been retroactively restated to reflect the stock
          dividend. The Company sold 7,910,000 Units in the Private Placement and
          the
          Offering, which included all of the 1,010,000 Units subject to the underwriters’
over-allotment option. Included in these Units were one share of common
          stock
          and two warrants to purchase shares of common stock. In connection with
          the
          consummation of the Business Combination, the Company repurchased 108,000
          shares
          from one Public Stockholder. As of December 31, 2006, 9,527,000 shares
          of common
          stock, par value $0.0001 per share, are issued and outstanding.
  F-19
  **Highbury
          Financial Inc. and Subsidiary**
 
 **Notes
          to Audited Consolidated Financial Statements**
  *Common
          Stock Commitments*
 
 At
          December 31, 2006, 15,820,000 shares of common stock were reserved for
          issuance
          upon exercise of redeemable Warrants and 1,010,001 shares of common stock
          were
          reserved for issuance upon exercise of the underwriters' unit purchase
          option.
          Upon exercise of the underwriters’ unit purchase option, the underwriters will
          receive 336,667 Units, each of which will include one share of common stock
          and two warrants to purchase shares of common stock.
  **12.
          Income Taxes**
 
 The
          provisions for income taxes for the period from July 13, 2005 (inception)
          through December 31, 2005 and for the year ended December 31, 2006 consist
          of
          the following:
  **July
                      13, 2005**
                    **(inception)
                      to**
                    **December
                      31, 2005**
                  
                  **Year
                      Ended**
                    **December
                      31, 2006**CurrentFederal
                  
                  $
                  (148
                  )
                  $
                  614,365State
                  
                  
                  (21
                  )
                  
                  87,723Valuation
                      Allowance
                  
                  
                  169DeferredFederal
                  
                  
                  (647
                  )
                  
                  (75,575
                  )State
                  
                  
                  (93
                  )
                  
                  (10,792
                  )Valuation
                      Allowance
                  
                  
                  740Reversal
                      of Valuation Allowance
                  
                  
                  —
                  
                  
                  (909
                  )$
                  —
                  
                  $
                  614,812
 The
          total
          provision for income taxes differs from that amount which would be computed
          by
          applying the U.S. Federal income tax rate to income before provision for
          income
          taxes for the year ended December 31, 2006 is as follows:
 
 Statutory
                    federal income tax rate
                
                
                (34.00
                )%State
                    tax net of federal benefit
                
                
                (3.06
                )Permanent
                    difference related to grant of 35% interest in Aston
                
                
                42.25Effective
                    income tax rate
                
                
                5.19
                %
  The
          sources of the net deferred tax asset are as follows:
  **December
                      31,**
                    **2005**
                  
                  **December
                      31,**
                    **2006**Expenses
                      deferred for income tax purposes
                  
                  $
                  (909
                  )
                  $
                  163,172Amortization
                      of goodwill for income tax purposes
                  
                  
                  —
                  
                  
                  (74,989
                  )Amortization
                      of deferred expenses
                  
                  
                  —
                  
                  
                  (907
                  )Valuation
                      allowance
                  
                  
                  909
                  
                  
                  —Net
                      deferred income taxes
                  
                  $
                  —
                  
                  $
                  87,276
  F-20
  **Highbury
          Financial Inc. and Subsidiary**
 
 **Notes
          to Audited Consolidated Financial Statements**
  During
          2006, the Company began to generate taxable income and therefore is no
          longer
          recording a valuation allowance against its deferred tax assets. Deferred
          tax liabilities are primarily the result of tax deductions for the Company's
          intangible assets. The Company amortizes its acquired intangible assets
          over a
          15-year period for tax purposes only, reducing its tax basis below its
          carrying
          value for financial statement purposes and generating deferred taxes each
          reporting period. Highbury amortized $202,369 related to the goodwill and
          intangible assets in December 2006. Additionally, at November 30, 2006,
          when
          Highbury ceased to be a corporation in the development stage, the Company
          had
          total deferred expenses of $440,342 that will be amortized to tax purposes
          over
          a 15-year period. These expenses were currently deductible for financial
          statement purposes during Highbury’s development stage but were not deductible
          for tax purposes. Highbury amortized $2,446 of this deferred expense in
          December
          2006.
  **13.
          Earnings Per Share**
 
 The
          calculation of basic earnings per share is based on the weighted average
          number
          of shares of the Company's common stock outstanding during the period.
          Diluted
          earnings per share is similar to basic earnings per share, but adjusts
          for the
          effect of the potential issuance of incremental shares of the Company's
          common
          stock. The following is a reconciliation of the numerator and denominator
          used
          in the calculation of earnings per share available to common stockholders.
 
 Year
                    Ended December 31,2005
                
                2006Numerator:Net
                    loss
                
                $
                (2,452
                )
                $
                (12,463,206
                )Denominator:Average
                    shares outstanding – basic and diluted
                
                
                1,725,000
                
                
                9,045,773
 
 As
          of
          December 31, 2006, the Company’s dilutive instruments outstanding include
          15,820,000 Warrants which may be exercised after January 25, 2007 and 336,667
          Units included in the underwriters’ purchase option. There are no effects of
          dilutive instruments included in the 2005 calculation because the Warrants
          were
          not issued and outstanding until after the Offering in January of 2006.
          There
          are no effects of dilutive instruments included in the 2006 calculation
          because
          the Company had a net loss, primarily resulting from the compensation charge
          related to the grant of a minority interest in Aston, and the effect of
          the
          Warrants would be anti-dilutive. If the Company had generated net income
          in
          2006, the dilutive effect of the Warrants would have increased average
          shares
          outstanding - diluted by 193,260 to 9,239,033. The dilutive effect of the
          Warrants is calculated using the treasury stock method and the average
          share
          price during the period. The Warrants are described in more detail in Note
          2.
  **14.
          Related Party Transactions**
 
 Highbury’s
          Board of Directors has adopted certain policies and procedures for the
          review,
          approval and ratification of related party transactions, which the Company
          refers to as the Related Person Policy. Among other things, the Related
          Party
          Policy provides that any transaction, arrangement or relationship (or any
          series
          of similar transactions, arrangements or relationships) in which Highbury
          (including any of its subsidiaries) was, is or will be a participant and
          the
          amount involved exceeds $120,000, and in which any related person had,
          has or
          will have a direct or indirect material interest, must be reported to the
          Company’s board of directors prior to the consummation or amendment of the
          transaction. A related person, as defined in the Related Party Policy,
          means any
          person who is, or at any time since the beginning of the Company’s last fiscal
          year was, a director or executive officer of the Company or a nominee to
          become
          a director of the Company; any person who is known to be the beneficial
          owner of
          more than 5% of any class of Highbury’s voting securities; any immediate family
          member of any of the foregoing persons, which means any child, stepchild,
          parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law,
          daughter-in-law, brother-in-law, or sister-in-law of the director, executive
          officer, nominee or more than 5% beneficial owner, and any person (other
          than a
          tenant or employee) sharing the household of such director, executive officer,
          nominee or more than 5% beneficial owner; and any firm, corporation or
          other
          entity in which any of the foregoing persons is employed or is a general
          partner
          or principal or in a similar position or in which such person has a 5%
          or
          greater beneficial ownership interest. The Company’s Board of Directors reviews
          these related party transactions and considers all of the relevant facts
          and
          circumstances available to the board, including (if applicable) but not
          limited
          to: the benefits to Highbury; the availability of other sources of comparable
          products or services; the terms of the transaction; and the terms available
          to
          unrelated third parties or to employees generally. The Board of Directors
          may
          approve only those related party transactions that are in, or are not
          inconsistent with, the best interests of the Company and its stockholders,
          as
          the board determines in good faith. At the beginning of each fiscal year,
          the
          board will review any previously approved or ratified related party transactions
          that remain ongoing and have a remaining term of more than six months.
          The Board
          will consider all of the relevant facts and circumstances and will determine
          if
          it is in the best interests of Highbury and its stockholders to continue,
          modify
          or terminate these related party transactions.
  F-21
  **Highbury
          Financial Inc. and Subsidiary**
 
 **Notes
          to Audited Consolidated Financial Statements**
  As
          of
          December 31, 2006, the Company has extended $840,000 through four promissory
          notes to Aston to fund Aston’s initial formation and operating expenses.
          Pursuant to Aston’s mutual fund advisory contracts with the Aston Funds, Aston
          receives its revenue at the beginning of each month for the services provided
          in
          the prior month. As such, Aston incurred operating expenses for the month
          of
          December 2006 before it received its first revenue from the Aston Funds.
          The
          promissory notes accrue interest per annum at a rate equal to the prime
          lending
          rate then in effect as reported by JPMorgan Chase on the unpaid principal
          amount
          outstanding from time to time. As of December 31, 2006, there was approximately
          $5,366 in accrued interest on the promissory notes. The principal, and
          accrued
          interest thereon, of the notes is subject to mandatory prepayment prepaid
          from
          all monies allocated as Owners’ Allocation that is payable to the Management
          Members and all monies allocated as Operating Allocation prior to any
          distributions by Aston to the Management Members. These notes and the interest
          income related to the notes have been eliminated in the consolidation of
          Highbury’s financial results.
 
 Aston
          is
          the investment advisor to the Aston Funds, a Delaware business trust. Aston’s
          Chief Executive Officer, is the Chairman of the Board of Trustees of the
          Aston
          Funds. Aston’s President, is the President and Chief Executive Officer of the
          Aston Funds. Aston’s Chief Financial Officer and Chief Compliance Officer, is
          the Senior Vice President, Secretary, Treasurer, Chief Financial Officer,
          Chief
          Operating Officer and Chief Compliance Officer of the Aston Funds. As a
          result
          of these relationships, the Aston Funds may be considered related parties
          as
          such are defined in Financial Accounting Standard No. 57 (“FAS 57”), “Related
          Party Disclosures.” In December 2006, Aston earned advisory fees of $3,337,351
          and administrative fees of $432,886 from the Aston Funds. These fees, in
          total,
          accounted for approximately 98% of Aston’s total revenue in 2006. As of December
          31, 2006, the Company’s balance sheet includes accounts receivable of $3,559,692
          associated with these fees, as Aston is generally paid in the first week
          of the
          month following the month in which fees were earned. There were no similar
          fees
          or receivables recorded in connection with this relationship in
          2005.
 
 Highbury
          has engaged Berkshire Capital Securities LLC (“Berkshire Capital”) to act as a
          non-exclusive financial advisor in connection with possible future acquisitions.
          In such capacity, Berkshire Capital will assist the Company in structuring,
          negotiating and completing acquisitions of targets identified by Highbury
          and
          acknowledged by both Highbury and Berkshire Capital as being subject to
          Berkshire Capital’s engagement. If the Company enters into an agreement to
          acquire such a target company during the term of Berkshire Capital’s engagement
          or within two years thereafter, and such acquisition is completed, then
          the
          Company will pay Berkshire Capital a success fee at closing equal to the
          greater
          of (a) the sum of 3.0% of the first $15 million of the aggregate consideration
          in such transaction and 1.0% of the aggregate consideration in such transaction
          in excess of $15 million, and (b) $600,000. Upon the execution of a definitive
          agreement with respect to an acquisition, Highbury will pay Berkshire Capital
          $200,000 which will be credited against the success fee. Highbury will
          also
          reimburse Berkshire Capital for its reasonable expenses in performing its
          services under the engagement letter and will indemnify Berkshire Capital
          for
          liabilities it incurs in performing such services, unless such liabilities
          are
          attributable to Berkshire Capital’s gross negligence or willful misconduct. The
          Company engaged Berkshire Capital in the first quarter of 2007.
  F-22
  **Highbury
          Financial Inc. and Subsidiary**
 
 **Notes
          to Audited Consolidated Financial Statements**
  The
          Company presently occupies office space provided by Berkshire Capital.
          Berkshire
          Capital has agreed that it will make such office space, as well as certain
          office and secretarial services, available to the Company, as may be required
          by
          the Company from time to time. The Company has agreed to pay Berkshire
          Capital
          $7,500 per month for such services commencing on January 26, 2006. The
          statement
          of operations for the year ended December 31, 2006 includes $83,952 related
          to
          this agreement. The agreement is terminable by either party upon six months’
prior notice.
  **15.
          Selected Quarterly Financial Data (Unaudited)**
 
 The
          following is a summary of the quarterly results of operations of the Company
          for
          the year ended December 31, 2006 and for the period from July 13, 2005
          (inception) through December 31, 2005.
 
 2005
                
                2005
                
                2006
                
                2006
                
                2006
                
                2006Third
                  Quarter
                
                Fourth
                  Quarter
                
                First
                  Quarter
                
                Second
                  Quarter
                
                Third
                  Quarter
                
                Fourth
                  QuarterRevenue
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                3,828,100Operating
                    loss
                
                
                (456
                )
                
                (1,996
                )
                
                (90,153
                )
                
                (170,521
                )
                
                (147,649
                )
                
                (19,832,693
                )Income
                    (loss) before income taxes
                
                
                (456
                )
                
                (1,996
                )
                
                154,350
                
                
                306,897
                
                
                319,353
                
                
                (12,628,994
                )Net
                    income (loss)
                
                
                (456
                )
                
                (1,996
                )
                
                97,155
                
                
                194,082
                
                
                201,013
                
                
                (12,955,456
                )Earnings
                    per share – basic and diluted
                
                
                (0.00
                )
                
                (0.00
                )
                
                0.01
                
                
                0.02
                
                
                0.02
                
                
                (1.35
                )
 
 The
          Company’s activities in 2005 were limited exclusively to preparing for the
          Offering. During the first eleven months of 2006, Highbury had no operations
          other than its acquisition activities, and its only source of income was
          interest income earned on the cash balances held outside the Trust Account
          and
          investment income earned on the Trust Account. Upon the consummation of
          the
          Business Combination on November 30, 2006, Aston began generating operating
          revenue. In connection with the grant of a 35% interest in Aston to the
          Management Members, Aston recorded a one-time, non-cash compensation expense
          of
          approximately $20.8 million in the fourth quarter of 2006.
  F-23
 **Report
            of Independent Auditors**
   The
            Board
            of Directors
 ABN
            AMRO
            Asset Management Holdings, Inc.
  We
            have
            audited the accompanying combined statements of financial condition of
            the U.S.
            Mutual Fund Business of ABN AMRO Asset Management Holdings, Inc. (the
            Business)
            as of December 31, 2005 and 2004, and the related combined statements
            of
            operations, changes in owner’s equity and cash flows for each of the three years
            in the period ended December 31, 2005. These financial statements are
            the
            responsibility of the Business’ management. Our responsibility is to express an
            opinion on these financial statements based on our audits.
  We
            conducted our audits in accordance with auditing standards generally
            accepted in
            the United States. Those standards require that we plan and perform the
            audit to
            obtain reasonable assurance about whether the financial statements are
            free of
            material misstatement. We were not engaged to perform an audit of the
            Business’
internal control over financial reporting. Our audit included consideration
            of
            internal control over financial reporting as a basis for designing audit
            procedures that are appropriate in the circumstances, but not for the
            purpose of
            expressing an opinion on the effectiveness of the Business’ internal control
            over financial reporting. Accordingly, we express no such opinion. An
            audit also
            includes examining, on a test basis, evidence supporting the amounts
            and
            disclosures in the financial statements, assessing the accounting principles
            used and significant estimates made by management, and evaluating the
            overall
            financial statement presentation. We believe that our audits provide
            a
            reasonable basis for our opinion.
  In
            our
            opinion, the combined financial statements referred to above present
            fairly, in
            all material respects, the financial position of the U.S. Mutual Fund
            Business
            of ABN AMRO Asset Management Holdings, Inc. at December 31, 2005 and
            2004, and
            the combined results of its operations, changes in its owner’s equity and its
            cash flows for each of the three years in the period ended December 31,
            2005, in
            conformity with accounting principles generally accepted in the United
            States.
  /s/
            Ernst & Young LLP
  Ernst &
            Young LLP
  Chicago,
            Illinois
 May
            25,
            2006
  F-24
  **U.S.
            Mutual Fund Business of**
 **ABN
            AMRO Asset Management Holdings, Inc.**
  **Combined
            Statements of Financial Condition**
  **December 31,
            2005 and 2004**
  **2005**
                  
                  **2004****Assets**Cash
                      and cash equivalents
                  
                  **$**
                  **5,239,747**
                  
                  $
                  3,158,266Advisory
                      and administrative fees receivable
                  
                  
                  **4,074,486**
                  
                  
                  4,193,370Goodwill
                  
                  
                  **10,518,750**
                  
                  
                  23,862,800Other
                      intangible assets
                  
                  
                  **22,045,000**
                  
                  
                  32,470,533Other
                      assets
                  
                  
                  **1,635**
                  
                  
                  3,159Total
                      assets
                  
                  **$**
                  **41,879,618**
                  
                  $
                  63,688,128**Liabilities
                      and owner’s equity**Accounts
                      payable—affiliates
                  
                  **$**
                  **2,266,559**
                  
                  $
                  2,844,195Accrued
                      compensation and benefits
                  
                  
                  **648,625**
                  
                  
                  943,836Other
                      accrued liabilities
                  
                  
                  **954,318**
                  
                  
                  478,959Total
                      liabilities
                  
                  
                  **3,869,502**
                  
                  
                  4,266,990Owner’s
                      equity
                  
                  
                  **38,010,116**
                  
                  
                  59,421,138Total
                      liabilities and owner’s equity
                  
                  **$**
                  **41,879,618**
                  
                  $
                  63,688,128
  F-25
  **U.S.
            Mutual Fund Business of**
 **ABN
            AMRO Asset Management Holdings, Inc.**
  **Combined
            Statements of Operations**
  **Years
            Ended December 31, 2005, 2004, and 2003**
  **2005**
                  
                  **2004**
                  
                  **2003****Revenues**Advisory
                      fees, net
                  
                  **$**
                  **47,380,780**
                  
                  $
                  47,808,972
                  
                  $
                  38,499,123Administration
                      fees
                  
                  
                  **1,546,294**
                  
                  
                  1,438,991
                  
                  
                  1,178,412Total
                      revenues
                  
                  
                  **48,927,074**
                  
                  
                  49,247,963
                  
                  
                  39,677,535**Operating
                      expenses**Distribution
                      and advisory costs:Affiliates
                  
                  
                  **29,313,775**
                  
                  
                  34,426,160
                  
                  
                  29,637,704Other
                  
                  
                  **11,091,977**
                  
                  
                  6,492,457
                  
                  
                  3,893,365Total
                      distribution and advisory costs
                  
                  
                  **40,405,752**
                  
                  
                  40,918,617
                  
                  
                  33,531,069Compensation
                      and related expenses
                  
                  
                  **5,194,449**
                  
                  
                  4,416,624
                  
                  
                  3,920,966Related-party
                      expense allocations
                  
                  
                  **2,493,741**
                  
                  
                  1,888,156
                  
                  
                  1,225,238Goodwill
                      impairment
                  
                  
                  **13,344,050**
                  
                  
                  —
                  
                  
                  —Intangible
                      asset impairment
                  
                  
                  **10,425,533**
                  
                  
                  —
                  
                  
                  —Other
                  
                  
                  **824,522**
                  
                  
                  510,540
                  
                  
                  400,599Total
                      operating expenses
                  
                  
                  **72,688,047**
                  
                  
                  47,733,937
                  
                  
                  39,077,872Operating
                      income (loss)
                  
                  
                  **(23,760,973**
                  **)**
                  
                  1,514,026
                  
                  
                  599,663Interest
                      income
                  
                  
                  **133,524**
                  
                  
                  31,140
                  
                  
                  20,432Net
                      income (loss) before taxes
                  
                  
                  **(23,627,449**
                  **)**
                  
                  1,545,166
                  
                  
                  620,095Income
                      tax provision (benefit)
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —Net
                      income (loss)
                  
                  **$**
                  **(23,627,449**
                  **)**
                  $
                  1,545,166
                  
                  $
                  620,095
 
 F-26
  **U.S.
            Mutual Fund Business of**
 **ABN
            AMRO Asset Management Holdings, Inc.**
  **Combined
            Statements of Changes in Owner’s Equity**
  **December 31,
            2005, 2004, and 2003**
  Owner’s
                      equity at January 1, 2003
                  
                  $
                  56,681,718Net
                      income
                  
                  
                  620,095Net
                      transfers from AAAMHI
                  
                  
                  1,407,219Owner’s
                      equity at December 31, 2003
                  
                  
                  58,709,032Net
                      income
                  
                  
                  1,545,166Dividends
                      to parent
                  
                  
                  (2,500,000
                  )Net
                      transfers from AAAMHI
                  
                  
                  1,666,940Owner’s
                      equity at December 31, 2004
                  
                  
                  59,421,138Net
                      loss
                  
                  
                  (23,627,449
                  )Net
                      transfers from AAAMHI
                  
                  
                  **2,216,427**Owner’s
                      equity at December 31, 2005
                  
                  **$**
                  **38,010,116**
  F-27
  **U.S.
            Mutual Fund Business of**
 **ABN
            AMRO Asset Management Holdings, Inc.**
  **Combined
            Statements of Cash Flows**
  **Years
            Ended December 31, 2005, 2004, and 2003**
  **2005**
                  
                  **2004**
                  
                  **2003****Operating
                      activities**Net
                      income (loss)
                  
                  **$**
                  **(23,627,449**
                  **)**
                  $
                  1,545,166
                  
                  $
                  620,095Adjustments
                      to reconcile net income (loss) to net cash flow provided by
                      (used in)
                      operating activities:Goodwill
                      impairment
                  
                  
                  **13,344,050**
                  
                  
                  —
                  
                  
                  —Intangible
                      asset impairment
                  
                  
                  **10,425,533**
                  
                  
                  —
                  
                  
                  —Changes
                      in assets and liabilities:(Increase)
                      decrease in advisory and administrative fees receivable
                  
                  
                  **118,884**
                  
                  
                  (314,046
                  )
                  
                  (486,119
                  )(Increase)
                      decrease in other assets
                  
                  
                  **1,524**
                  
                  
                  2,797
                  
                  
                  3,657Increase
                      (decrease) in accounts payable—affiliates
                  
                  
                  **(577,636**
                  **)**
                  
                  56,767
                  
                  
                  582,552Increase
                      (decrease) in accrued compensations and benefits
                  
                  
                  **(295,211**
                  **)**
                  
                  165,019
                  
                  
                  10,526Increase
                      (decrease) in other accrued liabilities
                  
                  
                  **475,359**
                  
                  
                  (35,007
                  )
                  
                  (450,697
                  )Net
                      cash flow provided by (used in) operating activities
                  
                  
                  **(134,946**
                  **)**
                  
                  1,420,696
                  
                  
                  280,014**Financing
                      activities**Dividends
                      paid
                  
                  
                  —
                  
                  
                  (2,500,000
                  )
                  
                  —Transfers
                      from AAAMHI, net
                  
                  
                  **2,216,427**
                  
                  
                  1,666,940
                  
                  
                  1,407,219Net
                      cash provided by (used in) financing activities
                  
                  
                  **2,216,427**
                  
                  
                  (833,060
                  )
                  
                  1,407,219Net
                      increase in cash and cash equivalents
                  
                  
                  **2,081,481**
                  
                  
                  587,636
                  
                  
                  1,687,233Cash
                      and cash equivalents at beginning of year
                  
                  
                  **3,158,266**
                  
                  
                  2,570,630
                  
                  
                  883,397Cash
                      and cash equivalents at end of year
                  
                  **$**
                  **5,239,747**
                  
                  $
                  3,158,266
                  
                  $
                  2,570,630
 
 F-28
  **U.S.
              Mutual Fund Business of**
 **ABN
              AMRO Asset Management Holdings, Inc.**
  **Notes
              to Combined Financial Statements**
  **1.
            Basis of Presentation**
  The
            accompanying combined financial statements include the U.S. Mutual Fund
            Business
            of ABN AMRO Asset Management Holdings, Inc. (AAAMHI) (the Business).
            The
            principal operations of the Business relate to investment advisory,
            administrative and distribution services provided to certain registered
            investment companies comprising ABN AMRO Funds (the Funds) and a small
            number of
            managed accounts of AAAMHI. The Business is included in the consolidated
            financial statements of AAAMHI, a wholly owned subsidiary of ABN AMRO
            Asset
            Management Holding N.V. (AAAMHNV), which is a wholly owned subsidiary
            of ABN
            AMRO Bank N.V. (ABN AMRO). Pursuant to an Asset Purchase Agreement (the
            Agreement), dated as of April 20, 2006, AAAMHI and its wholly owned subsidiaries
            and certain other affiliated entities (ABN AMRO Investment Fund Services,
            Inc.,
            ABN AMRO Asset Management Inc. (AAAM), Montag & Caldwell, Inc. (Montag),
            TAMRO Capital Partners LLC (TAMRO), Veredus Asset Management LLC (Veredus),
            and
            River Road Asset Management, LLC (River Road)) agreed to sell the Business
            to
            Highbury Financial Inc. (Highbury) for an aggregate cash purchase price
            of $38.6
            million. Upon completion of the sale transaction, certain members of
            the
            Business’ management and staff will join Highbury. Additionally, a newly formed
            subsidiary of Highbury, Aston Asset Management LLC, will become adviser
            to the
            Funds, which will be re-named the Aston Funds. AAAMHI and certain affiliates
            who
            are currently the advisers to the Funds will continue to provide advisory
            services to the Funds after completion of the sale but in a sub-advisory
            capacity. A senior officer of AAAMHI and two other individuals not involved
            in
            the Business have also agreed to join Highbury in connection with the
            acquisition of the Business.
  The
            combined financial statements have been prepared from AAAMHI’s historical
            accounting records on a carve-out basis to include the historical financial
            position, results of operations, and cash flows applicable to the Business.
            The
            combined financial statements exclude all continuing operations of AAAMHI
            and
            its affiliated entities listed in the preceding paragraph that will be
            retained
            by the sellers. The combined financial statements have been prepared
            as if the
            Business had been a stand-alone operation, though they are not necessarily
            representative of results had the Business operated as a stand-alone
            operation,
            and it is not practicable to estimate what those expenses would have
            been on a
            stand-alone basis. Revenues, expenses, assets, and liabilities were derived
            from
            amounts associated with the Business in the AAAMHI financial records.
            The
            financial results include allocations based on methodologies management
            believes
            are reasonable of corporate expenses from AAAMHI and other U.S. affiliates
            and
            allocations of other corporate expenses from AAAMHI’s parent company that may be
            different from comparable expenses that would have been incurred if the
            Business
            operated as a stand-alone business. Specifically, ABN AMRO Services Company,
            Inc., a wholly-owned subsidiary of AANAHC (see note 7), provides the
            Business
            with certain IT, infrastructure and e-mail services. LaSalle Bank Corporation,
            also a wholly-owned subsidiary of AANAHC, provides the Business with
            payroll,
            benefits, general ledger maintenance, internal audit and accounts payable
            services. These services are charged based upon utilized quantities (typically
            number of employees, number of transactions processed, hours worked).
            AAAMHI
            provides the Business with executive management, finance, human resources
            and
            personal trade compliance services. These services are charged based
            upon
            employee count or management time incurred. AAAMHI’s parent and its parent
            companies provide other executive management, technology, sales support,
            finance, compliance and human resources support services. These services
            are
            charged out on a formula basis that considers Assets Under Management,
            number of
            employees and non-interest expense. The cost of these services is included
            under
            the caption “Related-party expense allocations” in the accompanying combined
            statements of operations. Certain cash receipts and cash payments related
            to the
            Business were handled through AAAMHI and affiliate cash accounts, which
            are not
            included in the carve-out financial statements. These amounts have been
            accounted for as net capital contributions to the Business and are reflected
            as
“Net transfers from AAAMHI” in the combined statements of changes in owner’s
            equity and the combined statements of cash flows reflects these cash
            transactions.
  Preparation
            of the combined financial statements in conformity with accounting principles
            generally accepted in the United States (GAAP) requires management to
            make
            estimates and assumptions that affect the reported financial statement
            amounts
            and accompanying notes. Management believes that the estimates utilized
            in
            preparing its financial statements are reasonable and prudent. Actual
            results
            could differ from those estimates.
  F-29
  **U.S.
              Mutual Fund Business of**
 **ABN
              AMRO Asset Management Holdings, Inc.**
  **Notes
              to Combined Financial Statements**
 
 **2.
            Summary of Significant Accounting Policies**
  **Principles
            of Combination**
  The
            accompanying combined statements of financial condition, operations,
            cash flows,
            and owner’s equity of the Business for the years ended December 31, 2005, 2004,
            and 2003 have been prepared on a carve-out basis (see Note 1).
  **Cash
            and Cash Equivalents**
  Cash
            and
            cash equivalents represent cash in banks and investments in money market
            mutual
            funds.
  **Goodwill
            and Intangible Assets**
  The
            Business has adopted the provisions of SFAS No. 142, *Goodwill
            and Other Intangible Assets* (FAS
            142). Intangible assets, comprising the estimated value of investment
            management
            contracts, and goodwill, included in the combined financial statements
            of the
            Business relate to the acquisition of certain AAAMHI affiliates including
            the
            Business. These amounts reflect management’s best estimate of a reasonable
            allocation to the Business of such amounts included in the financial
            records of
            AAAMHI. The provisions of SFAS No. 142 require that goodwill and other
            intangible assets with indefinite lives no longer be amortized, but instead
            be
            tested at least annually for impairment and require reporting units to
            be
            identified for the purpose of assessing potential future impairments
            of
            goodwill. The Business’ acquired intangible management contract asset relate to
            the provision of investment advisory services to the Funds in exchange
            for fees
            that are based on a percentage of the average daily net assets of the
            funds.
            These management contracts were acquired in 2001 as part of the acquisition
            of
            certain AAAMHI affiliates. The management contracts are subject to annual
            renewal by the Funds’ board of trustees which is expected to continue
            indefinitely since this has been the experience for the Funds as well
            as for the
            mutual fund industry as a whole. Accordingly, the Business’ acquired intangible
            assets related to the Funds are considered to be of an indefinite life
            as there
            is no foreseeable limit on the contract period. The Business conducts
            its annual
            testing of goodwill and intangible assets for impairment annually in
            the fourth
            quarter unless events warrant more frequent testing.
  **Revenue
            Recognition**
  The
            Business derives its revenues from investment advisory and administrative
            services provided to the Funds and a limited number of managed accounts
            of
            AAAMHI. Based on the terms of the advisory and administrative agreements
            in
            place that set out fees to be earned as a stated percentage of assets
            under
            management, advisory and administrative fees are recognized in revenue
            in the
            period such services are performed unless facts and circumstances would
            indicate
            that collectibility of the fees are not reasonably assured. Expense
            reimbursements to certain of the Funds in accordance with agreements
            are
            reported as an offset to investment advisory fees. Such reimbursements
            totaled
            $2,106,263, $2,126,553, and $2,337,713 in 2005, 2004, and 2003, respectively.
  **Distribution
            and Advisory Costs**
  Included
            in distribution and advisory costs in the accompanying financial statements
            are
            fees paid to AAAMHI and its affiliates and other nonaffiliated entities
            pursuant
            to contracts related to the management and distribution of the Funds
            and managed
            account assets. Such costs are recorded in the period incurred.
  The
            Funds
            pay five affiliates of AAAMHI (Montag, AAAM, TAMRO, Veredus and River
            Road)
            investment advisory fees pursuant to management contracts with these
            entities
            under which the affiliates provide investment advisory services to the
            Funds.
            AAAM also pays two third-party investment management firms, MFS Institutional
            Advisors, Inc. and Optimum Investment Advisors, LLC, investment sub-advisory
            fees pursuant to management contracts with these entities under which
            these
            independent firms provide investment sub-advisory services to two of
            the Funds.
            The Business, generally through ABN AMRO Distribution Services (USA)
            Inc. (the
            Distributor), has entered into nearly 400 selling/service agreements
            through
            which independent third parties sell the Business’ Funds and/or provide other
            services to their clients in exchange for certain payments. Unless paid
            by the
            Distributor pursuant to the Funds’ Rule 12b-1 Plan, these payments, as well as
            certain sales and marketing costs, are included within distribution and
            advisory
            costs.
  **Income
            Taxes**
  The
            Business is a component of AAAMHI and as such was a component of the
            consolidated income tax return of AAAMHI or an affiliate of AAAMHI for
            the years
            presented in these financial statements. However, for the purpose of
            the
            preparation of these financial statements, the Business is considered
            a
            stand-alone entity, and any required provision for federal and state
            income
            taxes has been determined accordingly. The provision for federal and
            state
            income taxes is comprised of two components, current and deferred income
            taxes.
            Deferred tax assets and liabilities are determined based on temporary
            differences between the financial and tax reporting bases of assets and
            liabilities and are measured using currently enacted rates and laws.
            Deferred
            tax assets are recognized subject to management’s judgment that realization is
            more likely than not.
  F-30
  **U.S.
              Mutual Fund Business of**
 **ABN
              AMRO Asset Management Holdings, Inc.**
  **Notes
              to Combined Financial Statements**
 **Fair
            Value of Financial Instruments**
  The
            carrying value of financial assets and liabilities included in the accompanying
            combined statements of financial condition approximate fair values due
            to their
            short-term nature.
  **3.
            Goodwill and Intangible Assets**
  Goodwill
            and intangible assets at December 31, 2005 and 2004, included in the
            accompanying combined statements of financial condition are shown net
            of
            accumulated amortization of $1,553,200 and $2,113,467 recorded prior
            to 2002 and
            the adoption of FAS 142. Impairment charges of approximately $10.4 million
            of
            intangible assets and $13.3 million of goodwill were recorded by the
            Business in
            2005 in accordance with FAS 142.
  The
            facts
            and circumstances leading to the impairment charges to goodwill and intangible
            assets relate to management’s assessment of declines in net assets in the Funds
            resulting from net share redemptions and unfavorable investment performance
            trends. The fair value of the Business used to determine the impairment
            of
            goodwill was determined with reference to the expected proceeds to be
            received
            upon the sale of the Business. The fair value of the intangible asset
            related to
            the investment management contracts used to determine the amount of impairment
            of the intangible asset, was determined based on a discounted cash flow
            analysis
            of the acquired contracts. No impairment of goodwill or intangibles was
            determined to be required for periods prior to 2005.
 
 **4.
            Distribution and Advisory Costs**
  Distribution
            and advisory costs in the accompanying combined statement of operations
            consist
            of the following:
  **Years
                      Ended December 31****2005**
                  
                  **2004**
                  
                  **2003**Advisory
                      costs:AAAMHI
                      affiliates
                  
                  **$**
                  **28,666,296**
                  
                  $
                  29,602,273
                  
                  $
                  24,955,320Third
                      party sub-advisers
                  
                  
                  **2,541,836**
                  
                  
                  1,819,916
                  
                  
                  1,312,058Total
                      advisory costs
                  
                  
                  **31,208,132**
                  
                  
                  31,422,189
                  
                  
                  26,267,378Distribution
                      costs:AAAMHI
                      affiliates
                  
                  
                  **647,479**
                  
                  
                  4,823,887
                  
                  
                  4,682,384Nonaffiliates
                  
                  
                  **8,550,141**
                  
                  
                  4,672,541
                  
                  
                  2,581,307Total
                      distribution costs
                  
                  
                  **9,197,620**
                  
                  
                  9,496,428
                  
                  
                  7,263,691Total
                      distribution and advisory costs
                  
                  **$**
                  **40,405,752**
                  
                  $
                  40,918,617
                  
                  $
                  33,531,069
  **5.
            Income Taxes**
  A
            reconciliation of the differences between the total income tax provision
            (benefit) and the amounts computed at the statutory federal tax rate
            of 35% for
            the years ended December 31, 2005, 2004, and 2003 is as follows:
  **Years
                      Ended December 31****2005**
                  
                  **2004**
                  
                  **2003**Income
                      tax provision (benefit) at statutory federal income tax
                      rate
                  
                  **$**
                  **(8,269,608**
                  **)**
                  $
                  540,808
                  
                  $
                  217,033Increase
                      (decrease) in taxes resulting from:State
                      income taxes, net of federal benefit
                  
                  
                  **(1,181,372**
                  **)**
                  
                  77,258
                  
                  
                  31,005Valuation
                      allowance adjustment
                  
                  
                  **9,450,980**
                  
                  
                  (618,066
                  )
                  
                  (248,038
                  )Provision
                      for income taxes
                  
                  **$**
                  —
                  
                  $
                  —
                  
                  $
                  —
  F-31
  **U.S.
              Mutual Fund Business of**
 **ABN
              AMRO Asset Management Holdings, Inc.**
  **Notes
              to Combined Financial Statements**
 The
            current and deferred portion of the total provision for income taxes
            above was
            $0 for each of the respective years.
  The
            components of the net deferred tax balances as of December 31, 2005 and
            2004,
            are as follows:
  **2005**
                  
                  **2004**Deferred
                      tax assets:Net
                      operating loss carryforwards
                  
                  **$**
                  **6,560,728**
                  
                  $
                  5,020,085Goodwill
                      and intangibles
                  
                  
                  **3,107,833**
                  
                  
                  —Other
                  
                  
                  **36,654**
                  
                  
                  34,150Less
                      valuation allowance
                  
                  
                  **(9,705,215**
                  **)**
                  
                  (254,235
                  )Deferred
                      tax asset, net of valuation allowance
                  
                  
                  **—**
                  
                  
                  4,800,000Deferred
                      tax liabilities:Goodwill
                      and intangibles
                  
                  
                  **—**
                  
                  
                  4,800,000Net
                      deferred taxes
                  
                  **$**
                  **—**
                  
                  $
                  —
  The
            need
            for a valuation allowance to reduce federal and state deferred tax assets
            and
            net operating losses has been determined as if the Business was a stand-alone
            entity. As such, management believes it is more likely than not that
            these items
            will not be realized.
  **6.
            Benefit Plans**
  **Pension
            Plans**
  ABN
            AMRO
            Bank sponsors a noncontributory, defined-benefit pension plan covering
            substantially all U.S. salaried employees. Assets held by the plan consist
            primarily of shares of registered investment companies and pooled trust
            funds.
            The allocated expense of the Business totaled $158,252, $184,799, and
            $125,552
            for the years ended December 31, 2005, 2004, and 2003, respectively.
  **Profit-Sharing
            and Savings Plan**
  ABN
            AMRO
            Bank sponsors a profit-sharing and savings plan under Section 401(k)
            of the
            Internal Revenue Code, covering substantially all U.S. salaried employees.
            Under
            the plan, employee contributions are partially matched by the respective
            ABN
            AMRO Bank subsidiary. In addition, the respective ABN AMRO Bank subsidiary
            may
            allocate a portion of its net profits to employees’ accounts in the plan. The
            allocated expense of the Business totaled $135,344, $186,598, and $221,785
            for
            the years ended December 31, 2005, 2004, and 2003, respectively.
  **Group
            Welfare Plan**
  ABN
            AMRO
            Bank provides welfare and life insurance benefits to substantially all
            U.S.
            salaried employees and their dependents. The amount charged to expense
            includes
            welfare benefits paid to participants, net of participant contributions,
            and
            administrative costs. Life insurance premiums paid to insurance companies
            are
            recognized as an expense when paid. The allocated expense of the Business
            totaled $201,441, $233,458, and $207,356 for the years ended December
            31, 2005,
            2004, and 2003.
  **7.
            Related-Party Transactions**
  ABN
            AMRO
            is a Dutch bank with operations around the world. With respect to its
            asset
            management business in the United States, ABN AMRO has two primary wholly-owned
            subsidiaries, ABN AMRO North America Holding Company (AANAHC) and AAAMHNV.
            AAAMHNV owns 100% of AAAMHI, and the assets of the Business are owned
            in their
            entirety by AAAMHI. In the ordinary course of business, the Business
            utilizes
            investment advisory services provided by several affiliated entities.
            Five
            subsidiaries of AAAMHI, including Montag (100% owned), AAAM (100% owned),
            TAMRO
            (100% owned), Veredus (50% owned) and River Road (45% owned), currently
            serve as
            investment advisors to the Funds. The Funds pay the investment advisors
            an
            advisory fee, net of any fee waivers and expense reimbursements, and
            the
            advisors pay the Business a fixed percentage of the net advisory fees
            for
            administrative and distribution services. The payments made to affiliated
            entities, which provide advisory and distribution services to certain
            mutual
            funds and separate account assets of AAAMHI are included under the caption
            “Distribution and advisory costs” in the accompanying combined statements of
            operations (See Note 4).
  F-32
  **U.S.
              Mutual Fund Business of**
 **ABN
              AMRO Asset Management Holdings, Inc.**
  **Notes
              to Combined Financial Statements**
  The
            Business also utilizes operational and support services provided by several
            affiliated entities. ABN AMRO Services Company, Inc., a wholly-owned
            subsidiary
            of AANAHC, provides the Business with certain IT,
 infrastructure
            and e-mail services. LaSalle Bank Corporation, also a wholly-owned subsidiary
            of
            AANAHC, provides the Business with payroll, benefits, general ledger
            maintenance, internal audit and accounts payable services. AAAMHI provides
            the
            Business with executive management, finance, human resources and personal
            trade
            compliance services. The cost of these services is included under the
            caption
“Related-party expense allocations” in the accompanying combined statements of
            operations. Payables to affiliates related to distribution, advisory
            or other
            services provided to the Business are included in “Accounts payable—affiliates”
in the accompanying combined statements of financial condition.
   F-33




Report
      of
      Independent Auditors





The
      Board
      of Directors


ABN
      AMRO
      Asset Management Holdings, Inc.





We
      have
      audited the accompanying combined statement of financial condition of the U.S.
      Mutual Fund Business of ABN AMRO Asset Management Holdings, Inc. (the Business)
      as of November 30, 2006, and the related combined statements of operations,
      changes in owner’s equity and cash flows for the eleven month period ended
      November 30, 2006. These financial statements are the responsibility of the
      Business’ management. Our responsibility is to express an opinion on these
      financial statements based on our audit.





We
      conducted our audit in accordance with auditing standards generally accepted
      in
      the United States. Those standards require that we plan and perform the audit
      to
      obtain reasonable assurance about whether the financial statements are free
      of
      material misstatement. We were not engaged to perform an audit of the Business’
internal control over financial reporting. Our audit included consideration
      of
      internal control over financial reporting as a basis for designing audit
      procedures that are appropriate in the circumstances, but not for the purpose
      of
      expressing an opinion on the effectiveness of the Business’ internal control
      over financial reporting. Accordingly, we express no such opinion. An audit
      also
      includes examining, on a test basis, evidence supporting the amounts and
      disclosures in the financial statements, assessing the accounting principles
      used and significant estimates made by management, and evaluating the overall
      financial statement presentation. We believe that our audit provides a
      reasonable basis for our opinion.





In
      our
      opinion, the combined financial statements referred to above present fairly,
      in
      all material respects, the financial position of the U.S. Mutual Fund Business
      of ABN AMRO Asset Management Holdings, Inc. at November 30, 2006, and the
      combined results of its operations, changes in its owner’s equity, and its cash
      flows for the eleven month period ended November 30, 2006, in conformity with
      U.S. generally accepted accounting principles.








/s/
      Ernst
& Young LLP


Chicago,
      Illinois


March
      20,
      2007





F-34




U.S.
      Mutual Fund Business of


ABN
      AMRO
      Asset Management Holdings, Inc.





Combined
      Statement of Financial Condition


November
      30, 2006





**Assets**Cash
                and cash equivalents
            
            **$**
            **7,966,323**Advisory
                and administrative fees receivable
            
            
            **3,480,736**Goodwill
            
            
            **10,518,750**Other
                intangible assets
            
            
            **22,045,000**Other
                assets
            
            
            **1,635**Total
                assets
            
            **$**
            **44,012,444****Liabilities
                and owner’s equity**Accounts
                payable - affiliates
            
            **$**
            **1,695,851**Accrued
                compensation and benefits
            
            
            **260,655**Other
                accrued liabilities
            
            
            **1,641,214**Total
                liabilities
            
            
            **3,597,720**Owner’s
                equity
            
            
            **40,414,724**Total
                liabilities and owner’s equity
            
            **$**
            **44,012,444**





*See
      accompanying notes.*




F-35




U.S.
      Mutual Fund Business of


ABN
      AMRO
      Asset Management Holdings, Inc.





Combined
      Statement of Operations








Eleven
      Months Ended November 30, 2006





**Revenues**Advisory
                fees, net of expense reimbursements
            
            **$**
            **37,195,210**Administration
                fees
            
            
            **1,281,672**Total
                revenues
            
            
            **38,476,882****Operating
                expenses**Distribution
                and advisory costs:Affiliates
            
            
            **21,058,676**Other
            
            
            **7,771,555**Total
                distribution and advisory costs
            
            
            **28,830,231**Compensation
                and related expenses
            
            
            **3,999,963**Related
                party expense allocations
            
            
            **2,405,079**Other
                operating expenses
            
            
            **1,147,768**Total
                operating expenses
            
            
            **36,383,041**Operating
                income
            
            
            **2,093,841**Interest
                income
            
            
            **314,695**Net
                income before taxes
            
            
            **2,408,536**Income
                tax provision
            
            
            **-**Net
                income
            
            **$**
            **2,408,536**





*See
      accompanying notes.*





F-36




U.S.
      Mutual Fund Business of


ABN
      AMRO
      Asset Management Holdings, Inc.





Combined
      Statement of Changes in Owner’s Equity








Eleven
      Months Ended November 30, 2006





Owner’s
                equity at January 1, 2006
            
            **$**
            **38,010,116**Net
                income
            
            
            **2,408,536**Net
                transfers to AAAMHI
            
            
            **(3,928**
            **)**Owner’s
                equity at November 30, 2006
            
            **$**
            **40,414,724**





*See
      accompanying notes.*





F-37




U.S.
      Mutual Fund Business of


ABN
      AMRO
      Asset Management Holdings, Inc.





Combined
      Statement of Cash Flows








Eleven
      Months Ended November 30, 2006





**Operating
                activities**Net
                income
            
            **$**
            **2,408,536**Adjustments
                to reconcile net income to net cash
              provided
                by operating activities:Changes
                in assets and liabilities:Decrease
                in advisory and administrative fees receivable
            
            
            **593,750**Decrease
                in accounts payable - affiliates
            
            
            **(570,708**
            **)**Decrease
                in accrued compensation and benefits
            
            
            **(387,970**
            **)**Increase
                in other accrued liabilities
            
            
            **686,896**Net
                cash provided by operating activities
            
            
            **2,730,504****Financing
                activities**Transfers
                to AAAMHI, net
            
            
            **(3,928**
            **)**Net
                cash used in financing activities
            
            
            **(3,928**
            **)**Net
                increase in cash and cash equivalents
            
            
            **2,726,576**Cash
                and cash equivalents at January 1, 2006
            
            
            **5,239,747**Cash
                and cash equivalents at November 30, 2006
            
            **$**
            **7,966,323**





*See
      accompanying notes.*





F-38




U.S.
        Mutual Fund Business of
 ABN
        AMRO
        Asset Management Holdings, Inc.
 
 Notes
        to
        Combined Financial Statements


**1.
      Basis of Presentation**




The
      accompanying combined financial statements include the U.S. Mutual Fund Business
      of ABN AMRO Asset Management Holdings, Inc. (AAAMHI) (the Business). Prior
      to
      its sale on November 30, 2006, the principal operations of the Business related
      to investment advisory, administrative and distribution services provided to
      certain registered investment companies comprising ABN AMRO Funds (the Funds)
      and a small number of managed accounts of AAAMHI. The Business was included
      in
      the consolidated financial statements of AAAMHI, a wholly owned subsidiary
      of
      ABN AMRO Asset Management Holding N.V. (AAAMHNV), a Dutch corporation, which
      is
      a wholly owned subsidiary of ABN AMRO Bank N.V. (ABN AMRO). Pursuant to an
      Asset
      Purchase Agreement (the Agreement), dated as of April 20, 2006, AAAMHI and
      its
      wholly-owned subsidiaries and certain other affiliated entities (ABN AMRO
      Investment Fund Services, Inc., ABN AMRO Asset Management, Inc. (AAAM), Montag
      & Caldwell, Inc. (Montag), TAMRO Capital Partners LLC (TAMRO), Veredus Asset
      Management LLC (Veredus) and River Road Asset Management, LLC (River Road))
      agreed to sell the Business to Highbury Financial Inc. (Highbury) for an
      aggregate cash purchase price of $38.6 million, subject to a contingent
      adjustment payment on the second anniversary of the closing by either AAAMHI
      or
      Highbury of up to $3.8 million based on the achievement of various revenue
      targets. Additionally, a newly formed subsidiary of Highbury, Aston Asset
      Management LLC (Aston), became investment adviser to the Funds, which were
      renamed the Aston Funds. Upon completion of the sale transaction on November
      30,
      2006, certain members of the Business’ management and staff joined Aston. AAAMHI
      and certain affiliates who were the investment advisers to the Funds prior
      to
      November 30, 2006 will continue to provide advisory services to the Funds but
      in
      a sub-advisory capacity. A senior officer of AAAMHI and three other individuals
      not involved in the Business also joined Aston in connection with the
      acquisition of the Business.




The
      combined financial statements have been prepared from AAAMHI’s historical
      accounting records on a carve-out basis to include the historical financial
      position, results of operations, and cash flows applicable to the Business.
      The
      combined financial statements exclude all continuing operations of AAAMHI and
      its affiliated entities listed in the preceding paragraph that were retained
      by
      the sellers. The combined financial statements have been prepared as if the
      Business had been a stand-alone operation, though they are not necessarily
      representative of results had the Business operated as a stand-alone operation,
      and it is not practicable to estimate what those expenses would have been on
      a
      stand-alone basis. Revenues, expenses, assets, and liabilities were derived
      from
      amounts associated with the Business in the AAAMHI financial records. The
      financial results include allocations based on methodologies that management
      believes are reasonable of corporate expenses from AAAMHI and allocations of
      other corporate expenses




F-39




U.S.
        Mutual Fund Business of
 ABN
        AMRO
        Asset Management Holdings, Inc.
 
 Notes
        to
        Combined Financial Statements


**1.
      Basis of Presentation (continued)**




from
      AAAMHI’s parent company that may be different from comparable expenses that
      would have been incurred if the Business operated as a stand-alone business.
      Specifically, prior to November 30, 2006, ABN AMRO Services Company, Inc.,
      a
      wholly-owned subsidiary of AANAHC (see Note 7), provided the Business with
      certain IT, infrastructure and e-mail services. LaSalle Bank Corporation, also
      a
      wholly-owned subsidiary of AANAHC, provided the Business with payroll, benefits,
      general ledger maintenance, internal audit and accounts payable services. These
      services were charged based upon utilized quantities (typically number of
      employees, number of transactions processed, hours worked). AAAMHI provided
      the
      Business with executive management, finance, human resources and personal trade
      compliance services. These services were charged based upon employee headcount
      or management time incurred. AAAMHI’s parent and its parent companies provided
      other executive management, technology, sales support, finance, compliance
      and
      human resources support services. These services were charged out on a formula
      basis that considers assets under management, number of employees and
      non-interest expense. The cost of these services was included under the caption
      “Related-party expense allocations” in the accompanying combined statement of
      operations. Certain cash receipts and cash payments related to the Business
      were
      handled through AAAMHI and affiliate cash accounts, which are not included
      in
      the carve-out financial statements. These amounts have been accounted for as
      net
      capital contributions or distributions to or from the Business and are reflected
      as “Net transfers to AAAMHI” in the combined statement of changes in owner’s
      equity and the combined statement of cash flows reflects these cash
      transactions.




Preparation
      of the combined financial statements in conformity with U.S. generally accepted
      accounting principles generally accepted in the United States (GAAP) requires
      management to make estimates and assumptions that affect the reported financial
      statement amounts and accompanying notes. Management believes that the estimates
      utilized in preparing its financial statements are reasonable and prudent.
      Actual results could differ from those estimates.




**2.
      Summary of Significant Accounting Policies**




**Principles
      of Combination**




The
      accompanying combined statements of financial condition, operations, cash flows
      and owner's equity of the Business for the eleven months ended November 30,
      2006
      have been prepared on a carve-out basis (see Note 1).




F-40




U.S.
        Mutual Fund Business of
 ABN
        AMRO
        Asset Management Holdings, Inc.
 
 Notes
        to
        Combined Financial Statements


**2.
      Summary of Significant Accounting Policies (continued)**




**Cash
      and Cash Equivalents**




Cash
      and
      cash equivalents represent cash in banks and investments in money market mutual
      funds.




**Goodwill
      and Intangible Assets**




The
      Business adopted the provisions of the Statement of Financial Accounting
      Standards No. 142, “Goodwill and Other Intangible Assets” (SFAS No. 142).
      Intangible assets, comprising the estimated value of investment management
      contracts, and goodwill, included in the combined financial statements of the
      Business relate to the acquisition of certain AAAMHI affiliates including the
      Business. These amounts reflect management’s best estimate of a reasonable
      allocation to the Business of such amounts included in the financial records
      of
      AAAMHI. The provisions of SFAS No. 142 require that goodwill and other
      intangible assets with indefinite lives no longer be amortized, but instead
      be
      tested at least annually for impairment and require reporting units to be
      identified for the purpose of assessing potential future impairments of
      goodwill. The Business’ acquired intangible management contract asset relates to
      the provision of investment advisory services to the Funds in exchange for
      fees
      that are based on a percentage of the average daily net assets of the Funds.
      These management contracts were acquired in 2001 as part of the acquisition
      of
      certain AAAMHI affiliates. The management contracts are subject to annual
      renewal by the Funds’ board of trustees, which is expected to continue
      indefinitely since this has been the experience for the Funds as well as for
      the
      mutual fund industry as a whole. Accordingly, the Business’ acquired intangible
      assets related to the Funds are considered to be of an indefinite life as there
      is no foreseeable limit on the contract period. The Business conducts its annual
      testing of goodwill and intangible assets for impairment annually in the fourth
      quarter, unless events warrant more frequent testing.




**Revenue
      Recognition**




The
      Business derived its revenues from investment advisory and administrative
      services provided to the Funds and a limited number of managed accounts of
      AAAMHI. Based on the terms of the advisory and administrative agreements in
      place that set out fees to be earned as a stated percentage of assets under
      management, advisory and administrative fees are recognized in revenue in the
      period such services are performed unless facts and circumstances would indicate
      that collectibility of the fees are not reasonably assured. Contractual expense
      reimbursements to certain of the Funds in accordance with agreements are
      reported as an offset to investment advisory fees. Such reimbursements totaled
      $2,077,326 for the eleven months ended November 30, 2006.




F-41




U.S.
        Mutual Fund Business of
 ABN
        AMRO
        Asset Management Holdings, Inc.
 
 Notes
        to
        Combined Financial Statements


**2.
      Summary of Significant Accounting Policies (continued)**




**Distribution
      and Advisory Costs**




Included
      in distribution and advisory costs in the accompanying financial statements
      are
      fees




paid
      to
      AAAMHI and its affiliates and other non-affiliated entities pursuant to
      contracts related to the management and distribution of the Funds and managed
      account assets. Such costs are recorded in the period incurred.




The
      Funds
      paid five affiliates of AAAMHI (Montag, AAAM, TAMRO, Veredus and River Road)
      investment advisory fees pursuant to management contracts with these entities
      under which the affiliates provide investment advisory services to the Funds.
      AAAM also paid two third-party investment management firms, MFS Institutional
      Advisors, Inc. and Optimum Investment Advisors, LLC, investment sub-advisory
      fees pursuant to management contracts with these entities under which these
      independent firms provide investment sub-advisory services to two of the Funds.
      The Business, generally through ABN AMRO Distribution Services (USA) Inc. (the
      Distributor), entered into nearly 400 selling/service agreements through which
      independent third parties sell the Business’ Funds and/or provide other services
      to their clients in exchange for certain payments. Unless paid by the
      Distributor pursuant to the Funds’ Rule 12b-1 Plan, these payments, as well as
      certain sales and marketing costs, are included within distribution and advisory
      costs.




**Income
      Taxes**




The
      Business was a component of AAAMHI, and as such was a component of the
      consolidated income tax return of AAAMHI for the period presented in these
      financial statements. However, for the purpose of the preparation of these
      financial statements, the Business is considered a stand-alone entity and any
      required provision for federal and state income taxes has been determined
      accordingly. The provision for federal and state income taxes is comprised
      of
      two components, current and deferred income taxes. Deferred tax assets and
      liabilities are determined based on temporary differences between the financial
      and tax reporting bases of assets and liabilities and are measured using
      currently enacted rates and laws. Deferred tax assets are recognized subject
      to
      management’s judgment that realization is more likely than not.




F-42




U.S.
        Mutual Fund Business of
 ABN
        AMRO
        Asset Management Holdings, Inc.
 
 Notes
        to
        Combined Financial Statements


**2.
      Summary of Significant Accounting Policies (continued)**




**Fair
      Value of Financial Instruments**




The
      carrying value of financial assets and liabilities included in the accompanying
      combined statement of financial condition approximates fair values due to their
      short-term nature.




**3.
      Goodwill and Intangible Assets**




Goodwill
      and intangible assets at November 30, 2006 included in the accompanying combined
      statement of financial condition are shown net of accumulated amortization
      of
      $1,553,200 and $2,113,467, respectively, recorded prior to 2002 and the adoption
      of SFAS No. 142. Impairment charges of approximately $13.3 million of goodwill
      and $10.4 million of intangible assets were recorded by the Business in 2005
      in
      accordance with SFAS No. 142. There were no such impairment charges recorded
      during the eleven month period ended November 30, 2006.




The
      facts
      and circumstances leading to the impairment charges to goodwill and intangible
      assets relate to management’s assessment of declines in net assets in the Funds
      resulting from net share redemptions and unfavorable investment performance
      trends. The fair value of the Business used to determine the impairment of
      goodwill was determined with reference to the expected proceeds to be received
      upon the sale of the Business. The fair value of the intangible asset related
      to
      the investment management contracts used to determine the amount of impairment
      of the intangible asset, was determined based on a discounted cash flow analysis
      of the acquired contracts.




F-43




U.S.
        Mutual Fund Business of
 ABN
        AMRO
        Asset Management Holdings, Inc.
 
 Notes
        to
        Combined Financial Statements


**4.
      Distribution and Advisory Costs**




Distribution
      and advisory costs in the accompanying combined statement of operations consist
      of the following:




Advisory
                costs:AAAMHI
                affiliates
            
            **$**
            **20,371,611**Third
                party sub-advisers
            
            
            **2,608,157**Total
                advisory costs
            
            
            **22,979,768**Distribution
                costs:AAAMHI
                affiliates
            
            
            **687,066**Non-affiliates
            
            
            **5,163,397**Total
                distribution costs
            
            
            **5,580,463**Total
                distribution and advisory costs
            
            **$**
            **28,830,231**






**5.
      Income Taxes**




A
      reconciliation of the differences between the total income tax provision and
      the
      amounts computed at the statutory federal tax rate of 35% for the eleven month
      period ended November 30, 2006, is as follows:




Income
                tax provision at statutory federal income tax rate
            
            **$**
            **842,988**Increase
                (decrease) in taxes resulting from:State
                income taxes, net of federal benefit
            
            
            **120,427**Valuation
                allowance adjustment
            
            
            **(963,415**
            **)**Income
                tax provision
            
            **$**
            **-**




F-44


U.S.
        Mutual Fund Business of
 ABN
        AMRO
        Asset Management Holdings, Inc.
 
 Notes
        to
        Combined Financial Statements


**5.
      Income Taxes (continued)**




The
      current and deferred portion of the total provision for income taxes was $0
      for
      the period.




The
      components of the net deferred tax balances as of November 30, 2006, are as
      follows:




Deferred
                tax assets:Net
                operating loss carryforwards
            
            **$**
            **7,100,634**Goodwill
            
            
            **2,005,300**Less
                valuation allowance
            
            
            **(8,741,801**
            **)**Net
                tax asset, net of valuation allowance
            
            
            **364,133**Deferred
                tax liabilities:Intangibles
            
            
            **364,133**Net
                deferred taxes
            
            **$**
            **-**





The
      need
      for a valuation allowance to reduce federal and state deferred tax assets and
      net operating losses has been determined as if the Business was a stand-alone
      entity. As such, management believes it is more likely than not that these
      items
      will not be realized.




**6.
      Benefit Plans**




**Pension
      Plans**




ABN
      AMRO
      Bank sponsors a non-contributory defined benefit pension plan covering
      substantially all U.S. salaried employees. Assets held by the plan consist
      primarily of shares of registered investment companies and pooled trust funds.
      The allocated expense of the Business totaled $68,788 for the eleven months
      ended November 30, 2006.




F-45




U.S.
        Mutual Fund Business of
 ABN
        AMRO
        Asset Management Holdings, Inc.
 
 Notes
        to
        Combined Financial Statements


**6.
      Benefit Plans (continued)**




**Profit
      Sharing and Savings Plan**




ABN
      AMRO
      Bank sponsors a profit sharing and savings plan under Section 401(k) of the
      Internal Revenue Code, covering substantially all U.S. salaried employees.
      Under
      the plan, employee contributions are partially matched by the respective ABN
      AMRO Bank subsidiary. In addition, the respective ABN AMRO Bank subsidiary
      may
      allocate a portion of its net profits to employees’ accounts in the plan. The
      allocated expense of the Business totaled $106,488 for the eleven months ended
      November 30, 2006.




**Group
      Welfare Plan**




ABN
      AMRO
      Bank provides welfare and life insurance benefits to substantially all U.S.
      salaried employees and their dependents. The amount charged to expense includes
      welfare benefits paid to participants, net of participant contributions, and
      administrative costs. Life insurance premiums paid to insurance companies are
      recognized as an expense when paid. The allocated expense of the Business
      totaled $171,729 for the eleven months ended November 30, 2006.




**7.
      Related Party Transactions**




ABN
      AMRO
      is a Dutch bank with operations around the world. With respect to its asset
      management business in the United States, ABN AMRO has two primary wholly-owned
      subsidiaries, ABN AMRO North America Holding Company (AANAHC), a U.S.
      corporation, and AAAMHNV. AAAMHNV owns 100% of AAAMHI, and the assets of the
      Business are owned in their entirety by AAAMHI.




In
      the
      ordinary course of business, the Business utilized investment advisory services
      provided by several affiliated entities. Five subsidiaries of AAAMHI, including
      Montag (100% owned), AAAM (100% owned), TAMRO (100% owned), Veredus (50% owned)
      and River Road (45% owned), served as investment advisors to the Funds. The
      payments made to affiliated entities, which provide advisory and distribution
      services to certain mutual funds and separate account assets of AAAMHI are
      included under the caption “Distribution and advisory costs” in the accompanying
      combined statement of operations (See Note 4).




The
      Business also utilized operational and support services provided by several
      affiliated entities. ABN AMRO Services Company, Inc., a wholly-owned subsidiary
      of AANAHC, provided the Business with certain IT, infrastructure and e-mail
      services. LaSalle Bank Corporation, also a wholly-owned subsidiary of AANAHC,
      provided the Business with payroll, benefits,
      general ledger maintenance, internal audit and accounts payable services. AAAMHI
      provided the Business with executive management, finance, human resources and
      personal trade compliance services. The cost of these services is included
      under
      the caption “Related-party expense allocations” in the accompanying combined
      statement of operations. Payables to affiliates related to distribution,
      advisory or other services provided to the Business are included in “Accounts
      payable - affiliates” in the accompanying combined statement of financial
      condition.




F-46