##### Table of Contents

---



SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549



---



FORM 10-Q



(Mark
One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
|- | ----------------------------------------------------------------------------------------



For the quarterly period ended July 31, 2004



OR



| ̈ | 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 000-29665



EXCELSIOR VENTURE PARTNERS III, LLC

(Exact Name of Registrant as Specified in Its Charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|DELAWARE                                                       |  | 13-4102528                          
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|225 High Ridge Road, Stamford, CT                              |  | 06905                               
|(Address of Principal Executive Offices)                       |  | (Zip Code)                          



Registrants
Telephone Number, Including Area Code (203) 352-4400



114
West 47th Street, New York, NY 10036-1532

Former Name, Former Address and Former Fiscal Year, if Changed Since last Report.



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 period that 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 whether the Registrant is an accelerated filer (as
defined by Rule 12b-2 of the Act). Yes ̈No x



---



---

##### Table of Contents

EXCELSIOR VENTURE PARTNERS III, LLC



The
filing of the Registrants report is delayed pending clarification of information recently received by the Registrant from its independent accountants. This information relates to the status of such accountants as independent within
the meaning of Rule S-X of the Securities and Exchange Commission. Registrant is informed that such accountants are seeking guidance from the accounting staff of the Commission on this issue. Consequently, the Registrant cannot determine that the
requirements of Rule S-X applicable to financial statements included in this Report, and possibly certain prior reports, that such statements be reviewed by independent public accountants have been met.



This Quarterly Report on Form 10-Q contains historical information and
forward-looking statements. Statements looking forward in time are included in this Form 10-Q pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. They involve known and unknown risks and
uncertainties that may cause Excelsior Venture Partners III, LLCs (the Companys) actual results to differ from future performance suggested herein.



|         |  |                                                                                                      |  |         
|-------- |  | ---------------------------------------------------------------------------------------------------- |  | --------
|         |  | INDEX                                                                                                |  | PAGE NO.
|         |  |                                                                                                     
|PART I.  |  | FINANCIAL INFORMATION                                                                                |  |         
|         |  |                                                                                                     
|Item 1.  |  | Financial Statements                                                                                 |  | 1       
|         |  |                                                                                                     
|         |  | Summarized Portfolios of Investments                                                                 |  | 1       
|         |  |                                                                                                     
|         |  | Portfolios of Investments as of July 31, 2004 and October 31, 2003                                   |  | 2       
|         |  |                                                                                                     
|         |  | Statements of Assets and Liabilities at July 31, 2004 and October 31, 2003                           |  | 7       
|         |  |                                                                                                     
|         |  | Statements of Operations for the nine-month periods ended July 31, 2004 and July 31, 2003            |  | 8       
|         |  |                                                                                                     
|         |  | Statements of Operations for the three-month periods ended July 31, 2004 and July 31, 2003           |  | 9       
|         |  |                                                                                                     
|         |  | Statements of Changes in Net Assets for the nine-month periods ended July 31, 2004 and July 31, 2003 |  | 10      
|         |  |                                                                                                     
|         |  | Statements of Cash Flows for the nine-month periods ended July 31, 2004 and July 31, 2003            |  | 11      
|         |  |                                                                                                     
|         |  | Financial Highlights for the nine-month periods ended July 31, 2004 and July 31, 2003                |  | 12      
|         |  |                                                                                                     
|         |  | Notes to Financial Statements                                                                        |  | 13      
|         |  |                                                                                                     
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                |  | 19      
|         |  |                                                                                                     
|Item 3.  |  | Quantitative and Qualitative Disclosures about Market Risk                                           |  | 21      
|         |  |                                                                                                     
|Item 4.  |  | Controls and Procedures                                                                              |  | 21      
|         |  |                                                                                                     
|PART II. |  | OTHER INFORMATION                                                                                    |  |         
|         |  |                                                                                                     
|Item 1.  |  | Legal Proceedings                                                                                    |  | 21      
|         |  |                                                                                                     
|Item 2.  |  | Changes in Securities and Use of Proceeds                                                            |  | 21      
|         |  |                                                                                                     
|Item 3.  |  | Defaults Upon Senior Securities                                                                      |  | 22      
|         |  |                                                                                                     
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                  |  | 22      
|         |  |                                                                                                     
|Item 5.  |  | Other Information                                                                                    |  | 22      
|         |  |                                                                                                     
|Item 6.  |  | Exhibits and Reports on Form 8-K                                                                     |  | 22      





---

##### Table of Contents

|PART I. | FINANCIAL INFORMATION
|------- | ---------------------



|Item 1. | Financial Statements.
|------- | ---------------------



Excelsior Venture Partners III, LLC

Summarized Portfolio of Investments (Unaudited)



|                                 |  |               |             |   |                      |        |   
|-------------------------------- |  | ------------- | ----------- | - | -------------------- | ------ | --
|                                 |  | July 31, 2004 |            
|PORTFOLIO STRUCTURE              |  | Value         |             |   | Percent of NetAssets |       
|SHORT-TERM INVESTMENTS:          |  |               |             |   |                      |        |   
|AGENCY OBLIGATIONS               |  | $             | 37,553,636  |   |                      | 30.57  | % 
|INVESTMENT COMPANIES             |  |               | 3,673,855   |   |                      | 2.99   | % 
|PRIVATE AND PUBLIC COMPANIES     |  |               | 77,634,663  |   |                      | 63.20  | % 
|PRIVATE INVESTMENT FUNDS         |  |               | 4,729,221   |   |                      | 3.85   | % 
|                                 |  |               |             |   |                      |        |   
|TOTAL INVESTMENTS                |  |               | 123,591,375 |   |                      | 100.62 | % 
|OTHER ASSETS & LIABILITIES (NET) |  |               | (756,231    | ) |                      | (0.62  | )%
|                                 |  |               |             |   |                      |        |   
|NET ASSETS                       |  | $             | 122,835,144 |   |                      | 100.00 | % 
|                                 |  |               |             |   |                      |        |   



Excelsior Venture Partners III, LLC

Summarized Portfolio of Investments



|                                 |  |                  |             |                      |        |  
|-------------------------------- |  | ---------------- | ----------- | -------------------- | ------ | -
|                                 |  | October 31, 2003 |            
|PORTFOLIO STRUCTURE              |  | Value            |             | Percent of NetAssets |       
|SHORT-TERM INVESTMENTS:          |  |                  |             |                      |        |  
|AGENCY OBLIGATIONS               |  | $                | 52,994,406  |                      | 43.27  | %
|INVESTMENT COMPANIES             |  |                  | 519,599     |                      | 0.42   | %
|PRIVATE COMPANIES                |  |                  | 62,905,542  |                      | 51.37  | %
|PRIVATE INVESTMENT FUNDS         |  |                  | 3,080,766   |                      | 2.52   | %
|                                 |  |                  |             |                      |        |  
|TOTAL INVESTMENTS                |  |                  | 119,500,313 |                      | 97.58  | %
|OTHER ASSETS & LIABILITIES (NET) |  |                  | 2,957,540   |                      | 2.42   | %
|                                 |  |                  |             |                      |        |  
|NET ASSETS                       |  | $                | 122,457,853 |                      | 100.00 | %
|                                 |  |                  |             |                      |        |  



Notes to Financial
Statements are an integral part of these Financial Statements.



1



---

##### Table of Contents

Excelsior Venture Partners III, LLC

Portfolio of Investments July 31, 2004 (Unaudited)



|                       |                                     |  |                                                                           |                     |                           |                |   |           
|---------------------- | ----------------------------------- |  | ------------------------------------------------------------------------- | ------------------- | ------------------------- | -------------- | - | ----------
|PrincipalAmount/Shares |                                     |  |                                                                           | Acquisition Date ## |                           | Value (Note 1)
|                       | AGENCY OBLIGATIONS  30.57%         |  |                                                                           |                     |                           |               
|$                      | 37,560,000                          |  | Federal National Mortgage Association, 1.22%, 08/05/04 (Cost $37,553,636) |                     |                           |                | $ | 37,553,636
|                       |                                     |  |                                                                           |                     |                           |                |   |           
|                       | PUBLIC COMPANIES **, #  3.69%      |  |                                                                           |                     |                           |               
|                       | Common Stocks  3.69%               |  |                                                                           |                     |                           |               
|                       | Consumer Products  1.47%           |  |                                                                           |                     |                           |               
|                       |                                     |  |                                                                           |                     |                           |                |   |           
|                       | 428,572                             |  | Senomyx, Inc. *                                                           |                     | 06/04                     |                |   | 1,812,003 
|                       |                                     |  |                                                                           |                     |                           |                |   |           
|                       | Semiconductor  2.22%               |  |                                                                           |                     |                           |               
|                       | 384,615                             |  | Netlogic Microsystems, Inc. *                                             |                     | 07/04                     |                |   | 2,721,922 
|                       |                                     |  |                                                                           |                     |                           |                |   |           
|                       |                                     |  | TOTAL PUBLIC COMPANIES (Cost $6,500,000)                                  |                     |                           |                |   | 4,533,925 
|                       |                                     |  |                                                                           |                     |                           |                |   |           
|                       | PRIVATE COMPANIES **, #, @  59.51% |  |                                                                           |                     |                           |               
|                       | Common Stocks  0.00%               |  |                                                                           |                     |                           |               
|                       | Capital Equipment  0.00%           |  |                                                                           |                     |                           |               
|                       | 157,396                             |  | MIDAS Vision Systems, Inc.                                                |                     | 03/03                     |                |   |          
|                       |                                     |  |                                                                           |                     |                           |                |   |           
|                       | Life Sciences  0.00%               |  |                                                                           |                     |                           |               
|                       | 46,860                              |  | Genoptix, Inc.                                                            |                     | 07/03                     |                |   |          
|                       |                                     |  |                                                                           |                     |                           |                |   |           
|                       | Semiconductor  0.00%               |  |                                                                           |                     |                           |               
|                       | 708,955                             |  | Monterey Design Systems, Inc.                                             |                     | 06/03                     |                |   |          
|                       |                                     |  |                                                                           |                     |                           |                |   |           
|                       |                                     |  | TOTAL COMMON STOCKS (Cost $8,749,999)                                     |                     |                           |                |   |          
|                       |                                     |  |                                                                           |                     |                           |                |   |           
|                       | Preferred Stocks  56.66%           |  |                                                                           |                     |                           |               
|                       | Capital Equipment  0.00%           |  |                                                                           |                     |                           |               
|                       | 933,593                             |  | MIDAS Vision Systems, Inc., Series A-1                                    |                     | 03/03                     |                |   |          
|                       |                                     |  |                                                                           |                     |                           |                |   |           
|                       | Consumer Electronics  3.73%        |  |                                                                           |                     |                           |               
|                       | 1,523,810                           |  | Gyration, Inc., Series C-2                                                |                     | 03/03 & 07/04             |                |   | 4,584,054 
|                       |                                     |  |                                                                           |                     |                           |                |   |           
|                       | Enterprise Software  9.29%         |  |                                                                           |                     |                           |               
|                       | 19,995,000                          |  | ***Datanautics, Inc. Series A Preferred                                   |                     | 01/04                     |                |   | 4,000,000 
|                       | 7,454,720                           |  | LogicLibrary, Inc., Series A                                              |                     | 01/02, 08/03, 05/04       |                |   | 3,408,450 
|                       | 20,000,000                          |  | ***Pilot Software Inc., Series A                                          |                     | 05/02 & 04/03             |                |   | 4,000,000 
|                       |                                     |  |                                                                           |                     |                           |                |   |           
|                       |                                     |  |                                                                           |                     |                           |                |   | 11,408,450
|                       |                                     |  |                                                                           |                     |                           |                |   |           
|                       | Information Services  0.00%        |  |                                                                           |                     |                           |               
|                       | 4,425                               |  | Cenquest, Inc., Series 2                                                  |                     | 7/01                      |                |   |          
|                       |                                     |  |                                                                           |                     |                           |                |   |           
|                       | Life Sciences  6.30%               |  |                                                                           |                     |                           |               
|                       | 647,948                             |  | Adeza Biomedical Corporation, Series 5                                    |                     | 09/01                     |                |   | 3,000,000 
|                       | 1,999,999                           |  | Archemix Corporation, Inc., Series A                                      |                     | 08/02, 01/03, 11/03       |                |   | 1,999,999 
|                       | 233,333                             |  | Archemix Corporation, Inc., Series B                                      |                     | 03/04                     |                |   | 233,333   
|                       | 942,481                             |  | Genoptix, Inc., Series B-1                                                |                     | 12/01                     |                |   | 1,253,500 
|                       | 1,403,696                           |  | Genoptix, Inc., Series B-2                                                |                     | 07/03, 09/03, 12/03       |                |   | 1,250,000 
|                       |                                     |  |                                                                           |                     |                           |                |   |           
|                       |                                     |  |                                                                           |                     |                           |                |   | 7,736,832 
|                       |                                     |  |                                                                           |                     |                           |                |   |           
|                       | Medical Technology  5.23%          |  |                                                                           |                     |                           |               
|                       | 4,166,667                           |  | Tensys Medical, Inc., Series C                                            |                     | 03/02                     |                |   | 5,000,000 
|                       | 1,187,500                           |  | Tensys Medical Inc., Series D                                             |                     | 05/04                     |                |   | 1,425,000 
|                       |                                     |  |                                                                           |                     |                           |                |   |           
|                       |                                     |  |                                                                           |                     |                           |                |   | 6,425,000 
|                       | Optical  11.52%                    |  |                                                                           |                     |                           |               
|                       | 4,330,504                           |  | LightConnect, Inc., Series B                                              |                     | 07/01                     |                |   | 5,000,000 
|                       | 12,292,441                          |  | LightConnect, Inc., Series C                                              |                     | 12/02                     |                |   | 992,000   
|                       | 956,234                             |  | NanoOpto Corporation, Series A-1                                          |                     | 10/01 & 03/02             |                |   |          
|                       | 3,023,399                           |  | NanoOpto Corporation, Series B                                            |                     | 09/03, 11/03,01/04, 07/04 |                |   | 1,655,118 
|                       | 5,333,333                           |  | OpVista, Inc., Series B                                                   |                     | 07/01                     |                |   | 1,500,000 
|                       | 12,671,059                          |  | OpVista, Inc., Series C                                                   |                     | 09/03                     |                |   | 5,000,000 
|                       |                                     |  |                                                                           |                     |                           |                |   |           
|                       |                                     |  |                                                                           |                     |                           |                |   | 14,147,118
|                       | Semiconductor  15.18%              |  |                                                                           |                     |                           |               
|                       | 7,000,000                           |  | Chips & Systems, Inc., Series A                                           |                     | 03/04                     |                |   | 3,500,000 
|                       | 3,333,333                           |  | Monterey Design Systems, Inc., Series 2                                   |                     | 06/03                     |                |   | 5,400,000 
|                       |                                     |  |                                                                           |                     |                           |                |   |           
|                       | 2,211,898                           |  | Silverback Systems, Inc., Series B-1                                      |                     | 02/02                     |                |   | 450,051   
|                       | 34,364,257                          |  | Silverback Systems, Inc., Series C                                        |                     | 03/03, 09/03, 04/04       |                |   | 4,298,896 
|                       | 3,096,551                           |  | Virtual Silicon Technology, Inc., Series C                                |                     | 12/01                     |                |   | 5,000,000 
|                       |                                     |  |                                                                           |                     |                           |                |   |           
|                       |                                     |  |                                                                           |                     |                           |                |   | 18,648,947



2



---

##### Table of Contents

Excelsior Venture Partners III, LLC

Portfolio of Investments July 31, 2004 (Unaudited)  (continued)



|                                      |                                                 |  |                                                                                |                    |                           |                |   |            | 
|------------------------------------- | ----------------------------------------------- |  | ------------------------------------------------------------------------------ | ------------------ | ------------------------- | -------------- | - | ---------- | 
|PrincipalAmount/Shares/ Percent Owned |                                                 |  |                                                                                | AcquisitionDate ## |                           | Value (Note 1) |  
|                                      | PRIVATE COMPANIES **,#,@ (continued)            |  |                                                                                |                    |                           |                |  
|                                      | Wireless  5.41%                                |  |                                                                                |                    |                           |                |  
|                                      | 4,433,333                                       |  | Ethertronics, Inc., Series B                                                   |                    | 06/01, 09/02, 07/03,05/04 |                | $ | 6,650,000  | 
|                                      |                                                 |  |                                                                                |                    |                           |                |   |            | 
|                                      |                                                 |  | TOTAL PREFERRED STOCKS (Cost $72,790,187)                                      |                    |                           |                |   | 69,600,401 | 
|                                      |                                                 |  |                                                                                |                    |                           |                |   |            | 
|                                      | Notes  2.28%                                   |  |                                                                                |                    |                           |                |  
|                                      | Consumer Electronics  2.82%                    |  |                                                                                |                    |                           |                |  
|$                                     | 2,797,200                                       |  | Gyration, Inc., Bridge Note 12%, 6/2/2004                                      |                    | 12/03                     |                |   | 3,466,994  | 
|                                      |                                                 |  |                                                                                |                    |                           |                |   |            | 
|                                      |                                                 |  | TOTAL NOTES (Cost $2,797,200)                                                  |                    |                           |                |   | 3,466,994  | 
|                                      |                                                 |  |                                                                                |                    |                           |                |   |            | 
|                                      | Warrants  0.03%                                |  |                                                                                |                    |                           |                |  
|                                      | Consumer Electronics  0.03%                    |  |                                                                                |                    |                           |                |  
|                                      | 1                                               |  | Gyration, Inc.                                                                 |                    | 12/03                     |                |   | 33,343     | 
|                                      |                                                 |  |                                                                                |                    |                           |                |   |            | 
|                                      | Wireless  0.00%                                |  |                                                                                |                    |                           |                |  
|                                      | 100,000                                         |  | Ethertronics, Inc.                                                             |                    | 09/02                     |                |   |           | 
|                                      | 115,000                                         |  | Ethertronics, Inc.                                                             |                    | 07/03                     |                |   |           | 
|                                      | 66,667                                          |  | Ethertronics, Inc.                                                             |                    | 08/03                     |                |   |           | 
|                                      |                                                 |  |                                                                                |                    |                           |                |   |            | 
|                                      |                                                 |  |                                                                                |                    |                           |                |   |           | 
|                                      |                                                 |  | TOTAL WARRANTS (Cost $2,800)                                                   |                    |                           |                |   | 33,343     | 
|                                      |                                                 |  |                                                                                |                    |                           |                |   |            | 
|                                      |                                                 |  | TOTAL  PRIVATE COMPANIES (Cost $84,340,186)                                   |                    |                           |                |   | 73,100,738 | 
|                                      |                                                 |  |                                                                                |                    |                           |                |   |            | 
|                                      | PRIVATE INVESTMENT FUNDS **, #  3.85%          |  |                                                                                |                    |                           |                |  
|                                      | 0.39%                                           |  | Advanced Technology Ventures VII, LP                                           |                    | 08/01-04/04               |                |   | 684,183    | 
|                                      | 1.38%                                           |  | Burrill Life Sciences Capital Fund                                             |                    | 12/02-03/04               |                |   | 532,762    | 
|                                      | 1.35%                                           |  | CHL Medical Partners II, LP                                                    |                    | 01/02-02/04               |                |   | 509,860    | 
|                                      | 4.94%                                           |  | CMEA Ventures Partners, LP                                                     |                    | 12/03-04/04               |                |   | 104,573    | 
|                                      | 0.36%                                           |  | Morgenthaler Partners VII, LP                                                  |                    | 07/01-07/04               |                |   | 1,150,473  | 
|                                      | 0.59%                                           |  | Prospect Venture Partners II, LP                                               |                    | 06/01-07/04               |                |   | 1,105,337  | 
|                                      | 2.36%                                           |  | Tallwood II, LP                                                                |                    | 12/02-06/04               |                |   | 455,128    | 
|                                      | 1.75%                                           |  | Valhalla Partners II, LP                                                       |                    | 10/03-03/04               |                |   | 186,905    | 
|                                      |                                                 |  |                                                                                |                    |                           |                |   |            | 
|                                      |                                                 |  | TOTAL  PRIVATE INVESTMENT FUNDS (Cost $5,787,433)                             |                    |                           |                |   | 4,729,221  | 
|                                      |                                                 |  |                                                                                |                    |                           |                |   |            | 
|                                      | INVESTMENT COMPANIES  2.99%                    |  |                                                                                |                    |                           |                |  
|                                      | 3,673,855                                       |  | Dreyfus Government Cash Management Fund Institutional Shares (Cost $3,673,855) |                    |                           |                |   | 3,673,855  | 
|                                      |                                                 |  |                                                                                |                    |                           |                |   |            | 
|                                      | TOTAL INVESTMENTS (Cost $137,855,110)  100.62% |  |                                                                                |                    |                           | 123,591,375    |  
|                                      | OTHER ASSETS & LIABILITIES (NET)  (0.62)%      |  |                                                                                |                    |                           | (756,231       | )
|                                      |                                                 |  |                                                                                |                    |                           |                |   |            | 
|                                      | NET ASSETS100.00%                              |  |                                                                                |                    | $                         | 122,835,144    |  
|                                      |                                                 |  |                                                                                |                    |                           |                |   |            | 

---

|* | Carrying value per unit reflects a 30% discount to the closing price.
|- | ---------------------------------------------------------------------



|** | Restricted as to public resale. Acquired between June 1, 2001 and July 31 2004. Total cost of restricted securities at July 31, 2004 aggregated $96,627,619. Total value of
restricted securities owned at July 31, 2004 was $82,363,884 or 67.05% of net assets.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|# | Non-income producing securities.
|- | --------------------------------



3



---

##### Table of Contents

|## | Required disclosure for restricted securities only.
|-- | ---------------------------------------------------



|@ | At July 31, 2004 the Company owned 5% or more of the companys outstanding voting shares thereby making the company an affiliate as defined by the Investment Company Act of
1940. Total value of affiliated securities owned at July 31, 2004 was $73,100,738.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|*** | At July 31, 2004, the Company owned 25% or more of the companys outstanding voting shares thereby making the company a controlled affiliate as defined by the Investment
Company Act of 1940. Total value of controlled affiliated securities owned at July 31, 2004 was $8,000,000.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Notes to Financial Statements are an integral part of these Financial Statements.



4



---

##### Table of Contents

Excelsior Venture Partners III, LLC

Portfolio of Investments October 31, 2003



|                        |                                     |  |                                                                           |                     |               |                |   |           
|----------------------- | ----------------------------------- |  | ------------------------------------------------------------------------- | ------------------- | ------------- | -------------- | - | ----------
|Principal Amount/Shares |                                     |  |                                                                           | Acquisition Date ## |               | Value (Note 1)
|                        | AGENCY OBLIGATIONS  43.27%         |  |                                                                           |                     |               |               
|$                       | 53,000,000                          |  | Federal Home Loan Bank Discount Notes, 0.95%, 11/05/03 (Cost $52,994,406) |                     |               |                | $ | 52,994,406
|                        |                                     |  |                                                                           |                     |               |                |   |           
|                        | PRIVATE COMPANIES **, #, @  51.37% |  |                                                                           |                     |               |               
|                        | Common Stocks  0.00%               |  |                                                                           |                     |               |               
|                        | Capital Equipment  0.00%           |  |                                                                           |                     |               |               
|                        | 157,396                             |  | MIDAS Vision Systems, Inc.                                                |                     | 03/03         |                |   |          
|                        |                                     |  |                                                                           |                     |               |                |   |           
|                        | Life Sciences  0.00%               |  |                                                                           |                     |               |               
|                        | 46,860                              |  | Genoptix, Inc.                                                            |                     | 07/03         |                |   |          
|                        |                                     |  |                                                                           |                     |               |                |   |           
|                        | Semiconductor  0.00%               |  |                                                                           |                     |               |               
|                        | 708,955                             |  | Monterey Design Systems, Inc.                                             |                     | 06/03         |                |   |          
|                        |                                     |  |                                                                           |                     |               |                |   |           
|                        |                                     |  | TOTAL COMMON STOCKS (Cost $8,749,999)                                     |                     |               |                |   |          
|                        |                                     |  |                                                                           |                     |               |                |   |           
|                        | Preferred Stocks  48.10%           |  |                                                                           |                     |               |               
|                        | Capital Equipment  0.00%           |  |                                                                           |                     |               |               
|                        | 933,593                             |  | MIDAS Vision Systems, Inc., Series A-1                                    |                     | 03/03         |                |   |          
|                        |                                     |  |                                                                           |                     |               |                |   |           
|                        | Consumer Electronics  3.27%        |  |                                                                           |                     |               |               
|                        | 1,523,810                           |  | Gyration, Inc., Series C-2                                                |                     | 03/03         |                |   | 4,000,000 
|                        |                                     |  |                                                                           |                     |               |                |   |           
|                        | Consumer Products  1.22%           |  |                                                                           |                     |               |               
|                        | 517,260                             |  | Senomyx, Inc., Series E                                                   |                     | 11/01         |                |   | 1,500,000 
|                        |                                     |  |                                                                           |                     |               |                |   |           
|                        | Enterprise Software  5.48%         |  |                                                                           |                     |               |               
|                        | 5,914,488                           |  | LogicLibrary, Inc., Series A                                              |                     | 01/02 & 08/03 |                |   | 2,704,226 
|                        | 20,000,000                          |  | ***Pilot Software Inc., Series A                                          |                     | 05/02 & 04/03 |                |   | 4,000,000 
|                        |                                     |  |                                                                           |                     |               |                |   |           
|                        |                                     |  |                                                                           |                     |               |                |   | 6,704,226 
|                        |                                     |  |                                                                           |                     |               |                |   |           
|                        | Information Services  0.00%        |  |                                                                           |                     |               |               
|                        | 4,425                               |  | Cenquest, Inc., Series 2                                                  |                     | 7/01          |                |   |          
|                        |                                     |  |                                                                           |                     |               |                |   |           
|                        | Life Sciences  5.15%               |  |                                                                           |                     |               |               
|                        | 647,948                             |  | Adeza Biomedical Corporation, Series 5                                    |                     | 09/01         |                |   | 3,000,000 
|                        | 2,419,355                           |  | Ancile Pharmaceuticals, Inc., Series D                                    |                     | 11/01         |                |   |          
|                        | 1,314,285                           |  | Archemix Corporation, Inc., Series A                                      |                     | 08/02 & 01/03 |                |   | 1,314,285 
|                        | 942,481                             |  | Genoptix, Inc., Series B-1                                                |                     | 12/01         |                |   | 1,253,500 
|                        | 826,823                             |  | Genoptix, Inc., Series B-2                                                |                     | 07/03 & 09/03 |                |   | 734,851   
|                        |                                     |  |                                                                           |                     |               |                |   |           
|                        |                                     |  |                                                                           |                     |               |                |   | 6,302,636 
|                        | Medical Technology  4.08%          |  |                                                                           |                     |               |               
|                        | 4,166,667                           |  | Tensys Medical, Inc., Series C                                            |                     | 03/02         |                |   | 5,000,000 
|                        |                                     |  |                                                                           |                     |               |                |   |           
|                        | Optical  8.11%                     |  |                                                                           |                     |               |               
|                        | 4,330,504                           |  | LightConnect, Inc., Series B                                              |                     | 07/01         |                |   | 948,562   
|                        | 12,292,441                          |  | LightConnect, Inc., Series C                                              |                     | 12/02         |                |   | 992,000   
|                        | 956,234                             |  | NanoOpto Corporation, Series A-1                                          |                     | 10/01& 03/02  |                |   | 604,259   
|                        | 558,295                             |  | NanoOpto Corporation, Series B                                            |                     | 09/03         |                |   | 888,244   
|                        | 5,333,333                           |  | OpVista, Inc., Series B                                                   |                     | 07/01         |                |   | 1,500,000 
|                        | 12,671,059                          |  | OpVista, Inc., Series C                                                   |                     | 09/03         |                |   | 5,000,000 
|                        |                                     |  |                                                                           |                     |               |                |   |           
|                        |                                     |  |                                                                           |                     |               |                |   | 9,933,065 
|                        | Semiconductor  16.18%              |  |                                                                           |                     |               |               
|                        | 3,333,333                           |  | Monterey Design Systems, Inc., Series 2                                   |                     | 06/03         |                |   | 5,400,000 
|                        | 1,538,461                           |  | NetLogic Microsystems, Inc., Series D                                     |                     | 08/01         |                |   | 5,000,000 
|                        | 2,211,898                           |  | Silverback Systems, Inc., Series B-1                                      |                     | 02/02         |                |   | 450,051   
|                        | 30,927,835                          |  | Silverback Systems, Inc., Series C                                        |                     | 03/03 & 09/03 |                |   | 3,965,564 
|                        | 3,096,551                           |  | Virtual Silicon Technology, Inc., Series C                                |                     | 12/01         |                |   | 5,000,000 
|                        |                                     |  |                                                                           |                     |               |                |   |           
|                        |                                     |  |                                                                           |                     |               |                |   | 19,815,615



5



---

##### Table of Contents

Excelsior Venture Partners III, LLC

Portfolio of Investments October 31, 2003  (continued)



|                                       |                                                |   |  |                                                                              |                     |                     |                |   |           
|-------------------------------------- | ---------------------------------------------- | - |  | ---------------------------------------------------------------------------- | ------------------- | ------------------- | -------------- | - | ----------
|Principal Amount/Shares/ Percent Owned |                                                |   |  |                                                                              | Acquisition Date ## |                     | Value (Note 1)
|                                       | Wireless  4.61%                               |   |  |                                                                              |                     |                    
|                                       | 3,766,666                                      |   |  | Ethertronics, Inc., Series B                                                 |                     | 06/01, 09/02, 07/03 |                | $ | 5,650,000 
|                                       |                                                |   |  |                                                                              |                     |                     |                |   |           
|                                       |                                                |   |  | TOTAL PREFERRED STOCKS (Cost $68,844,780)                                    |                     |                     |                |   | 58,905,542
|                                       |                                                |   |  |                                                                              |                     |                     |                |   |           
|                                       | Notes  3.27%                                  |   |  |                                                                              |                     |                    
|                                       | Enterprise Software  3.27%                    |   |  |                                                                              |                     |                    
|$                                      | 4,000,000                                      |   |  | ***Datanautics, Inc., Convertible Promissory Note 3%, 1/31/2004              |                     | 08/03 & 09/03       |                |   | 4,000,000 
|                                       |                                                |   |  |                                                                              |                     |                     |                |   |           
|                                       | Life Sciences0.00 %                           |   |  |                                                                              |                     |                    
|$                                      | 600,000                                        |   |  | Ancile Pharmaceuticals, Inc., Bridge Note 6%, 2/22/2003                      |                     | 10/02               |                |   |          
|$                                      | 250,000                                        |   |  | Ancile Pharmaceuticals, Inc., Bridge Note 6%, 5/10/2003                      |                     | 01/03               |                |   |          
|                                       |                                                |   |  |                                                                              |                     |                     |                |   |           
|                                       |                                                |   |  |                                                                              |                     |                     |                |   |          
|                                       |                                                |   |  | TOTAL NOTES (Cost $4,850,000)                                                |                     |                     |                |   | 4,000,000 
|                                       |                                                |   |  |                                                                              |                     |                     |                |   |           
|                                       | Warrants  0.00%                               |   |  |                                                                              |                     |                    
|                                       | Life Sciences0.00 %                           |   |  |                                                                              |                     |                    
|                                       | 2                                              |   |  | Ancile Pharmaceuticals, Inc.                                                 |                     | 10/02 & 01/03       |                |   |          
|                                       |                                                |   |  |                                                                              |                     |                     |                |   |           
|                                       | Wireless  0.00%                               |   |  |                                                                              |                     |                    
|                                       | 100,000                                        |   |  | Ethertronics, Inc.                                                           |                     | 09/02               |                |   |          
|                                       | 115,000                                        |   |  | Ethertronics, Inc.                                                           |                     | 07/03               |                |   |          
|                                       | 66,667                                         |   |  | Ethertronics, Inc.                                                           |                     | 08/03               |                |   |          
|                                       |                                                |   |  |                                                                              |                     |                     |                |   |           
|                                       |                                                |   |  |                                                                              |                     |                     |                |   |          
|                                       |                                                |   |  | TOTAL WARRANTS (Cost $0)                                                     |                     |                     |                |   |          
|                                       |                                                |   |  |                                                                              |                     |                     |                |   |           
|                                       |                                                |   |  | TOTAL  PRIVATE COMPANIES (Cost $82,444,779)                                 |                     |                     |                |   | 62,905,542
|                                       |                                                |   |  |                                                                              |                     |                     |                |   |           
|                                       | PRIVATE INVESTMENT FUNDS **, #  2.52%         |   |  |                                                                              |                     |                    
|                                       | 0.40                                           | % |  | Advanced Technology Ventures VII, L.P.                                       |                     | 08/01-05/03         |                |   | 490,904   
|                                       | 1.48                                           | % |  | Burrill Life Sciences Capital Fund                                           |                     | 12/02               |                |   | 213,442   
|                                       | 1.35                                           | % |  | CHL Medical Partners II, L.P.                                                |                     | 01/02-07/03         |                |   | 410,529   
|                                       | 0.36                                           | % |  | Morgenthaler Partners VII, L.P.                                              |                     | 07/01-09/03         |                |   | 740,727   
|                                       | 0.60                                           | % |  | Prospect Venture Partners II, L.P.                                           |                     | 06/01-09/03         |                |   | 761,700   
|                                       | 2.36                                           | % |  | Tallwood II, L.P.                                                            |                     | 12/02-10/03         |                |   | 343,464   
|                                       | 2.79                                           | % |  | Valhalla Partners II, L.P.                                                   |                     | 10/03               |                |   | 120,000   
|                                       |                                                |   |  |                                                                              |                     |                     |                |   |           
|                                       |                                                |   |  | TOTAL  PRIVATE INVESTMENT FUNDS (Cost $3,835,428)                           |                     |                     |                |   | 3,080,766 
|                                       |                                                |   |  |                                                                              |                     |                     |                |   |           
|                                       | INVESTMENT COMPANIES  0.42%                   |   |  |                                                                              |                     |                    
|                                       | 519,599                                        |   |  | Dreyfus Government Cash Management Fund Institutional Shares (Cost $519,599) |                     |                     |                |   | 519,599   
|                                       |                                                |   |  |                                                                              |                     |                     |                |   |           
|                                       | TOTAL INVESTMENTS (Cost $139,794,212)  97.58% |   |  |                                                                              |                     | 119,500,313        
|                                       | OTHER ASSETS & LIABILITIES (NET)  2.42%       |   |  |                                                                              |                     | 2,957,540          
|                                       |                                                |   |  |                                                                              |                     |                     |                |   |           
|                                       | NET ASSETS  100.00%                           |   |  |                                                                              | $                   | 122,457,853        
|                                       |                                                |   |  |                                                                              |                     |                     |                |   |           

---

|** | Restricted as to public resale. Acquired between June 1, 2001 and October 31, 2003. Total cost of restricted securities at October 31, 2003 aggregated $86,280,207. Total value of
restricted securities owned at October 31, 2003 was $65,986,308 or 53.88% of net assets.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|# | Non-income producing securities.
|- | --------------------------------



|## | Required disclosure for restricted securities only.
|-- | ---------------------------------------------------



|@ | At October 31, 2003, the Company owned 5% or more of the companys outstanding voting shares thereby making the company an affiliate as defined by the Investment Company Act of
1940. Total value of affiliated securities owned at October 31, 2003 was $54,905,542.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|*** | At October 31, 2003, the Company owned 25% or more of the companys outstanding voting shares thereby making the company a controlled affiliate as defined by the Investment
Company Act of 1940. Total value of controlled affiliated securities owned at October 31, 2003 was $8,000,000.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Notes to Financial Statements are an integral part of these Financial Statements.



6



---

##### Table of Contents

Excelsior Venture Partners III, LLC

Statements of Assets and Liabilities



|                                                                                                           |  |               |             |   |                  |   |             |  
|---------------------------------------------------------------------------------------------------------- |  | ------------- | ----------- | - | ---------------- | - | ----------- | -
|                                                                                                           |  | July 31, 2004 |             |   | October 31, 2003 |  
|                                                                                                           |  | (Unaudited)   |             |   |                  |  
|ASSETS:                                                                                                    |  |               |             |   |                  |   |             |  
|Investments in unaffiliated issuers at value (Cost $53,514,924 and $57,349,433, respectively)              |  | $             | 50,490,637  |   |                  | $ | 56,594,771  |  
|Investments in controlled affiliated issuers at value (Cost $8,000,000 and $8,000,000, respectively)       |  |               | 8,000,000   |   |                  |   | 8,000,000   |  
|Investments in non controlled affiliated issuers at value (Cost $76,340,186 and $74,444,779, respectively) |  |               | 65,100,738  |   |                  |   | 54,905,542  |  
|                                                                                                           |  |               |             |   |                  |   |             |  
|Investments, at value (Cost $137,855,110 and $139,794,212, respectively) (Note 1)                          |  |               | 123,591,375 |   |                  |   | 119,500,313 |  
|                                                                                                           |  |               |             |   |                  |   |             |  
|Cash                                                                                                       |  |               |            |   |                  |   | 3,738,154   |  
|Interest receivable                                                                                        |  |               | 3,084       |   |                  |   | 407         |  
|Other receivables                                                                                          |  |               | 1,945       |   |                  |   | 1,945       |  
|Prepaid insurance                                                                                          |  |               | 23,775      |   |                  |   | 2,992       |  
|                                                                                                           |  |               |             |   |                  |   |             |  
|Total Assets                                                                                               |  |               | 123,620,179 |   |                  |   | 123,243,811 |  
|                                                                                                           |  |               |             |   |                  |   |             |  
|LIABILITIES:                                                                                               |  |               |             |   |                  |   |             |  
|Management fees payable (Note 2)                                                                           |  |               | 617,532     |   |                  |   | 617,322     |  
|Administration fees payable (Note 2)                                                                       |  |               | 12,516      |   |                  |   | 25,625      |  
|Professional fees payable                                                                                  |  |               | 92,347      |   |                  |   | 66,298      |  
|Board of Managers fees payable (Note 2)                                                                   |  |               | 44,959      |   |                  |   | 60,000      |  
|Other payables                                                                                             |  |               | 17,681      |   |                  |   | 16,713      |  
|                                                                                                           |  |               |             |   |                  |   |             |  
|Total Liabilities                                                                                          |  |               | 785,035     |   |                  |   | 785,958     |  
|                                                                                                           |  |               |             |   |                  |   |             |  
|NET ASSETS                                                                                                 |  | $             | 122,835,144 |   |                  | $ | 122,457,853 |  
|                                                                                                           |  |               |             |   |                  |   |             |  
|NET ASSETS consist of:                                                                                     |  |               |             |   |                  |   |             |  
|Paid-in capital                                                                                            |  | $             | 137,098,879 |   |                  | $ | 142,751,752 |  
|Unrealized depreciation on investments                                                                     |  |               | (14,263,735 | ) |                  |   | (20,293,899 | )
|                                                                                                           |  |               |             |   |                  |   |             |  
|Total Net Assets                                                                                           |  | $             | 122,835,144 |   |                  | $ | 122,457,853 |  
|                                                                                                           |  |               |             |   |                  |   |             |  
|Units of Membership Interest Outstanding (Unlimited number of no par value units authorized)               |  |               | 295,210     |   |                  |   | 295,210     |  
|                                                                                                           |  |               |             |   |                  |   |             |  
|NET ASSET VALUE PER UNIT                                                                                   |  | $             | 416.09      |   |                  | $ | 414.82      |  
|                                                                                                           |  |               |             |   |                  |   |             |  



Notes to Financial
Statements are an integral part of these Financial Statements.



7



---

##### Table of Contents

Excelsior Venture Partners III, LLC

Statements of Operations (Unaudited)



|                                                                    |  |                            |            |   |      |   |             |  
|------------------------------------------------------------------- |  | -------------------------- | ---------- | - | ---- | - | ----------- | -
|                                                                    |  | Nine Months Ended July 31, |           
|                                                                    |  | 2004                       |            |   | 2003 |  
|INVESTMENT INCOME:                                                  |  |                            |            |   |      |   |             |  
|Interest income from unaffiliated investments                       |  | $                          | 339,124    |   |      | $ | 683,066     |  
|Interest income from affiliated investments                         |  |                            | 6,729      |   |      |   |            |  
|Dividend income                                                     |  |                            | 7,725      |   |      |   | 9,638       |  
|                                                                    |  |                            |            |   |      |   |             |  
|Total Income                                                        |  |                            | 353,578    |   |      |   | 692,704     |  
|                                                                    |  |                            |            |   |      |   |             |  
|EXPENSES:                                                           |  |                            |            |   |      |   |             |  
|Management fees (Note 2)                                            |  |                            | 1,818,491  |   |      |   | 1,913,518   |  
|Professional fees                                                   |  |                            | 104,826    |   |      |   | 70,921      |  
|Administration fees (Note 2)                                        |  |                            | 104,195    |   |      |   | 112,185     |  
|Insurance Expense                                                   |  |                            | 59,624     |   |      |   | 51,420      |  
|Board of Managers fees (Note 2)                                    |  |                            | 44,959     |   |      |   | 44,876      |  
|Custodian fees                                                      |  |                            | 16,578     |   |      |   | 15,773      |  
|Miscellaneous fees                                                  |  |                            | 11,988     |   |      |   | 18,701      |  
|                                                                    |  |                            |            |   |      |   |             |  
|Total Expenses                                                      |  |                            | 2,160,661  |   |      |   | 2,227,394   |  
|NET INVESTMENT LOSS                                                 |  |                            | (1,807,083 | ) |      |   | (1,534,690  | )
|                                                                    |  |                            |            |   |      |   |             |  
|NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: (Note 1)    |  |                            |            |   |      |   |             |  
|Net realized gain (loss) on unaffiliated investments                |  |                            | 4,210      |   |      |   | (16         | )
|Net realized (loss) on affiliated investments                       |  |                            | (3,850,000 | ) |      |   |            |  
|Net change in unrealized appreciation (depreciation) on investments |  |                            | 6,030,164  |   |      |   | (14,622,241 | )
|                                                                    |  |                            |            |   |      |   |             |  
|NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS              |  |                            | 2,184,374  |   |      |   | (14,622,257 | )
|                                                                    |  |                            |            |   |      |   |             |  
|NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS     |  | $                          | 377,291    |   |      | $ | (16,156,947 | )
|                                                                    |  |                            |            |   |      |   |             |  



Notes to Financial
Statements are an integral part of these Financial Statements.



8



---

##### Table of Contents

Excelsior Venture Partners III, LLC

Statements of Operations (Unaudited)



|                                                                    |  |                             |            |   |      |   |            |  
|------------------------------------------------------------------- |  | --------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                    |  | Three Months Ended July 31, |           
|                                                                    |  | 2004                        |            |   | 2003 |  
|INVESTMENT INCOME:                                                  |  |                             |            |   |      |   |            |  
|Interest income from unaffiliated investments                       |  | $                           | 105,461    |   |      | $ | 183,586    |  
|Interest income from affiliated investments                         |  |                             |           |   |      |   |           |  
|Dividend income                                                     |  |                             | 5,378      |   |      |   | 4,757      |  
|                                                                    |  |                             |            |   |      |   |            |  
|Total Income                                                        |  |                             | 110,839    |   |      |   | 188,343    |  
|                                                                    |  |                             |            |   |      |   |            |  
|EXPENSES:                                                           |  |                             |            |   |      |   |            |  
|Management fees (Note 2)                                            |  |                             | 617,532    |   |      |   | 616,718    |  
|Professional fees                                                   |  |                             | 35,192     |   |      |   | 46,126     |  
|Administration fees (Note 2)                                        |  |                             | 34,732     |   |      |   | 36,791     |  
|Insurance Expense                                                   |  |                             | 19,947     |   |      |   | 17,897     |  
|Board of Managers fees (Note 2)                                    |  |                             | 15,082     |   |      |   | 15,123     |  
|Custodian fees                                                      |  |                             | 5,708      |   |      |   | 5,263      |  
|Miscellaneous fees                                                  |  |                             | 4,021      |   |      |   | 6,302      |  
|                                                                    |  |                             |            |   |      |   |            |  
|Total Expenses                                                      |  |                             | 732,214    |   |      |   | 744,220    |  
|NET INVESTMENT LOSS                                                 |  |                             | (621,375   | ) |      |   | (555,877   | )
|                                                                    |  |                             |            |   |      |   |            |  
|NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: (Note 1)    |  |                             |            |   |      |   |            |  
|Net realized gain on unaffiliated investments                       |  |                             | 4,210      |   |      |   |           |  
|Net realized (loss) on affiliated investments                       |  |                             | (3,850,000 | ) |      |   |           |  
|Net change in unrealized appreciation (depreciation) on investments |  |                             | 7,108,546  |   |      |   | (5,954,448 | )
|                                                                    |  |                             |            |   |      |   |            |  
|NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS              |  |                             | 3,262,756  |   |      |   | (5,954,448 | )
|                                                                    |  |                             |            |   |      |   |            |  
|NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS     |  | $                           | 2,641,381  |   |      | $ | (6,510,325 | )
|                                                                    |  |                             |            |   |      |   |            |  



Notes to Financial
Statements are an integral part of these Financial Statements.



9



---

##### Table of Contents

Excelsior Venture Partners III, LLC

Statements of Changes in Net Assets (Unaudited)



|                                                                    |  |                            |             |   |      |   |             |  
|------------------------------------------------------------------- |  | -------------------------- | ----------- | - | ---- | - | ----------- | -
|                                                                    |  | Nine Months Ended July 31, |            
|                                                                    |  | 2004                       |             |   | 2003 |  
|OPERATIONS:                                                         |  |                            |             |   |      |   |             |  
|Net investment loss                                                 |  | $                          | (1,807,083  | ) |      | $ | (1,534,690  | )
|Net realized loss on investments                                    |  |                            | (3,845,790  | ) |      |   | (16         | )
|Net change in unrealized appreciation (depreciation) on investments |  |                            | 6,030,164   |   |      |   | (14,622,241 | )
|                                                                    |  |                            |             |   |      |   |             |  
|Net increase (decrease) in net assets resulting from operations     |  |                            | 377,291     |   |      |   | (16,156,947 | )
|                                                                    |  |                            |             |   |      |   |             |  
|NET INCREASE (DECREASE) IN NET ASSETS                               |  |                            | 377,291     |   |      |   | (16,156,947 | )
|NET ASSETS:                                                         |  |                            |             |   |      |   |             |  
|Beginning of period                                                 |  |                            | 122,457,853 |   |      |   | 138,495,015 |  
|                                                                    |  |                            |             |   |      |   |             |  
|End of period                                                       |  | $                          | 122,835,144 |   |      | $ | 122,338,068 |  
|                                                                    |  |                            |             |   |      |   |             |  



Notes to Financial
Statements are an integral part of these Financial Statements.



10



---

##### Table of Contents

Excelsior Venture Partners III, LLC

Statements of Cash Flows (Unaudited)



|                                                                                                                                                 |  |                            |             |   |      |   |             |  
|------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------------------- | ----------- | - | ---- | - | ----------- | -
|                                                                                                                                                 |  | Nine Months Ended July 31, |            
|                                                                                                                                                 |  | 2004                       |             |   | 2003 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                                                                            |  |                            |             |   |      |   |             |  
|Net increase (decrease) in net assets resulting from operations.                                                                                 |  | $                          | 377,291     |   |      | $ | (16,156,947 | )
|Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating
activities: |  |                            |             |   |      |   |             |  
|Net change in unrealized (appreciation) depreciation on investments                                                                              |  |                            | (6,030,164  | ) |      |   | 14,622,241  |  
|Net realized loss on investments                                                                                                                 |  |                            | 3,845,790   |   |      |   |            |  
|Purchase of investments                                                                                                                          |  |                            | (14,289,421 | ) |      |   | (15,481,459 | )
|Proceeds received from disposition of securities                                                                                                 |  |                            | 17,197      |   |      |   |            |  
|Proceeds received from private investment funds                                                                                                  |  |                            | 79,022      |   |      |   |            |  
|Net decrease in short-term investments                                                                                                           |  |                            | 12,286,514  |   |      |   | 17,035,969  |  
|Decrease (increase) in interest receivable                                                                                                       |  |                            | (2,677      | ) |      |   | 519         |  
|Decrease in other receivables                                                                                                                    |  |                            |            |   |      |   | 994,345     |  
|Decrease (increase) in prepaid insurance                                                                                                         |  |                            | (20,783     | ) |      |   | 44,377      |  
|Increase (decrease) in management fee payable                                                                                                    |  |                            | 210         |   |      |   | (80,309     | )
|Decrease in Board of Managers fees payable                                                                                                      |  |                            | (15,041     | ) |      |   | (15,124     | )
|Increase (decrease) in other expenses payable                                                                                                    |  |                            | 13,908      |   |      |   | (154,256    | )
|                                                                                                                                                 |  |                            |             |   |      |   |             |  
|Net cash provided by (used in) operating activities                                                                                              |  |                            | (3,738,154  | ) |      |   | 809,356     |  
|                                                                                                                                                 |  |                            |             |   |      |   |             |  
|Net increase (decrease) in cash                                                                                                                  |  |                            | (3,738,154  | ) |      |   | 809,356     |  
|                                                                                                                                                 |  |                            |             |   |      |   |             |  
|Cash at beginning of period                                                                                                                      |  |                            | 3,738,154   |   |      |   |            |  
|                                                                                                                                                 |  |                            |             |   |      |   |             |  
|Cash at end of period                                                                                                                            |  | $                          |            |   |      | $ | 809,356     |  
|                                                                                                                                                 |  |                            |             |   |      |   |             |  
|SUPPLEMENTAL INFORMATION:                                                                                                                        |  |                            |             |   |      |   |             |  
|Non-cash distributions received from private investments funds:                                                                                  |  | $                          | 12,987      |   |      | $ | 0           |  



Notes to Financial
Statements are an integral part of these Financial Statements.



11



---

##### Table of Contents

Excelsior Venture Partners III, LLC

Financial Highlights (Unaudited)



Per Unit
Operating Performance: (1)



|                                                                   |  |                           |         |    |      |   |         |   
|------------------------------------------------------------------ |  | ------------------------- | ------- | -- | ---- | - | ------- | --
|                                                                   |  | Nine Months EndedJuly 31, |        
|                                                                   |  | 2004                      |         |    | 2003 |  
|NET ASSET VALUE, BEGINNING OF PERIOD                               |  | $                         | 414.82  |    |      | $ | 469.14  |   
|INCOME FROM INVESTMENT OPERATIONS:                                 |  |                           |         |    |      |   |         |   
|Net investment loss                                                |  |                           | (6.12   | )  |      |   | (5.20   | ) 
|Net realized and unrealized gain (loss) on investment transactions |  |                           | 7.39    |    |      |   | (49.53  | ) 
|                                                                   |  |                           |         |    |      |   |         |   
|Total from investment operations                                   |  |                           | 1.27    |    |      |   | (54.73  | ) 
|                                                                   |  |                           |         |    |      |   |         |   
|NET ASSET VALUE, END OF PERIOD                                     |  | $                         | 416.09  |    |      | $ | 414.41  |   
|                                                                   |  |                           |         |    |      |   |         |   
|TOTAL NET ASSET VALUE RETURN (3), (4)                              |  |                           | 0.31    | %  |      |   | (11.67  | %)
|RATIOS AND SUPPLEMENTAL DATA:                                      |  |                           |         |    |      |   |         |   
|Net assets, end of period (000s)                                  |  | $                         | 122,835 |    |      | $ | 122,338 |   
|Ratios to average net assets:(2)                                   |  |                           |         |    |      |   |         |   
|Expenses                                                           |  |                           | 2.37    | %  |      |   | 2.27    | % 
|Net investment loss                                                |  |                           | (1.98   | )% |      |   | (1.57   | )%
|Portfolio Turnover Rate(3)                                         |  |                           | 0.11    | %  |      |   | 0.00    | % 



|(1) | Selected data for a unit of membership interest outstanding through each period
|--- | -------------------------------------------------------------------------------



|(2) | Annualized
|--- | ----------



|(3) | Not annualized
|--- | --------------



|(4) | Total investment return based on per unit net asset value reflects the effects of changes in net asset value based on the performance of the Company during the
period, and assumes dividends and distributions, if any, were reinvested. The Companys units were issued in a private placement and are not traded. Therefore the market value total investment return is not presented
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Notes to Financial Statements are an integral part of these Financial
Statements.



12



---

##### Table of Contents

EXCELSIOR VENTURE PARTNERS III, LLC



NOTES TO FINANCIAL STATEMENTS



July 31, 2004 (Unaudited)



Note 1  Significant
Accounting Policies



Excelsior Venture Partners III, LLC
(the Company) is a non-diversified, closed-end management investment company which has elected to be treated as a business development company or BDC under the Investment Company Act of 1940, as amended. The Company was
established as a Delaware limited liability company on February 18, 2000. The Company commenced operations on April 5, 2001. The duration of the Company is ten years (subject to two 2-year extensions) from the final subscription closing which
occurred on May 11, 2001, at which time the affairs of the Company will be wound up and its assets distributed pro rata to members as soon as is practicable.



As a BDC, the Company must be primarily engaged in the business of furnishing capital and making available managerial assistance to companies that
generally do not have ready access to capital through conventional financial channels. The Companys investment objective is to achieve long-term capital appreciation primarily by investing in domestic venture capital and other private
companies and, to a lesser extent, domestic and international private funds, negotiated private investments in public companies and international direct investments that the Investment Adviser (as defined later) believes offer significant long-term
capital appreciation potential. Venture capital and private companies are companies in which the equity is closely held by company founders, management and/or a limited number of institutional investors. The Company does not have the right to demand
that such equity securities be registered.



The following is a
summary of the Companys significant accounting policies. Such policies are in conformity with U.S. generally accepted accounting principles for investment companies and are consistently followed in the preparation of the financial statements.
U.S. generally accepted accounting principles require management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from these estimates. Certain amounts in the
prior period financial statements have been reclassified to conform to the current periods financial statements.



A. Investment Valuation:



The Company values portfolio securities quarterly and at such other times as, in the Board of Managers view, circumstances warrant.
Securities for which market quotations are readily available generally will be valued at the last sale price on the date of valuation or, if no sale occurred, at the mean of the latest bid and ask prices; provided that, as to such securities that
may have legal, contractual or practical restrictions on sale, a discount of 10% to 40% from the public market price will be applied. Securities for which no public market exists and other assets will be valued at fair value as determined in good
faith by the Investment Adviser or a committee of the Board of Managers, both under the supervision of the Board of Managers, pursuant to certain valuation procedures summarized below. Securities having remaining maturities of 60 days or less from
the date of purchase are valued at amortized cost.



The value for securities for which no public market exists is difficult to determine. Generally, such investments will be valued on a going concern basis without giving effect to any disposition costs. There is a range of values
that is reasonable for such investments at any particular time. Initially, direct investments are valued based upon their original cost until developments provide a sufficient basis for use of a valuation other than cost. Upon the occurrence of
developments providing a sufficient basis for a change in valuation, direct investments will be valued by the private market or appraisal methods of valuation. The private market method shall only be used with respect to
reliable third party transactions by sophisticated, independent investors. The appraisal method shall be based upon such factors affecting the investee company such as earnings, net worth, reliable private sale prices of the investee companys
securities, the market prices for similar securities of comparable companies, an assessment of the investee companys future prospects or, if appropriate, liquidation value. The values for the investments referred to in this paragraph will be
estimated regularly by the Investment Adviser or a committee of the Board, under the supervision of the Board of Managers, and, in any event, not less frequently than quarterly. However, there can be no assurance that such value will represent the
return that might ultimately be realized by the Company from the investments.



The valuation of the Companys Private Investment Funds is based upon its pro-rata share of the value of the net assets of the Private Investment Fund as determined by such Private Investment Fund, in accordance
with its partnership agreement, constitutional or other documents governing such valuation, on the valuation date. If such valuation with respect to the



13



---

##### Table of Contents

Companys investments in Private Investment Funds is not available by reason of timing or other event on the valuation date, or are deemed to be
unreliable by the Investment Adviser, the Investment Adviser, under supervision of the Board of Managers, shall determine such value based on its judgment of fair value on the valuation date, less applicable charges, if any.



At July 31, 2004 and October 31, 2003, market quotations
were not readily available for securities valued at $77,829,959 or 63.36% of net assets and $65,986,308 or 53.88% of net assets, respectively. Such securities were valued by the Investment Adviser, under the supervision of the Board of Managers.
Because of the inherent uncertainty of valuation, the estimated values may differ significantly from the values that would have been used had a ready market for the securities existed, and the differences could be material.



B. Security transactions and investment income:



Security transactions are recorded on a trade date basis.
Realized gains and losses on investments sold are recorded on the basis of identified cost. Interest income, adjusted for amortization of premiums and discounts on fixed income investments, is earned from settlement date and is recorded on the
accrual basis. Dividend income is recorded on the ex-dividend date.



C. Income taxes:



Under
current law and based on certain assumptions and representations, the Company intends to be treated as a partnership for federal, state and local income tax purposes. By reason of this treatment, the Company will itself not be subject to income tax.
Rather, each member, in computing income tax, will include his, her or its allocable share of Company items of income, gain, loss, deduction and expense.



In accordance with the accounting guidance provided in the AICPA Audit and Accounting Guide, Audits of Investment Companies,
the Company reclassified certain amounts from undistributed net investment income or loss and accumulated net realized gains to net capital contributions. The Company reclassified $(1,807,083) and $(2,077,138) of undistributed net investment loss
for the nine-month month period ended July 31, 2004 and the year ended October 31, 2003, respectively. The Company reclassified $(3,845,790) accumulated realized losses and $44 of accumulated realized gains for the same periods, respectively. These
reclassifications, which had no effect on net assets, were made to reflect, as adjustments to paid-in capital, the amounts of taxable income or loss that have been allocated to the members.



The cost of the Private Investment Funds for federal tax
purposes is based on amounts reported to the Company on Schedule K-1 from the Private Investment Funds. As of July 31, 2004 and October 31, 2003, the Company had not received information to determine the tax cost of the Private Investment Funds as
of those dates. The cost basis for federal tax purposes of the Companys other investments at July 31, 2004 was $132,067,677, and those investments had net depreciation on a tax basis at July 31, 2004 of $13,205,523, consisting of gross
appreciation of $15,722,226 and gross depreciation of $28,927,749. The cost basis for federal tax purposes of the Companys other investments at October 31, 2003 was $135,958,784, and those investments had net depreciation on a tax basis at
October 31, 2003 of $19,539,237, consisting of gross appreciation of $6,506,176 and gross depreciation of $26,045,413.



D. Dividends to members:



The Company will distribute all cash that the Investment Adviser does not expect to use in the operation of the Company. Due to the nature
of the Companys investments, investors should not expect distributions of cash or property during the first several years of the Companys operations.



Note 2  Investment Advisory Fee, Administration Fee and Related Party Transactions



Prior to June 1, 2003, and pursuant to an Investment Advisory Agreement (the
Agreement), U.S. Trust Company served during the reporting period as the Investment Adviser to the Company pursuant to an Investment Advisory Agreement with the Company. Under the Agreement for the services provided, the Investment
Adviser is entitled to receive a management fee at an annual rate equal to 2.00% of the Companys average quarterly net assets through the fifth anniversary of the first closing date of April 5, 2001, and 1.00% of net assets thereafter. Prior
to June 1, 2003, and pursuant to sub-advisory agreements among the Company, U.S. Trust Company, United States Trust Company of New York (U.S. Trust NY) and U.S. Trust Company, N.A., U.S. Trust NY and U.S. Trust Company, N.A. served as
the investment sub-advisers to the Company and received an investment management fee from the Investment Adviser.



U.S. Trust NY is a New York state-chartered bank and trust company and a member of the Federal Reserve System. Effective June 1, 2003, U.S. Trust Company
merged into U.S. Trust Company, N.A., a nationally chartered bank. Pursuant to an assumption



14



---

##### Table of Contents

agreement dated June 1, 2003, U.S. Trust Company, N.A. assumed the duties and obligations of U.S. Trust Company under the Agreement. As a result, U.S. Trust
Company, N.A., acting through its registered investment advisory division, U.S. Trust Company, N.A. Asset Management Division, now serves as Investment Adviser to the Company with U.S. Trust NY, acting through its registered investment advisory
division, U.S. TrustNew York Asset Management Division, serving as a sub-investment adviser. The merger had no impact on the management or operations of the investment advisory functions performed for the Company, and did not constitute a
change in control. U.S. Trust NY and U.S. Trust Company, N.A. are each a wholly-owned subsidiary of U.S. Trust Corporation, a registered bank holding company. U.S. Trust Corporation is a wholly-owned subsidiary of The Charles Schwab Corporation
(Schwab). As of July 31, 2004 and October 31, 2003, $617,532 and $617,322 were payable to the Investment Adviser.



In addition to the management fee, the Investment Adviser is entitled to allocations and distributions equal to the Incentive Carried Interest. The
Incentive Carried Interest is an amount equal to 20% of the Companys cumulative realized capital gains on Direct Investments, net of cumulative realized capital losses and current net unrealized capital depreciation on all of the
Companys investments and cumulative net expenses of the Company. Direct Investments means Company investments in domestic and foreign companies in which the equity is closely held by company founders, management, and/or a limited number of
institutional investors and negotiated private investments in public companies. The Incentive Carried Interest will be determined annually as of the end of each calendar year. For the nine month periods ended July 31, 2004 and July 31, 2003, there
was no Incentive Carried interest earned by the Investment Adviser.



Pursuant to an Administration, Accounting and Investor Services Agreement, the Company retains PFPC Inc. (PFPC), a majority-owned subsidiary of The PNC Financial Services Group, as administrator, accounting and investor services
agent. In addition, PFPC Trust Company serves as the Companys custodian. In consideration for its services, the Company (i) pays PFPC a variable fee between 0.105% and 0.07%, based on average quarterly net assets, payable monthly, subject to a
minimum quarterly fee of approximately $30,000, (ii) pays annual fees of approximately $15,000 for taxation services and (iii) reimburses PFPC for out-of-pocket expenses.



Charles Schwab & Co., Inc. (the Distributor), the principal subsidiary of Schwab, served as the
Companys distributor for the offering of units. The Investment Adviser paid the Distributor from its own assets an amount equal to 0.02% of the total of all subscriptions received in the offering. The Investment Adviser or an affiliate will
pay the Distributor an on-going fee for the sale of units and the provision of ongoing investor services in an amount equal to the annual rate of 0.45% of the average quarterly net asset value of all outstanding units held by investors introduced to
the Company by the Distributor through the fifth anniversary of the final subscription closing date and at the annual rate of 0.22% thereafter, subject to elimination upon all such fees totaling 6.5% of the gross proceeds received by the Company
from the offering.



Each member of the Board of Managers
receives $7,000 annually, $2,000 per meeting attended and is reimbursed for expenses incurred for attending meetings. No person who is an officer, manager or employee of U.S. Trust Corporation, or its subsidiaries, who serves as an officer, manager
or employee of the Company receives any compensation from the Company.



As of July 31, 2004 and October 31, 2003, Excelsior Venture Investors III, LLC had an investment in the Company of $77,979,783 and $77,740,266, respectively. This represents an ownership interest of 63.48% in the Company as of both dates.



Note 3  Purchases and Sales of Securities



Excluding short-term investments, the Companys purchases and sales of
securities for the nine-month periods ended July 31, 2004, and July 31, 2003 were as follows:



|                                  |  |               |  |             
|--------------------------------- |  | ------------- |  | ------------
|Nine-Month Periods Ended July 31, |  | Purchases ($) |  | Proceeds ($)
|2004                              |  | 14,289,421    |  | 96,219      
|2003                              |  | 15,481,459    |  |            



Note 4  Commitments



As of July 31, 2004, the Company had outstanding
investment commitments totaling $19,820,558.



15



---

##### Table of Contents

Note 5  Transactions with Affiliated Companies



An affiliated company is a company in which the Company has ownership of
more than 5% of the voting securities. The Company did not receive dividend income from affiliated companies during the nine-month period ended July 31, 2004 and the year ended October 31, 2003. Transactions with companies, which are or were
affiliates, were as follows:



|                                                     |  |                                   |            |                       |   |                                         |  |                          |            |  |                   |             |                      |  |   |                                 |  |                           |            |   |  |            |  |   |           
|---------------------------------------------------- |  | --------------------------------- | ---------- | --------------------- | - | --------------------------------------- |  | ------------------------ | ---------- |  | ----------------- | ----------- | -------------------- |  | - | ------------------------------- |  | ------------------------- | ---------- | - |  | ---------- |  | - | ----------
|                                                     |  |                                   |            |                       |   | For the Nine Months Ended July 31, 2004 |  |                         
|Name of Investment                                   |  | Shares/ParHeld at October 31,2003 |            | October 31,2003 Value |   | Purchases /ConversionAcquisitions       |  | Sale/Conversion Proceeds |            |  | Interest Received |             | Realized Gain (Loss) |  |   | Shares/ParHeld at July 31, 2004 |  | Cumulative Value (Note 1)
|Controlled Affiliates                                |  |                                   |            |                       |   |                                         |  |                          |            |  |                   |             |                      |  |   |                                 |  |                           |            |   |  |            |  |   |           
|Pilot Software Inc., Series A Preferred              |  |                                   | 20,000,000 |                       | $ | 4,000,000                               |  | $                        |           |  | $                 |            |                      |  | $ |                                |  | $                         |           |   |  | 20,000,000 |  | $ | 4,000,000 
|Datanautics, Inc., Series A Preferred                |  |                                   |           |                       |   |                                        |  |                          | 4,000,000  |  |                   |             |                      |  |   |                                 |  |                           |            |   |  | 19,995,000 |  |   | 4,000,000 
|Datanautics, Inc., Promissory Note 3.00%             |  | $                                 | 4,000,000  |                       |   | 4,000,000                               |  |                          |           |  |                   | (4,000,000  | )                    |  |   |                                |  |                           |           |   |  |           |  |   |          
|                                                     |  |                                   |            |                       |   |                                         |  |                          |            |  |                   |             |                      |  |   |                                 |  |                           |            |   |  |            |  |   |           
|Total Controlled Affiliates                          |  |                                   |            |                       | $ | 8,000,000                               |  | $                        | 4,000,000  |  | ($                | 4,000,000   | )                    |  |   |                                |  | $                         |           |   |  |            |  | $ | 8,000,000 
|Non Controlled Affiliates                            |  |                                   |            |                       |   |                                         |  |                          |            |  |                   |             |                      |  |   |                                 |  |                           |            |   |  |            |  |   |           
|Adeza Biomedical Corp., Series 5 Preferred           |  |                                   | 647,948    |                       | $ | 3,000,000                               |  | $                        |           |  | $                 |            |                      |  | $ |                                |  | $                         |           |   |  | 647,948    |  | $ | 3,000,000 
|Ancile Pharmaceuticals, Inc., Series D Preferred     |  |                                   | 2,419,355  |                       |   |                                        |  |                          |           |  |                   |            |                      |  |   |                                |  |                           | (3,000,000 | ) |  |           |  |   |          
|Ancile Pharmaceuticals, Inc., Bridge Notes 6%        |  | $                                 | 850,000    |                       |   |                                        |  |                          |           |  |                   |            |                      |  |   |                                |  |                           | (850,000   | ) |  |           |  |   |          
|Ancile Pharmaceuticals, Inc.,Warrant                 |  |                                   | 2          |                       |   |                                        |  |                          |           |  |                   |            |                      |  |   |                                |  |                           |           |   |  |           |  |   |          
|Archemix Corporation, Series A Preferred             |  |                                   | 1,314,285  |                       |   | 1,314,285                               |  |                          | 685,714    |  |                   |            |                      |  |   |                                |  |                           |           |   |  | 1,999,999  |  |   | 1,999,999 
|Archemix Corporation, Series B Preferred             |  |                                   |           |                       |   |                                        |  |                          | 233,333    |  |                   |            |                      |  |   |                                |  |                           |           |   |  | 233,333    |  |   | 233,333   
|Cenqest, Inc., Series 2 Preferred                    |  |                                   | 4,425      |                       |   |                                        |  |                          |           |  |                   |            |                      |  |   |                                |  |                           |           |   |  | 4,425      |  |   |          
|Chips & Systems, Inc., Series A Preferred            |  |                                   |           |                       |   |                                        |  |                          | 3,500,000  |  |                   |            |                      |  |   |                                |  |                           |           |   |  | 7,000,000  |  |   | 3,500,000 
|Ethertronics Inc., Series B Preferred                |  |                                   | 3,766,666  |                       |   | 5,650,000                               |  |                          | 1,000,000  |  |                   |            |                      |  |   |                                |  |                           |           |   |  | 4,433,333  |  |   | 6,650,000 
|Ethertronics Inc., Warrant                           |  |                                   | 281,667    |                       |   |                                        |  |                          |           |  |                   |            |                      |  |   |                                |  |                           |           |   |  | 281,667    |  |   |          
|Genoptix, Inc., Series B-1 Preferred                 |  |                                   | 942,481    |                       |   | 1,253,500                               |  |                          |           |  |                   |            |                      |  |   |                                |  |                           |           |   |  | 942,481    |  |   | 1,253,500 
|Genoptix, Inc., Series B-2 Preferred                 |  |                                   | 826,823    |                       |   | 734,851                                 |  |                          | 515,148    |  |                   |            |                      |  |   |                                |  |                           |           |   |  | 1,403,696  |  |   | 1,250,000 
|Genoptix, Inc., Common Stock                         |  |                                   | 46,860     |                       |   |                                        |  |                          |           |  |                   |            |                      |  |   |                                |  |                           |           |   |  | 46,860     |  |   |          
|Gyration, Inc., Series C2 Preferred                  |  |                                   | 1,523,810  |                       |   | 4,000,000                               |  |                          |           |  |                   | (4,000,000  | )                    |  |   |                                |  |                           |           |   |  |           |  |   |          
|Gyration, Inc., Bridge Note 12%, 6/2/2004            |  |                                   |           |                       |   |                                        |  |                          | 2,797,200  |  |                   |            |                      |  |   | 6,658                           |  |                           |           |   |  | 2,797,200  |  |   | 2,797,200 
|Gyration, Inc., Warrant                              |  |                                   |           |                       |   |                                        |  |                          | 2,800      |  |                   |            |                      |  |   |                                |  |                           |           |   |  | 2,800      |  |   | 2,800     
|Gyration, Inc., Series C2 Preferred (Merger)         |  |                                   |           |                       |   |                                        |  |                          | 4,000,000  |  |                   |            |                      |  |   |                                |  |                           |           |   |  | 2,687,376  |  |   | 5,284,391 
|LightConnect, Inc., Series B Preferred               |  |                                   | 4,330,504  |                       |   | 948,562                                 |  |                          |           |  |                   |            |                      |  |   |                                |  |                           |           |   |  | 4,330,504  |  |   | 5,000,000 
|LightConnect, Inc., Series C Preferred               |  |                                   | 12,292,441 |                       |   | 992,000                                 |  |                          |           |  |                   |            |                      |  |   |                                |  |                           |           |   |  | 12,292,441 |  |   | 992,000   
|LogicLibrary, Inc., Series A Preferred               |  |                                   | 5,914,488  |                       |   | 2,704,226                               |  |                          | 1,540,232  |  |                   |            |                      |  |   |                                |  |                           |           |   |  | 7,454,720  |  |   | 3,408,450 
|MIDAS Vision Systems, Inc., Series A-1 Preferred     |  |                                   | 933,593    |                       |   |                                        |  |                          |           |  |                   |            |                      |  |   |                                |  |                           |           |   |  | 933,593    |  |   |          
|MIDAS Vision Systems, Inc., Common Stock             |  |                                   | 157,396    |                       |   |                                        |  |                          |           |  |                   |            |                      |  |   |                                |  |                           |           |   |  | 157,396    |  |   |          
|Monterey Design Systems, Inc., Common Stock          |  |                                   | 708,955    |                       |   |                                        |  |                          |           |  |                   |            |                      |  |   |                                |  |                           |           |   |  | 708,955    |  |   |          
|Monterey Design Systems, Inc., Series 2 Preferred    |  |                                   | 3,333,333  |                       |   | 5,400,000                               |  |                          |           |  |                   |            |                      |  |   |                                |  |                           |           |   |  | 3,333,333  |  |   | 5,400,000 
|NanoOpto Corp., Series A-1 Preferred                 |  |                                   | 956,234    |                       |   | 604,259                                 |  |                          |           |  |                   |            |                      |  |   |                                |  |                           |           |   |  | 956,234    |  |   |          
|NanoOpto Corp., Series B Preferred                   |  |                                   | 558,295    |                       |   | 888,244                                 |  |                          | 1,048,656  |  |                   |            |                      |  |   |                                |  |                           |           |   |  | 3,023,399  |  |   | 1,655,118 
|NetLogic Microsystems, Inc., Series D Preferred      |  |                                   | 1,538,461  |                       |   | 5,000,000                               |  |                          |           |  |                   | (5,000,000  | )                    |  |   |                                |  |                           |           |   |  |           |  |   |          
|NetLogic Microsystems, Inc., Common Stock            |  |                                   |           |                       |   |                                        |  |                          | 5,000,000  |  |                   |            |                      |  |   |                                 |  |                           |            |   |  | 384,615    |  |   | 2,721,922 
|OpVista, Inc., Series B Preferred                    |  |                                   | 5,333,333  |                       |   | 1,500,000                               |  |                          |           |  |                   |            |                      |  |   |                                |  |                           |           |   |  | 5,333,333  |  |   | 1,500,000 
|OpVista, Inc., Series C Preferred                    |  |                                   | 12,671,059 |                       |   | 5,000,000                               |  |                          |           |  |                   |            |                      |  |   | 71                              |  |                           |           |   |  | 12,671,059 |  |   | 5,000,000 
|Senomyx, Inc., Series E Preferred                    |  |                                   | 517,260    |                       |   | 1,500,000                               |  |                          |           |  |                   | (1,500,000  | )                    |  |   |                                |  |                           |           |   |  |           |  |   |          
|Senomyx, Inc., Common Stock                          |  |                                   |           |                       |   |                                        |  |                          | 1,500,000  |  |                   |             |                      |  |   |                                 |  |                           |            |   |  | 428,572    |  |   | 1,812,003 
|Silverback Systems, Inc., Series B-1 Preferred       |  |                                   | 2,211,898  |                       |   | 450,051                                 |  |                          |           |  |                   |            |                      |  |   |                                |  |                           |           |   |  | 2,211,898  |  |   | 450,051   
|Silverback Systems, Inc., Series C Preferred         |  |                                   | 30,927,835 |                       |   | 3,965,564                               |  |                          | 333,333    |  |                   |            |                      |  |   |                                |  |                           |           |   |  | 34,364,257 |  |   | 4,298,896 
|Tensys Medical, Inc., Series C Preferred             |  |                                   | 4,166,667  |                       |   | 5,000,000                               |  |                          |           |  |                   |            |                      |  |   |                                |  |                           |           |   |  | 4,166,667  |  |   | 5,000,000 
|Tensys Medical, Inc., Series D Preferred             |  |                                   |           |                       |   |                                        |  |                          | 1,425,000  |  |                   |            |                      |  |   |                                |  |                           |           |   |  | 1,425,000  |  |   | 1,425,000 
|Virtual Silicon Technology, Inc., Series C Preferred |  |                                   | 3,096,551  |                       |   | 5,000,000                               |  |                          |           |  |                   |            |                      |  |   |                                |  |                           |           |   |  | 3,096,551  |  |   | 5,000,000 
|                                                     |  |                                   |            |                       |   |                                         |  |                          |            |  |                   |             |                      |  |   |                                 |  |                           |            |   |  |            |  |   |           
|Total Non Controlled Affiliates                      |  |                                   |            |                       | $ | 54,905,542                              |  | $                        | 26,381,416 |  | $                 | (13,300,000 | )                    |  | $ | 6,729                           |  | $                         | (3,850,000 | ) |  |            |  | $ | 69,634,663
|                                                     |  |                                   |            |                       |   |                                         |  |                          |            |  |                   |             |                      |  |   |                                 |  |                           |            |   |  |            |  |   |           



16



---

##### Table of Contents

|                                                     |  |                                   |            |                       |   |                                     |  |                          |            |                    |   |                                  |  |                           |   |  |   |            |  |   |           
|---------------------------------------------------- |  | --------------------------------- | ---------- | --------------------- | - | ----------------------------------- |  | ------------------------ | ---------- | ------------------ | - | -------------------------------- |  | ------------------------- | - |  | - | ---------- |  | - | ----------
|                                                     |  |                                   |            |                       |   | For the Year Ended October 31, 2003 |  |                         
|Name of Investment                                   |  | Shares/ParHeld at October 31,2002 |            | October 31,2002 Value |   | Purchases /ConversionAcquisitions   |  | Sale/Conversion Proceeds |            | RealizedGain(Loss) |   | Shares/ParHeld atOctober 31,2003 |  | Cumulative Value (Note 1)
|Controlled Affiliates                                |  |                                   |            |                       |   |                                     |  |                          |            |                    |   |                                  |  |                           |   |  |   |            |  |   |           
|Pilot Software Inc., Series A Preferred              |  |                                   | 15,000,000 |                       | $ | 3,000,000                           |  | $                        | 1,000,000  |                    | $ |                                 |  | $                         |  |  |   | 20,000,000 |  | $ | 4,000,000 
|Datanautics, Inc., Promissory Note 3.00%             |  |                                   |           |                       |   |                                    |  |                          | 4,000,000  |                    |   |                                 |  |                           |  |  | $ | 4,000,000  |  |   | 4,000,000 
|                                                     |  |                                   |            |                       |   |                                     |  |                          |            |                    |   |                                  |  |                           |   |  |   |            |  |   |           
|Total Controlled Affiliates                          |  |                                   |            |                       | $ | 3,000,000                           |  | $                        | 5,000,000  |                    | $ |                                 |  | $                         |  |  |   |            |  | $ | 8,000,000 
|Non Controlled Affiliates                            |  |                                   |            |                       |   |                                     |  |                          |            |                    |   |                                  |  |                           |   |  |   |            |  |   |           
|Adeza Biomedical Corp., Series 5 Preferred           |  |                                   | 647,948    |                       | $ | 3,000,000                           |  | $                        |           |                    | $ |                                 |  | $                         |  |  |   | 647,948    |  | $ | 3,000,000 
|Ancile Pharmaceuticals, Inc., Series D Preferred     |  |                                   | 2,419,355  |                       |   | 3,000,000                           |  |                          |           |                    |   |                                 |  |                           |  |  |   | 2,419,355  |  |   |          
|Ancile Pharmaceuticals, Inc., Bridge Notes 6%        |  | $                                 | 600,000    |                       |   | 600,000                             |  |                          | 250,000    |                    |   |                                 |  |                           |  |  | $ | 850,000    |  |   |          
|Ancile Pharmaceuticals, Inc.,Warrant                 |  |                                   | 1          |                       |   |                                    |  |                          |           |                    |   |                                 |  |                           |  |  |   | 2          |  |   |          
|Archemix Corporation, Series A Preferred             |  |                                   | 628,571    |                       |   | 628,571                             |  |                          | 685,714    |                    |   |                                 |  |                           |  |  |   | 1,314,285  |  |   | 1,314,285 
|Cenqest, Inc., Series 1 Preferred                    |  |                                   | 44,247,788 |                       |   |                                    |  |                          |           |                    |   | 2,000,000                        |  |                           |  |  |   |           |  |   |          
|Cenqest, Inc., Series 2 Preferred                    |  |                                   |           |                       |   |                                    |  |                          | 2,000,000  |                    |   |                                 |  |                           |  |  |   | 4,425      |  |   |          
|Ethertronics Inc., Series B Preferred                |  |                                   | 3,099,999  |                       |   | 4,650,000                           |  |                          | 1,000,000  |                    |   |                                 |  |                           |  |  |   | 3,766,666  |  |   | 5,650,000 
|Ethertronics Inc., Warrant                           |  |                                   | 115,000    |                       |   |                                    |  |                          |           |                    |   |                                 |  |                           |  |  |   | 281,667    |  |   |          
|Genoptix, Inc., Bridge Note 6%                       |  |                                   |           |                       |   |                                    |  |                          | 443,787    |                    |   | 443,787                          |  |                           |  |  |   |           |  |   |          
|Genoptix, Inc., Series B Preferred                   |  |                                   | 1,879,699  |                       |   | 2,500,000                           |  |                          |           |                    |   | 2,500,000                        |  |                           |  |  |   |           |  |   |          
|Genoptix, Inc., Series B-1 Preferred                 |  |                                   |           |                       |   |                                    |  |                          | 2,500,000  |                    |   |                                 |  |                           |  |  |   | 942,481    |  |   | 1,253,500 
|Genoptix, Inc., Series B-2 Preferred                 |  |                                   |           |                       |   |                                    |  |                          | 734,851    |                    |   |                                 |  |                           |  |  |   | 826,823    |  |   | 734,851   
|Genoptix, Inc., Common Stock                         |  |                                   |           |                       |   |                                    |  |                          |           |                    |   |                                 |  |                           |  |  |   | 46,860     |  |   |          
|Gyration, Inc., Series C2 Preferred                  |  |                                   |           |                       |   |                                    |  |                          | 4,000,000  |                    |   |                                 |  |                           |  |  |   | 1,523,810  |  |   | 4,000,000 
|LightConnect, Inc., Series B Preferred               |  |                                   | 4,330,504  |                       |   | 948,563                             |  |                          |           |                    |   |                                 |  |                           |  |  |   | 4,330,504  |  |   | 948,562   
|LightConnect, Inc., Series C Preferred               |  |                                   |           |                       |   |                                    |  |                          | 992,000    |                    |   |                                 |  |                           |  |  |   | 12,292,441 |  |   | 992,000   
|LogicLibrary, Inc., Series A Preferred               |  |                                   | 4,374,256  |                       |   | 2,000,000                           |  |                          | 704,225    |                    |   |                                 |  |                           |  |  |   | 5,914,488  |  |   | 2,704,226 
|MIDAS Vision Systems, Inc., Series A-1 Preferred     |  |                                   |           |                       |   |                                    |  |                          | 1,054,960  |                    |   |                                 |  |                           |  |  |   | 933,593    |  |   |          
|MIDAS Vision Systems, Inc., Series C Preferred       |  |                                   | 15,739,638 |                       |   | 4,000,000                           |  |                          |           |                    |   | 4,000,000                        |  |                           |  |  |   |           |  |   |          
|MIDAS Vision Systems, Inc., Common Stock             |  |                                   |           |                       |   |                                    |  |                          | 4,000,000  |                    |   |                                 |  |                           |  |  |   | 157,396    |  |   |          
|Monterey Design Systems, Inc., Series 1 Preferred    |  |                                   | 7,089,552  |                       |   | 4,750,000                           |  |                          |           |                    |   | 4,750,000                        |  |                           |  |  |   |           |  |   |          
|Monterey Design Systems, Inc., Common Stock          |  |                                   |           |                       |   |                                    |  |                          | 4,750,000  |                    |   |                                 |  |                           |  |  |   | 708,955    |  |   |          
|Monterey Design Systems, Inc., Series 2 Preferred    |  |                                   |           |                       |   |                                    |  |                          | 3,000,000  |                    |   |                                 |  |                           |  |  |   | 3,333,333  |  |   | 5,400,000 
|NanoOpto Corp., Series A-1 Preferred                 |  |                                   | 956,234    |                       |   | 2,231,212                           |  |                          |           |                    |   |                                 |  |                           |  |  |   | 956,234    |  |   | 604,259   
|NanoOpto Corp., Series B Preferred                   |  |                                   |           |                       |   |                                    |  |                          | 237,499    |                    |   |                                 |  |                           |  |  |   | 558,295    |  |   | 888,244   
|NetLogic Microsystems, Inc., Series D Preferred      |  |                                   | 1,538,461  |                       |   | 5,000,000                           |  |                          |           |                    |   |                                 |  |                           |  |  |   | 1,538,461  |  |   | 5,000,000 
|OpVista, Inc., Series B Preferred                    |  |                                   | 5,333,333  |                       |   | 4,000,000                           |  |                          |           |                    |   |                                 |  |                           |  |  |   | 5,333,333  |  |   | 1,500,000 
|OpVista, Inc., Series C Preferred                    |  |                                   |           |                       |   |                                    |  |                          | 2,500,000  |                    |   |                                 |  |                           |  |  |   | 12,671,059 |  |   | 5,000,000 
|Senomyx, Inc., Series E Preferred                    |  |                                   | 517,260    |                       |   | 1,500,000                           |  |                          |           |                    |   |                                 |  |                           |  |  |   | 517,260    |  |   | 1,500,000 
|Silverback Systems, Inc., Series B Preferred         |  |                                   | 2,211,898  |                       |   | 1,415,614                           |  |                          |           |                    |   | 1,415,614                        |  |                           |  |  |   |           |  |   |          
|Silverback Systems, Inc., Series B-1 Preferred       |  |                                   |           |                       |   |                                    |  |                          | 1,415,614  |                    |   |                                 |  |                           |  |  |   | 2,211,898  |  |   | 450,051   
|Silverback Systems, Inc., Series C Preferred         |  |                                   |           |                       |   |                                    |  |                          | 3,010,133  |                    |   |                                 |  |                           |  |  |   | 30,927,835 |  |   | 3,965,564 
|Tensys Medical, Inc., Series C Preferred             |  |                                   | 4,166,667  |                       |   | 5,000,000                           |  |                          |           |                    |   |                                 |  |                           |  |  |   | 4,166,667  |  |   | 5,000,000 
|Virtual Silicon Technology, Inc., Series C Preferred |  |                                   | 3,096,551  |                       |   | 5,000,000                           |  |                          |           |                    |   |                                 |  |                           |  |  |   | 3,096,551  |  |   | 5,000,000 
|                                                     |  |                                   |            |                       |   |                                     |  |                          |            |                    |   |                                  |  |                           |   |  |   |            |  |   |           
|Total Non Controlled Affiliates                      |  |                                   |            |                       | $ | 50,223,960                          |  | $                        | 33,278,783 |                    | $ | 15,109,401                       |  | $                         |  |  |   |            |  | $ | 54,905,542
|                                                     |  |                                   |            |                       |   |                                     |  |                          |            |                    |   |                                  |  |                           |   |  |   |            |  |   |           



Note 6  Pending Litigation



The Investment Adviser was contacted in September, 2003
by the Office of the New York State Attorney General and the Securities and Exchange Commission in connection with the investigation of market timing and late trading practices in the mutual fund industry. The Investment
Adviser has also been contacted by the Attorney General of the State of West Virginia with inquiries regarding the same subject matter. As disclosed previously by the Investment Adviser and its affiliates, these investigations have been focusing on
circumstances in which a small number of parties were permitted to engage in short-term trading of certain mutual funds managed by the Investment Adviser. The short-term trading activities permitted under these arrangements have been terminated and
the Investment Adviser has strengthened its policies and procedures to deter frequent trading.



The Investment Adviser, with certain of its affiliates, has also been named in five class action lawsuits which allege that the Investment Adviser allowed certain parties to engage in illegal and improper trading
practices which have caused financial injury to the shareholders of certain mutual funds managed by the Investment Adviser. The Investment Adviser and certain affiliates have also been named in two derivative actions alleging breach of fiduciary
duty in relation to allegedly illegal and improper mutual fund trading practices. The class actions have all been transferred by the Judicial Panel on Multi-District Litigation to the United States District Court for the District of Maryland, for
coordinated or consolidated pre-trial proceedings. The Investment Adviser expects that the derivative actions will ultimately also be consolidated in the same matter before the District Court.



While the ultimate outcome of these matters cannot be predicted with any
certainty at this time, based upon currently available information, the Investment Adviser believes that the pending private lawsuits and the pending investigations are not likely to materially affect its ability to provide investment management
services to the Company. The Company is not a subject of the investigations nor party to the lawsuits described above.



Note 7  Guarantees



In the normal course of business, the Company enters into contracts that provide general indemnifications. The Companys maximum exposure under these
agreements is dependent on future claims that may be made against the Company, and therefore cannot be established; however, based on experience, the risk of loss from such claims is considered remote.



17



---

##### Table of Contents

Note 8  Subsequent Event



One of the Companys investments, Gyration, Inc., entered into a merger agreement during the period ended July 31,
2004. On August 19, 2004, the Company received proceeds totaling $6,948,069 as a cash consideration for its investment in Gyration, Inc. and expects to receive an additional $1,136,322 being held in escrow. In August, 2004, the Company recorded a
realized gain on the transaction of $1,284,391.



18



---

##### Table of Contents

|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations.
|------- | --------------------------------------------------------------------------------------



Nine-month and Three-month Periods Ended July 31, 2004 as Compared to the Similar Periods in 2003



Realized and Unrealized Gains and Losses from Portfolio Investments



For the nine-month periods ended July 31, 2004 and 2003, the Company had a
net realized loss on security transactions of $3,845,790 and $16, respectively. For the nine-month periods ended July 31, 2004 and 2003, the Company had a net change in unrealized appreciation/(depreciation) on investments of $6,030,164 and
($14,622,241), respectively. The realized loss for the period ended July 31, 2004 was principally the result of the conclusion of Ancile Pharmaceuticals general assignment for the benefit of creditors, where the assets of the business have
been sold and its affairs wound up. The Company received no further distributions and accordingly, reclassified $3,850,000 of unrealized depreciation to net realized loss on investments. The realized loss for the period ended July 31, 2003 was
driven by the Companys sale of short-term investments during the period. The net change in unrealized depreciation for the period ended July 31, 2004 was principally the result of a $2,483,711 increase in the overall valuation of the private
and public company investments; mainly an increase in the valuation of LightConnect, Inc. offset in part by a decrease in the value of NetLogic Microsystems, Inc. (NASDAQ: NETL). There was also an increase as the Company reclassified $3,850,000 of
unrealized depreciation to net realized loss on its investment in Ancile Pharmaceuticals. For the period ended July 31, 2003, the net change in unrealized depreciation was generated by a decline in the value of the private company investments.



For the three-month periods ended July 31, 2004 and 2003, the
Company had a net realized loss on security transactions of ($3,845,790) and $0, respectively. For the three-month periods ended July 31, 2004 and 2003, the Company had a net change in unrealized appreciation/(depreciation) on investments of
$7,108,546 and ($5,954,448), respectively. The realized loss for the period ended July 31, 2004 was principally the result of the conclusion of Ancile Pharmaceuticals general assignment for the benefit of creditors. The net change in
unrealized depreciation for the period ended July 31, 2004 was principally the result of an increase in the overall valuation of the private and public company investments, as well as an increase due to the realization of the loss on Ancile
Pharmaceuticals. For the period ended July 31, 2003, the net change in unrealized depreciation was driven by an overall decline in the value of the private company investments.



Investment Income and Expenses



For the nine-month period ended July 31, 2004, the Company had investment income of $353,578 and operating expenses of $2,160,661, resulting in a net
investment loss of ($1,807,083). In comparison, for the similar period ended July 31, 2003, the Company had investment income of $692,704 and operating expenses of $2,227,394, resulting in a net investment loss of ($1,534,690). The decrease in
investment income resulted from the decrease in short-term investments as the Company continues its investment program in venture capital companies and private equity funds. The decrease in operating expenses was due primarily to a decline in
management fees as a result of reduced net assets during the period.



For the three-month period ended July 31, 2004, the Company had investment income of $110,839 and operating expenses of $732,214, resulting in a net investment loss of ($621,375). In comparison, for the similar period ended July 31, 2003,
the Company had investment income of $188,343 and operating expenses of $744,220, resulting in a net investment loss of ($555,877). The decrease in investment income resulted from the decrease in short-term investments. The decrease in operating
expenses was due primarily to a decline in professional fee expenses during the period.



U.S. Trust Company, N.A., acting through its registered investment advisory division, U.S. Trust Company, N.A. Asset Management Division (the Investment Adviser), and United States Trust Company of New
York, acting through its registered investment advisory division, U.S. Trust - New York Asset Management Division (the Investment Sub-Adviser and together with U.S. Trust Company, N.A., the Investment Advisers), provide
investment management and administrative services required for the operation of the Company. The term Investment Adviser includes, where applicable, U.S. Trust Company, the entity that merged into U.S. Trust Company, N.A. on June 1, 2003 as
described in Note 2 to Item 1 above. In consideration of the services rendered by the Investment Advisers, the Company pays a management fee based upon a percentage of the net assets of the Company invested or committed to be invested in certain
types of investments and an incentive fee based in part on a percentage of realized capital gains of the Company. Such fee is determined and payable quarterly.



For the nine-month periods ended July 31, 2004 and 2003, the Investment Advisers earned $1,818,491 and $1,913,518 in management fees, respectively.
Management fees declined during the period ended July 31, 2004 due to the decline in net assets. For the three-month periods ended July 31, 2004 and 2003, the Investment Advisers earned $617,532 and $616,718 in management fees, respectively.
Management fees moved only slightly higher over the three-month period ended July 31, 2004 vs. July 31, 2003 as net assets remained essentially flat.



19



---

##### Table of Contents

Net Assets



At July 31, 2004, the Companys net assets were $122,835,144, or a net asset value per unit of membership interest of $416.09. This represents an
increase of $377,291 from net assets of $122,457,853, or a net asset value per unit of membership interest of $414.82 at October 31, 2003. The increase resulted principally from the combined effect of: (i) a valuation increase of $2,483,711 related
to the private and public company investments, (ii) offset by operating expenses exceeding investment income by ($1,807,083), and (iii) an increase in net unrealized depreciation related to the private investment funds.



Liquidity and Capital Resources



The Company will focus its investments in the securities of privately-held
venture capital companies, and to a lesser extent in venture capital, buyout and other private equity funds managed by third parties. The Company may offer managerial assistance to certain of such privately-held venture capital companies. The
Company invests its available cash in short-term investments of marketable securities, pending distribution to investors.



At July 31, 2004, the Company held $0 in cash and $41,207,491 in short-term investments as compared to $3,738,154 held in cash and $53,514,005 in
short-term investments at October 31, 2003. The decrease in short-term investments from October 31, 2003 was due to new and follow-on investments in private companies as wells as capital calls for private investment funds. The Company, during this
period funded additional capital per its commitments to Advanced Technology Ventures VII, L.P., Burrill Life Sciences Capital Fund, CHL Medical Partners II, L.P., CMEA Ventures VI, L.P., Morgenthaler Partners VII, L.P., Prospect Venture Partners II,
L.P., Tallwood II, L.P., and Valhalla Partners, L.P., each a private investment fund. The Company has committed capital to one additional private investment fund, Sevin Rosen Fund IX, L.P., however capital has not been called yet. In connection with
the Companys total commitments to private funds in the amount of $25,700,000 since inception, the Company, through July 31, 2004, has contributed $5,879,442 or 22.9% of the total capital committed thus far.



During the nine-month period ended July 31, 2004, the Company participated in
follow-on financing rounds for several of its private companies, including: i) Archemix Corporation Series A preferred for $685,714 and Series B preferred for $233,333, ii) Genoptix, Inc. Series B-2 preferred for $515,148, iii) Gyration, Inc. bridge
note and warrants for $2,800,000, iv) NanoOpto Corporation Series B preferred for $1,048,655, v) Silverback Systems Series C preferred for $333,333, vi) Ethertronics Series B preferred for $1,000,000, vii) LogicLibrary Series A preferred for
$704,225, and viii) Tensys Medical Series D preferred for $1,425,000. The Company also funded one new private company investment in Chips & Systems for $3,500,000



The Company believes that its liquidity and capital resources are adequate to satisfy its operational needs as well as the
continuation of its investment program.



Application of Critical Accounting
Policies



Under the supervision of the Companys
Valuation and Audit Committees, consisting of the independent Managers of the Company, the Investment Adviser makes certain critical accounting estimates with respect to the valuation of private portfolio investments. These estimates could have a
material impact on the presentation of the Companys financial condition because in total, they currently represent 63.4% of the Companys net assets. For the private investments held at July 31, 2004, changes to these estimates, i.e.
changes in the valuations of the private company investments and private investment funds, resulted in a $4.1 million increase in net asset value as compared to October 31, 2003.



The value for securities for which no public market exists is difficult to determine. Generally speaking, such investments
will be valued on a going concern basis without giving effect to any disposition costs. There is a range of values that is reasonable for such investments at any particular time. Because of the inherent uncertainty of valuation, the
estimated values may differ significantly from the values that would have been used had a ready market for the securities existed, and the differences could be material.



Initially, direct private company investments are valued based upon their original cost until developments provide a
sufficient basis for use of a valuation other than cost. Upon the occurrence of developments providing a sufficient basis for a change in valuation, direct private company investments will be valued by the private market or
appraisal methods of valuation. The private market method shall only be used with respect to reliable third party transactions by sophisticated, independent investors. The appraisal method shall be based upon such factors affecting the
company such as earnings, net worth, reliable private sale prices of the companys securities, the market prices for similar securities of comparable companies, an



20



---

##### Table of Contents

assessment of the companys future prospects or, if appropriate, liquidation value. The values for the investments referred to in this paragraph will be
estimated regularly by the Investment Adviser or a committee of the Board, both under the supervision of the Board, and, in any event, not less frequently than quarterly. However, there can be no assurance that such value will represent the return
that might ultimately be realized by the Company from the investments.



The valuation of the Companys private funds is based upon the its pro-rata share of the value of the assets of a private fund as determined by such private fund, in accordance with its partnership agreement, constitutional or other
documents governing such valuation, on the valuation date. If such valuation with respect to the Companys investments in private funds is not available by reason of timing or other event on the valuation date, or are deemed to be unreliable by
the Investment Adviser, the Investment Adviser, under supervision of the Board, shall determine such value based on its judgment of fair value on the appropriate date, less applicable charges, if any.



The Investment Adviser also makes estimates regarding discounts on market
prices of publicly traded securities where appropriate. For securities which have legal, contractual or practical restrictions on transfer, a discount of 10% to 40% from the public market price will be applied. A discount of 30% was applied to the
Companys investments in its two publicly-held stocks, NetLogic Microsystems, Inc. and Senomyx, Inc., as of July 31, 2004.



|Item 3. | Quantitative and Qualitative Disclosures about Market Risk.
|------- | -----------------------------------------------------------



Equity Price Risk



The Company anticipates that a majority of its investment portfolio will consist of securities in private companies and private investment funds,
currently representing 63.4% of net assets, which are not publicly traded. These investments are recorded at fair value as determined by the Investment Advisers in accordance with valuation guidelines adopted by the Board of Managers. This method of
valuation does not result in increases or decreases in the fair value of these securities in response to changes in market prices. Thus, these securities are not subject to equity price risk normally associated with public equity markets, except
that to the extent that the private investment funds hold underlying public securities, the Company is indirectly exposed to equity price risk associated with the public markets. Nevertheless, the Company is exposed to equity price risk through its
investments in the equity securities of two public companies, NetLogic Microsystems, Inc. (NASDAQ: NETL), and Senomyx, Inc. (NASDAQ: SNMX). During the three-month period ended July 31, 2004, both of these companies successfully completed public
offerings of their common stock. At July 31, 2004, these publicly traded equity securities were valued at $4,533,925, and a 30% discount to the closing market price at that date, representing 3.7% of the Companys net assets. Thus, there is
exposure to equity price risk, estimated as the potential loss in fair value due to a hypothetical 10% decrease in quoted market prices, representing a decrease in the value of these securities of $453,393. At October 31, 2003, the Company held no
publicly traded equity securities.



|Item 4. | Controls and Procedures.
|------- | ------------------------



(a) Evaluation of Disclosure Controls and Procedures. As of July 31, 2004 (the end of the period covered by this report), the Companys principal
executive officers and principal financial officer evaluated the effectiveness of the Companys disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and have concluded that, based on such evaluation, the
Companys disclosure controls and procedures were adequate and effective to ensure that material information relating to the Company was made known to them by others within those entities.



(b) Changes in Internal Controls. There were no changes in the Companys
internal control over financial reporting identified in connection with the evaluation of such internal control that occurred during the Companys last fiscal quarter, that have materially affected, or are reasonably likely to materially
affect, the Companys internal control over financial reporting.



|PART II. | OTHER INFORMATION
|-------- | -----------------



|Item 1. | Legal Proceedings.
|------- | ------------------



None.



|Item 2. | Changes in Securities and Use of Proceeds.
|------- | ------------------------------------------



None.



21



---

##### Table of Contents

|Item 3. | Defaults Upon Senior Securities.
|------- | --------------------------------



None.



|Item 4. | Submission of Matters to a Vote of Security Holders.
|------- | ----------------------------------------------------



None.



|Item 5. | Other Information.
|------- | ------------------



None.



|Item 6. | Exhibits and Reports on Form 8-K.
|------- | ---------------------------------



|(a) | Exhibits.
|--- | ---------



|     |  |                                                                                                                                                   
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|31.1 |  | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|     | 
|31.2 |  | Certification of Treasurer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.              
|     | 
|32   |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                           



|(b) | Reports on Form 8-K.
|--- | --------------------



None.



22



---

##### Table of Contents

SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.



|                         |  |  |  |                                     |  |                          |  |                                        
|------------------------ |  |  |  | ----------------------------------- |  | ------------------------ |  | ---------------------------------------
|                         |  |  |  | EXCELSIOR VENTURE PARTNERS III, LLC
|                         |  |  | 
|Date: September 20, 2004 |  |  |  | By:                                 |  | /s/ Douglas A. Lindgren 
|                         |  |  |  |                                     |  |                          |  | Douglas A. Lindgren                    
|                         |  |  |  |                                     |  |                          |  | Chief Executive Officer                
|                         |  |  | 
|Date: September 20, 2004 |  |  |  | By:                                 |  | /s/ Robert F. Aufenanger
|                         |  |  |  |                                     |  |                          |  | Robert F. Aufenanger                   
|                         |  |  |  |                                     |  |                          |  | Treasurer (Principal Financial Officer)



23