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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549



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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 January 31, 2006

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



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.    x  Yes ̈No

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

Large accelerated filer ̈Accelerated filer ̈Non-accelerated filer  x

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

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by
check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a
court. ̈Yes ̈No



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EXCELSIOR VENTURE PARTNERS III, LLC

Excelsior Venture Partners III, LLCs (the Companys) prospects, including the prospects of its underlying investments, are
subject to certain uncertainties and risks. This Quarterly Report on Form10-Q contains certain forward-looking statements within the meaning of the federal securities laws that also involve substantial uncertainties and risks. The future results of
the Company and its underlying investments, may differ materially from its historical results and actual results could differ materially from those projected in forward-looking statements as a result of certain risk factors. Readers should pay
particular attention to the considerations described in the section of this report entitled Managements Discussion and Analysis of Financial Conditions and Results of Operations.Readers should also carefully review the risk factors
described in the other documents the Company files, or has filed, from time to time with the Securities and Exchange Commission.



|         |  |                                                                                                             |  |         
|-------- |  | ----------------------------------------------------------------------------------------------------------- |  | --------
|         |  | INDEX                                                                                                       |  | PAGE NO.
|         |  |                                                                                                            
|PART I.  |  | FINANCIAL INFORMATION                                                                                       |  |         
|         |  |                                                                                                            
|Item 1.  |  | Financial Statements                                                                                        |  | 1       
|         |  |                                                                                                            
|         |  | Portfolio of Investments as of January 31, 2006 and October 31, 2005                                        |  | 2       
|         |  |                                                                                                            
|         |  | Statements of Assets and Liabilities at January 31, 2006 and October 31, 2005                               |  | 9       
|         |  |                                                                                                            
|         |  | Statements of Operations for the three-month periods ended January 31, 2006 and January 31, 2005            |  | 10      
|         |  |                                                                                                            
|         |  | Statements of Changes in Net Assets for the three-month periods ended January 31, 2006 and January 31, 2005 |  | 11      
|         |  |                                                                                                            
|         |  | Statements of Cash Flows for the three-month periods ended January 31, 2006 and January 31, 2005            |  | 12      
|         |  |                                                                                                            
|         |  | Financial Highlights for the three-month periods ended January 31, 2006 and January 31, 2005                |  | 13      
|         |  |                                                                                                            
|         |  | Notes to Financial Statements                                                                               |  | 14      
|         |  |                                                                                                            
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                       |  | 21      
|         |  |                                                                                                            
|Item 3.  |  | Quantitative and Qualitative Disclosures about Market Risk                                                  |  | 23      
|         |  |                                                                                                            
|Item 4.  |  | Controls and Procedures                                                                                     |  | 23      
|         |  |                                                                                                            
|PART II. |  | OTHER INFORMATION                                                                                           |  |         
|         |  |                                                                                                            
|Item 1.  |  | Legal Proceedings                                                                                           |  | 23      
|         |  |                                                                                                            
|Item 2.  |  | Changes in Securities and Use of Proceeds                                                                   |  | 23      
|         |  |                                                                                                            
|Item 3.  |  | Defaults Upon Senior Securities                                                                             |  | 23      
|         |  |                                                                                                            
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                         |  | 23      
|         |  |                                                                                                            
|Item 5.  |  | Other Information                                                                                           |  | 24      
|         |  |                                                                                                            
|Item 6.  |  | Exhibits and Reports on Form 8-K                                                                            |  | 25      



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##### Table of Contents

PART I. FINANCIAL INFORMATION



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

Excelsior Venture Partners III, LLC

Portfolio of Investments (Unaudited)



|                                 |  |                  |            |   |                      |        |   
|-------------------------------- |  | ---------------- | ---------- | - | -------------------- | ------ | --
|                                 |  | January 31, 2006 |           
|PORTFOLIO STRUCTURE              |  | Value            |            |   | Percent of NetAssets |       
|SHORT-TERM INVESTMENTS:          |  |                  |            |   |                      |        |   
|MONEY MARKET INSTRUMENTS         |  | $                | 26,442,170 |   |                      | 28.66  | % 
|INVESTMENT COMPANIES             |  |                  | 151,175    |   |                      | 0.17   | % 
|PRIVATE COMPANIES                |  |                  | 55,612,929 |   |                      | 60.28  | % 
|PRIVATE INVESTMENT FUNDS         |  |                  | 10,178,012 |   |                      | 11.03  | % 
|                                 |  |                  |            |   |                      |        |   
|TOTAL INVESTMENTS                |  |                  | 92,384,286 |   |                      | 100.14 | % 
|OTHER ASSETS & LIABILITIES (NET) |  |                  | (131,533   | ) |                      | (0.14  | )%
|                                 |  |                  |            |   |                      |        |   
|NET ASSETS                       |  | $                | 92,252,753 |   |                      | 100.00 | % 
|                                 |  |                  |            |   |                      |        |   

Excelsior Venture Partners III, LLC

Portfolio of Investments



|                                 |  |                  |            |                      |        |  
|-------------------------------- |  | ---------------- | ---------- | -------------------- | ------ | -
|                                 |  | October 31, 2005 |           
|PORTFOLIO STRUCTURE              |  | Value            |            | Percent of NetAssets |       
|SHORT-TERM INVESTMENTS:          |  |                  |            |                      |        |  
|MONEY MARKET INSTRUMENTS         |  | $                | 27,485,535 |                      | 29.44  | %
|INVESTMENT COMPANIES             |  |                  | 1,112,759  |                      | 1.19   | %
|PRIVATE COMPANIES                |  |                  | 54,964,296 |                      | 58.88  | %
|PRIVATE INVESTMENT FUNDS         |  |                  | 9,030,493  |                      | 9.68   | %
|                                 |  |                  |            |                      |        |  
|TOTAL INVESTMENTS                |  |                  | 92,593,083 |                      | 99.19  | %
|OTHER ASSETS & LIABILITIES (NET) |  |                  | 755,764    |                      | 0.81   | %
|                                 |  |                  |            |                      |        |  
|NET ASSETS                       |  | $                | 93,348,847 |                      | 100.00 | %
|                                 |  |                  |            |                      |        |  

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



1



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Excelsior Venture Partners III, LLC

Portfolio of Investments January 31, 2006 (Unaudited)



|                                       |  |                                                                    |  |                            |  |                |           
|-------------------------------------- |  | ------------------------------------------------------------------ |  | -------------------------- |  | -------------- | ----------
|Principal Amount/Shares/ Percent Owned |  |                                                                    |  | Acquisition Date ##        |  | Value (Note 1)
|MONEY MARKET INSTRUMENTS  28.66%      |  |                                                                    |  |                            | 
|                                       |  |                                                                    | 
|$        8,000,000                     |  | Federal Home Loan Mortgage Discount Note 4.70% 02/06/06            |  |                            |  | $              | 7,995,333 
|8,335,000                              |  | Federal Home Loan Mortgage Discount Note 4.17% 02/06/06            |  |                            |  |                | 8,330,127 
|5,420,000                              |  | Federal Home Loan Mortgage Discount Note 4.35% 01/30/06            |  |                            |  |                | 5,420,000 
|3,500,000                              |  | HBO Treasury Services Commercial Paper 4.23%02/09/06               |  |                            |  |                | 3,496,710 
|1,200,000                              |  | Federal National Mortgage Association Discount Note 4.15% 02/01/06 |  |                            |  |                | 1,200,000 
|                                       |  |                                                                    |  |                            |  |                |           
|                                       |  | TOTAL MONEY MARKET INSTRUMENTS (Cost $26,442,170)                  |  |                            |  |                | 26,442,170
|                                       |  |                                                                    |  |                            |  |                |           
|PRIVATE COMPANIES **  60.28%          |  |                                                                    |  |                            | 
|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                      |  |                |          
|                                       |  |                                                                    |  |                            |  |                |           
|                                       |  |                                                                    |  |                            |  |                |          
|Enterprise Software  0.00%            |  |                                                                    |  |                            | 
|1,000,000                              |  | ***Cydelity, Inc.                                                  |  | 01/04                      |  |                |          
|                                       |  |                                                                    |  |                            |  |                |           
|                                       |  | TOTAL COMMON STOCKS (Cost $5,247,500)                              |  |                            |  |                |          
|                                       |  |                                                                    |  |                            |  |                |           
|Preferred Stocks #  53.58%            |  |                                                                    |  |                            | 
|Capital Equipment @  0.00%            |  |                                                                    |  |                            | 
|933,593                                |  | MIDAS Vision Systems, Inc., Series A-1                             |  | 03/03                      |  |                |          
|                                       |  |                                                                    |  |                            |  |                |           
|Enterprise Software @  13.55%         |  |                                                                    |  |                            | 
|19,995,000                             |  | ***Cydelity Inc., Series A                                         |  | 01/04                      |  |                |          
|6,530,581                              |  | ***LogicLibrary, Inc., Series A                                    |  | 01/02, 12/04,02/05 & 08/05 |  |                | 2,985,916 
|3,080,464                              |  | ***LogicLibrary, Inc., Series A-1                                  |  | 08/03, 05/04               |  |                | 1,408,450 
|46,362,656                             |  | ***Pilot Software Inc., Series A                                   |  | 05/02, 04/03, 06/05        |  |                | 8,110,096 
|                                       |  |                                                                    |  |                            |  |                |           
|                                       |  |                                                                    |  |                            |  |                | 12,504,462
|Life Sciences  6.10%                  |  |                                                                    |  |                            | 
|1,999,999                              |  | Archemix Corporation, Inc., Series A                               |  | 08/02, 01/03, 11/03        |  |                | 1,999,999 
|700,000                                |  | Archemix Corporation, Inc., Series B                               |  | 03/04, 09/04, 12/05        |  |                | 700,000   
|942,481                                |  | Genoptix, Inc., Series 1-A@                                        |  | 08/04                      |  |                | 950,822   
|1,403,696                              |  | Genoptix, Inc., Series 1-B@                                        |  | 08/04                      |  |                | 950,822   
|620,580                                |  | Genoptix, Inc., Series 1-C@                                        |  | 08/04, 01/05               |  |                | 554,178   
|728,413                                |  | Genoptix, Inc., Series 1-D@                                        |  | 05/05                      |  |                | 461,815   
|                                       |  |                                                                    |  |                            |  |                |           
|                                       |  |                                                                    |  |                            |  |                | 5,617,636 
|Medical Technology @  2.63%           |  |                                                                    |  |                            | 
|4,166,667                              |  | Tensys Medical, Inc., Series C                                     |  | 03/02                      |  |                | 1,887,160 
|1,187,500                              |  | Tensys Medical, Inc., Series D                                     |  | 05/04                      |  |                | 537,840   
|                                       |  |                                                                    |  |                            |  |                |           
|                                       |  |                                                                    |  |                            |  |                | 2,425,000 

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



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Excelsior Venture Partners III, LLC

Portfolio of Investments January 31, 2006  (continued)



|                                       |  |                                                                   |  |                                                      |  |               
|-------------------------------------- |  | ----------------------------------------------------------------- |  | ---------------------------------------------------- |  | --------------
|Principal Amount/Shares/ Percent Owned |  |                                                                   |  | Acquisition Date ##                                  |  | Value (Note 1)
|Optical @  17.28%                     |  |                                                                   |  |                                                     
|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                                         |  | 242,618       
|3,023,399                              |  | NanoOpto Corporation, Series B                                    |  | 09/03, 11/03, 01/04,07/04                            |  | 1,286,155     
|1,682,470                              |  | NanoOpto Corporation, Series C                                    |  | 03/05                                                |  | 733,389       
|5,333,333                              |  | OpVista, Inc., Series B                                           |  | 07/01                                                |  |              
|12,671,059                             |  | OpVista, Inc., Series C                                           |  | 09/03                                                |  | 5,000,000     
|10,368,483                             |  | OpVista, Inc., Series D                                           |  | 11/04                                                |  | 1,058,000     
|15,935,224                             |  | OpVista, Inc., Series E                                           |  | 05/05, 06/05                                         |  | 1,626,030     
|                                       |  |                                                                   |  |                                                      |  |               
|                                       |  |                                                                   |  |                                                      |  | 15,938,192    
|Semiconductor @  5.15%                |  |                                                                   |  |                                                     
|7,000,000                              |  | Chips & Systems, Inc., Series A                                   |  | 03/04                                                |  |              
|2,211,898                              |  | Silverback Systems, Inc., Series B-1                              |  | 03/03, 09/03                                         |  | 1,415,615     
|34,364,257                             |  | Silverback Systems, Inc., Series C                                |  | 03/03, 09/03, 04/04                                  |  | 3,333,333     
|                                       |  |                                                                   |  |                                                      |  |               
|                                       |  |                                                                   |  |                                                      |  | 4,748,948     
|Wireless @  8.82%                     |  |                                                                   |  |                                                     
|4,433,333                              |  | Ethertronics, Inc., Series B                                      |  | 06/01, 09/02, 07/03,05/04                            |  | 6,650,000     
|980,172                                |  | Ethertronics, Inc., Series C                                      |  | 05/05, 10/05                                         |  | 1,470,258     
|                                       |  |                                                                   |  |                                                      |  |               
|                                       |  |                                                                   |  |                                                      |  | 8,120,258     
|                                       |  | TOTAL PREFERRED STOCKS (Cost $66,012,537)                         |  |                                                      |  | 49,354,496    
|                                       |  |                                                                   |  |                                                      |  |               
|Notes @  6.78%                        |  |                                                                   |  |                                                     
|Enterprise Software  4.01%            |  |                                                                   |  |                                                     
|$3,700,000                             |  | ***Cydelity Inc. 8% Bridge Note, March 2006                       |  | 12/04, 01/05, 02/05,03/05, 04/05, 05/05,07/05, 01/06 |  | 3,700,000     
|                                       |  |                                                                   |  |                                                      |  |               
|Optical  0.64 %                       |  |                                                                   |  |                                                     
|586,087                                |  | OpVista, Inc. 6%, Bridge Note                                     |  | 01/06                                                |  | 586,087       
|Semiconductor  2.14 %                 |  |                                                                   |  |                                                     
|1,441,133                              |  | Chips & Systems, Inc., 6% Bridge Note March 2005 #                |  | 11/04, 01/05, 02/05                                  |  |              
|1,333,335                              |  | Silverback Systems, Inc., 5% Bridge Note, January 2006            |  | 01/05, 04/05                                         |  | 1,333,334     
|635,871                                |  | Silverback Systems, Inc., 5% Bridge Note, July 2006               |  | 07/05                                                |  | 635,871       
|                                       |  |                                                                   |  |                                                      |  |               
|                                       |  | TOTAL NOTES (Cost $7,696,426)                                     |  |                                                      |  | 6,255,292     
|Warrants #,@  0.00%                   |  |                                                                   |  |                                                     
|Enterprise Software  0.00%            |  |                                                                   |  |                                                     
|9,250,000                              |  | ***Cydelity Inc. Series A (expiration dates 12/08, 07/09 & 01/10) |  | 12/04, 07/05, 01/06                                  |  |              
|Optical  0.00 %                       |  |                                                                   |  |                                                     
|229,410                                |  | NanoOpto Corp. Series C (expiration date 12/09)                   |  | 12/04                                                |  |              
|2,945                                  |  | OpVista, Inc.                                                     |  | 01/06                                                |  | 2,945         
|Semiconductor  0.00 %                 |  |                                                                   |  |                                                     
|4,224,203                              |  | Silverback Systems, Inc. Series C (expiration date 01/12 & 07/12) |  | 01/05, 04/05, 07/05                                  |  | 196           
|Wireless  0.00%                       |  |                                                                   |  |                                                     
|281,667                                |  | Ethertronics, Inc., Series B (expiration date 09/07)              |  | 09/02, 07/03, 08/03                                  |  |              
|163,580                                |  | Ethertronics, Inc., Series C (expiration date 01/09)              |  | 05/05, 10/05                                         |  |              
|                                       |  |                                                                   |  |                                                      |  |               
|                                       |  | TOTAL WARRANTS (Cost $3,141)                                      |  |                                                      |  | 3,141         
|                                       |  |                                                                   |  |                                                      |  |               
|                                       |  | TOTAL  PRIVATE COMPANIES (Cost $78,959,604)                      |  |                                                      |  | 55,612,929    



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|                                                |  |                                                                              |  |                     |            |                |            | 
|----------------------------------------------- |  | ---------------------------------------------------------------------------- |  | ------------------- | ---------- | -------------- | ---------- | 
|Principal Amount/Shares/ Percent Owned          |  |                                                                              |  | Acquisition Date ## |            | Value (Note 1) |           
|PRIVATE INVESTMENT FUNDS **,#  11.03%          |  |                                                                              |  |                     |            |               
|0.39%                                           |  | Advanced Technology Ventures VII, LP                                         |  | 08/01-01/06         |            |                | 1,003,641  | 
|1.55%                                           |  | Burrill Life Sciences Capital Fund                                           |  | 12/02-01/06         |            |                | 1,199,269  | 
|1.35%                                           |  | CHL Medical Partners II, LP                                                  |  | 01/02-11/05         |            |                | 732,430    | 
|1.04%                                           |  | CMEA Ventures VI, LP                                                         |  | 12/03-10/05         |            |                | 532,630    | 
|0.36%                                           |  | Morgenthaler Partners VII, L.P.                                              |  | 07/01-01/06         |            |                | 1,676,941  | 
|0.57%                                           |  | Prospect Venture Partners II, LP                                             |  | 06/01-12/05         |            |                | 1,766,105  | 
|0.98%                                           |  | Sevin Rosen Fund IX, LP                                                      |  | 10/04-01/06         |            |                | 795,979    | 
|2.36%                                           |  | Tallwood II, LP                                                              |  | 12/02-01/06         |            |                | 1,372,808  | 
|1.70%                                           |  | Valhalla Partners, LP                                                        |  | 10/03-12/05         |            |                | 1,098,209  | 
|                                                |  |                                                                              |  |                     |            |                |            | 
|                                                |  | TOTAL  PRIVATE INVESTMENT FUNDS (Cost $11,560,943)                          |  |                     |            |                | 10,178,012 | 
|                                                |  |                                                                              |  |                     |            |                |            | 
|INVESTMENT COMPANIES  0.17%                    |  |                                                                              |  |                     |            |               
|151,175                                         |  | Dreyfus Government Cash Management Fund Institutional Shares (Cost $151,175) |  |                     |            |                | 151,175    | 
|                                                |  |                                                                              |  |                     |            |                |            | 
|TOTAL INVESTMENTS (Cost $117,113,892)  100.14% |  |                                                                              |  |                     | 92,384,286 |               
|OTHER ASSETS & LIABILITIES (NET)  (-0.14%)     |  |                                                                              |  |                     | (131,533   | )             
|                                                |  |                                                                              |  |                     |            |                |            | 
|NET ASSETS  100.00%                            |  |                                                                              |  | $                   | 92,252,753 |               
|                                                |  |                                                                              |  |                     |            |                |            | 

---

|** | Restricted as to public resale. Acquired between June 1, 2001 and January 31, 2006.
Total cost of restricted securities at January 31, 2006 aggregated $90,520,547. Total Value of restricted securities owned at January 31, 2006 was $65,790,941 or 71.31% of net assets.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



|@ | At January 31, 2006 the Company owned 5% or more of the companys outstanding
shares thereby making the company an affiliate as defined by the Investment Company Act of 1940, as amended. Total market value of affiliated securities owned at January 31, 2006 (including investments in controlled affiliates) was $52,912,930.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|*** | At January 31, 2006 the Company owned 25% or more of the companys outstanding shares thereby making the company a controlled affiliate as defined by the Investment
Company Act of 1940, as amended. Total market value of controlled affiliated securities owned at January 31, 2006 was $16,204,462.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|## | Disclosure is required for restricted securities only.
|-- | ------------------------------------------------------

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



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Excelsior Venture Partners III, LLC

Portfolio of Investments October 31, 2005



|                                      |  |                                                                |  |                    |  |                |           
|------------------------------------- |  | -------------------------------------------------------------- |  | ------------------ |  | -------------- | ----------
|PrincipalAmount/Shares/ Percent Owned |  |                                                                |  | AcquisitionDate ## |  | Value (Note 1)
|MONEY MARKET INSTRUMENTS  29.44%     |  |                                                                |  |                    | 
|$        7,000,000                    |  | Federal Farm Credit Bank Discount Note 3.67%, 11/2/05          |  |                    |  | $              | 6,999,286 
|4,000,000                             |  | Danske Commercial Paper 3.82%, 11/7/05                         |  |                    |  |                | 3,997,453 
|7,500,000                             |  | Federal Home Loan Bank Discount Note 3.68%, 11/07/05           |  |                    |  |                | 7,495,400 
|5,000,000                             |  | Federal Home Loan Mortgage Corp. Discount Note 3.72%, 11/08/05 |  |                    |  |                | 4,996,383 
|4,000,000                             |  | Morgan Stanley Commercial Paper 3.84%, 11/08/05                |  |                    |  |                | 3,997,013 
|                                      |  |                                                                |  |                    |  |                |           
|                                      |  | TOTAL MONEY MARKET INSTRUMENTS (Cost $27,485,535)              |  |                    |  |                | 27,485,535
|                                      |  |                                                                |  |                    |  |                |           
|PRIVATE COMPANIES **  58.88%         |  |                                                                |  |                    | 
|Common Stocks #,@  0.00%             |  |                                                                |  |                    | 
|Capital Equipment  0.00%             |  |                                                                |  |                    | 
|157,396                               |  | MIDAS Vision Systems, Inc.                                     |  | 03/03              |  |                |          
|                                      |  |                                                                |  |                    |  |                |           
|Enterprise Software  0.00%           |  |                                                                |  |                    | 
|1,000,000                             |  | ***Cydelity, Inc.                                              |  | 01/04              |  |                |          
|                                      |  |                                                                |  |                    |  |                |           
|Life Sciences  0.00%                 |  |                                                                |  |                    | 
|46,860                                |  | Genoptix, Inc.                                                 |  | 07/03              |  |                |          
|                                      |  |                                                                |  |                    |  |                |           
|                                      |  | TOTAL COMMON STOCKS (Cost $5,247,500)                          |  |                    |  |                |          
|                                      |  |                                                                |  |                    |  |                |           

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



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##### Table of Contents

Excelsior Venture Partners III, LLC

Portfolio of Investments October 31, 2005 - (continued)



|                                       |  |                                        |  |                             |  |               
|-------------------------------------- |  | -------------------------------------- |  | --------------------------- |  | --------------
|Principal Amount/Shares/ Percent Owned |  |                                        |  | Acquisition Date ##         |  | Value (Note 1)
|PRIVATE COMPANIES **  (continued)     |  |                                        |  |                            
|Preferred Stocks #  53.56%            |  |                                        |  |                            
|Capital Equipment @  0.00%            |  |                                        |  |                            
|933,593                                |  | MIDAS Vision Systems, Inc., Series A-1 |  | 03/03                       |  |              
|                                       |  |                                        |  |                             |  |               
|Enterprise Software @  13.40%         |  |                                        |  |                            
|19,995,000                             |  | ***Cydelity, Inc., Series A            |  | 01/04                       |  |              
|6,530,581                              |  | ***LogicLibrary, Inc., Series A        |  | 01/02, 12/04, 02/05 & 08/05 |  | 2,985,916     
|3,080,464                              |  | ***LogicLibrary, Inc., Series A-1      |  | 08/03 & 05/04               |  | 1,408,450     
|46,362,656                             |  | ***Pilot Software Inc., Series A       |  | 05/02, 04/03, 06/05         |  | 8,110,096     
|                                       |  |                                        |  |                             |  |               
|                                       |  |                                        |  |                             |  | 12,504,462    
|                                       |  |                                        |  |                             |  |               
|Life Sciences  5.76%                  |  |                                        |  |                            
|1,999,999                              |  | Archemix Corporation, Series A         |  | 08/02, 01/03, 11/03         |  | 1,999,999     
|466,666                                |  | Archemix Corporation, Series B         |  | 03/04 & 09/04               |  | 466,666       
|942,481                                |  | Genoptix, Inc., Series 1-A @           |  | 08/04                       |  | 950,822       
|1,403,696                              |  | Genoptix, Inc., Series 1-B @           |  | 08/04                       |  | 950,822       
|620,580                                |  | Genoptix, Inc., Series 1-C @           |  | 08/04, 01/05                |  | 554,178       
|728,413                                |  | Genoptix, Inc., Series 1-D @           |  | 05/05                       |  | 461,815       
|                                       |  |                                        |  |                             |  |               
|                                       |  |                                        |  |                             |  | 5,384,302     
|                                       |  |                                        |  |                             |  |               
|Medical Technology @  2.60%           |  |                                        |  |                            
|4,166,667                              |  | Tensys Medical, Inc., Series C         |  | 03/02                       |  | 1,887,160     
|1,187,500                              |  | Tensys Medical, Inc., Series D         |  | 05/04                       |  | 537,840       
|                                       |  |                                        |  |                             |  |               
|                                       |  |                                        |  |                             |  | 2,425,000     
|                                       |  |                                        |  |                             |  |               
|Optical @  18.01%                     |  |                                        |  |                            
|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 & 3/02                |  | 1,116,350     
|3,023,399                              |  | NanoOpto Corporation, Series B         |  | 09/03, 11/03, 01/04, 07/04  |  | 1,286,155     
|1,682,470                              |  | NanoOpto Corporation, Series C         |  | 03/05                       |  | 733,389       
|5,333,333                              |  | OpVista, Inc., Series B                |  | 07/01                       |  |              
|12,671,059                             |  | OpVista, Inc., Series C                |  | 09/03                       |  | 5,000,000     
|10,368,483                             |  | OpVista, Inc., Series D                |  | 11/04                       |  | 1,058,000     
|15,935,224                             |  | OpVista, Inc., Series E                |  | 05/05, 06/05                |  | 1,626,030     
|                                       |  |                                        |  |                             |  |               
|                                       |  |                                        |  |                             |  | 16,811,924    
|                                       |  |                                        |  |                             |  |               

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



6



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##### Table of Contents

Excelsior Venture Partners III, LLC

Portfolio of Investments October 31, 2005  (continued)



|                                       |  |                                                                     |  |                                                |  |               
|-------------------------------------- |  | ------------------------------------------------------------------- |  | ---------------------------------------------- |  | --------------
|Principal Amount/Shares/ Percent Owned |  |                                                                     |  | Acquisition Date                               |  | Value (Note 1)
|PRIVATE COMPANIES **, @  (continued)  |  |                                                                     |  |                                               
|Preferred Stocks #  (continued)       |  |                                                                     |  |                                               
|Semiconductor @  5.09%                |  |                                                                     |  |                                               
|7,000,000                              |  | Chips & Systems, Inc., Series A                                     |  | 03/04                                          |  |              
|2,211,898                              |  | Silverback Systems, Inc., Series B-1                                |  | 03/03 & 09/03                                  |  | 1,415,615     
|34,364,257                             |  | Silverback Systems, Inc., Series C                                  |  | 03/03, 09/03, 04/04                            |  | 3,333,333     
|                                       |  |                                                                     |  |                                                |  |               
|                                       |  |                                                                     |  |                                                |  | 4,748,948     
|                                       |  |                                                                     |  |                                                |  |               
|Wireless @  8.70%                     |  |                                                                     |  |                                               
|4,433,333                              |  | Ethertronics, Inc., Series B                                        |  | 06/01, 09/02, 07/03, 05/04                     |  | 6,650,000     
|980,172                                |  | Ethertronics, Inc., Series C                                        |  | 05/05,10/05                                    |  | 1,470,258     
|                                       |  |                                                                     |  |                                                |  |               
|                                       |  |                                                                     |  |                                                |  | 8,120,258     
|                                       |  | TOTAL PREFERRED STOCKS (Cost $65,779,204)                           |  |                                                |  | 49,994,894    
|                                       |  |                                                                     |  |                                                |  |               
|Notes @  5.32%                        |  |                                                                     |  |                                               
|Enterprise Software  3.21%            |  |                                                                     |  |                                               
|$        3,000,000                     |  | ***Cydelity, Inc., 8.00% Bridge Note, March, 2006                   |  | 12/04, 01/05, 02/05,03/05, 04/05, 05/05, 07/05 |  | 3,000,000     
|Semiconductor  2.11%                  |  |                                                                     |  |                                               
|$        1,441,133                     |  | Chips & Systems, Inc., 6.00% Bridge Note, March 2005 #              |  | 11/04, 01/05, 02/05                            |  |              
|$        1,333,335                     |  | Silverback Systems, Inc., 5.00% Bridge Note, January 2006           |  | 01/05 & 04/05                                  |  | 1,333,335     
|$           635,871                    |  | Silverback Systems, Inc., 5.00% Bridge Note, July 2006              |  | 07/05                                          |  | 635,871       
|                                       |  |                                                                     |  |                                                |  |               
|                                       |  |                                                                     |  |                                                |  | 1,969,206     
|                                       |  | TOTAL NOTES (Cost $6,410,339)                                       |  |                                                |  | 4,969,206     
|                                       |  |                                                                     |  |                                                |  |               
|Warrants #,@  0.00%                   |  |                                                                     |  |                                               
|Enterprise Software  0.00%            |  |                                                                     |  |                                               
|7,500,000                              |  | ***Cydelity, Inc. Series A (expiration dates 12/08 and 07/09)       |  | 12/04 & 07/05                                  |  |              
|Optical  0.00%                        |  |                                                                     |  |                                               
|229,410                                |  | NanoOpto Corp. Series C (expiration date 12/09)                     |  | 12/04                                          |  |              
|Semiconductor  0.00%                  |  |                                                                     |  |                                               
|4,173,033                              |  | Silverback Systems, Inc. Series C (expiration date 01/12 and 07/12) |  | 01/05, 04/05, 07/05                            |  | 196           
|Wireless  0.00%                       |  |                                                                     |  |                                               
|281,667                                |  | Ethertronics, Inc. Series B (expiration date 09/07)                 |  | 09/02, 07/03, 08/03                            |  |              
|163,580                                |  | Ethertronics, Inc. Series C (expiration date 01/09)                 |  | 05/05,10/05                                    |  |              
|                                       |  |                                                                     |  |                                                |  |               
|                                       |  | TOTAL WARRANTS (Cost $196)                                          |  |                                                |  | 196           
|                                       |  |                                                                     |  |                                                |  |               
|                                       |  | TOTAL  PRIVATE COMPANIES (Cost $77,437,239)                        |  |                                                |  | 54,964,296    
|                                       |  |                                                                     |  |                                                |  |               

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



7



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##### Table of Contents

Excelsior Venture Partners III, LLC

Portfolio of Investments October 31, 2005  (continued)



|                                       |   |  |                                                     |  |                    |  |               
|-------------------------------------- | - |  | --------------------------------------------------- |  | ------------------ |  | --------------
|Principal Amount/Shares/ Percent Owned |   |  |                                                     |  | AcquisitionDate ## |  | Value (Note 1)
|PRIVATE INVESTMENT FUNDS **, #  9.68% |   |  |                                                     | 
|0.39                                   | % |  | Advanced Technology Ventures VII, L.P.              |  | 08/01-10/05        |  | 919,392       
|1.55                                   | % |  | Burrill Life Sciences Capital Fund                  |  | 12/02-10/05        |  | 988,026       
|1.35                                   | % |  | CHL Medical Partners II, L.P.                       |  | 01/02-08/05        |  | 630,925       
|1.04                                   | % |  | CMEA Ventures, L.P.                                 |  | 12/03-10/05        |  | 532,630       
|0.36                                   | % |  | Morgenthaler Partners VII, L.P.                     |  | 07/01-08/05        |  | 1,505,173     
|0.57                                   | % |  | Prospect Ventures Partners II, L.P.                 |  | 06/01-10/05        |  | 1,756,519     
|0.98                                   | % |  | Sevin Rosen Fund IX, L.P.                           |  | 10/04-10/05        |  | 705,979       
|2.36                                   | % |  | Tallwood II, L.P.                                   |  | 12/02-08/05        |  | 1,072,808     
|1.70                                   | % |  | Valhalla Partners, L.P.                             |  | 10/03-10/05        |  | 919,041       
|                                       |   |  |                                                     |  |                    |  |               
|                                       |   |  | TOTAL  PRIVATE INVESTMENT FUNDS (Cost $10,373,375) |  |                    |  | 9,030,493     
|                                       |   |  |                                                     |  |                    |  |               



|                             |  |                                                                               |  |  |  |   |           
|---------------------------- |  | ----------------------------------------------------------------------------- |  |  |  | - | ----------
|Shares                       |  |                                                                               |  |  |  |  
|INVESTMENT COMPANIES  1.19% |  |                                                                               |  |  | 
|1,112,759                    |  | Dreyfus Government Cash Management Fund Institutional Shares(Cost $1,112,759) |  |  |  |   | 1,112,759 
|                             |  |                                                                               |  |  |  |   |           
|                             |  | TOTAL INVESTMENTS (Cost $116,408,908)  99.19%                                |  |  |  |   | 92,593,083
|                             |  | OTHER ASSETS & LIABILITIES (NET)  0.81%                                      |  |  |  |   | 755,764   
|                             |  |                                                                               |  |  |  |   |           
|                             |  | NET ASSETS  100.00%                                                          |  |  |  | $ | 93,348,847
|                             |  |                                                                               |  |  |  |   |           



|** | Restricted as to public resale. Acquired between June 1, 2001 and October 31, 2005. Total cost of restricted securities at October 31, 2005 aggregated $87,810,614.
Total value of restricted securities owned at October 31, 2005 was $63,994,789 or 68.55% of net assets.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



|@ | At October 31, 2005, 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, as amended. Total value of affiliated securities owned at October 31, 2005 (including investments in controlled affiliates) was $52,497,631.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|*** | At October 31, 2005, the Company owned 25% or more of the companys outstanding voting shares or a controlling interest thereby making the company a controlled affiliate
as defined by the Investment Company Act of 1940, as amended. Total value of controlled affiliated securities owned at October 31, 2005 was $15,504,462.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|## | Disclosure is required for restricted securities only.
|-- | ------------------------------------------------------

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



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##### Table of Contents

Excelsior Venture Partners III, LLC

Statements of Assets and Liabilities



|                                                                                             |  |                             |             |   |                  |   |             |  
|-------------------------------------------------------------------------------------------- |  | --------------------------- | ----------- | - | ---------------- | - | ----------- | -
|                                                                                             |  | January 31, 2006(Unaudited) |             |   | October 31, 2005 |  
|ASSETS:                                                                                      |  |                             |             |   |                  |   |             |  
|Unaffiliated Issuers at value (Cost $40,854,287 and $41,438,334 respectively)                |  | $                           | 39,471,356  |   |                  | $ | 40,095,452  |  
|Controlled Affiliated Issuers at value (Cost $20,204,462 and $19,504,462 respectively)       |  |                             | 16,204,462  |   |                  |   | 15,504,462  |  
|Non Controlled Affiliated Issuers at value (Cost $56,055,143 and $55,466,112 respectively)   |  |                             | 36,708,468  |   |                  |   | 36,993,169  |  
|                                                                                             |  |                             |             |   |                  |   |             |  
|Investments, at value (Cost $117,113,892 and $116,408,908 respectively) (Note 1)             |  |                             | 92,384,286  |   |                  |   | 92,593,083  |  
|                                                                                             |  |                             |             |   |                  |   |             |  
|Cash and cash equivalents (Note 1)                                                           |  |                             | 2,405       |   |                  |   | 574,146     |  
|Interest receivable                                                                          |  |                             | 271,149     |   |                  |   | 182,860     |  
|Distribution receivable                                                                      |  |                             | 122,018     |   |                  |   | 600,031     |  
|Other receivables                                                                            |  |                             | 1,945       |   |                  |   | 1,945       |  
|Prepaid Insurance                                                                            |  |                             | 30,623      |   |                  |   | 2,380       |  
|                                                                                             |  |                             |             |   |                  |   |             |  
|Total Assets                                                                                 |  |                             | 92,812,426  |   |                  |   | 93,954,445  |  
|                                                                                             |  |                             |             |   |                  |   |             |  
|LIABILITIES:                                                                                 |  |                             |             |   |                  |   |             |  
|Management fees payable (Note 2)                                                             |  |                             | 465,055     |   |                  |   | 469,295     |  
|Professional fees payable                                                                    |  |                             | 25,981      |   |                  |   | 64,255      |  
|Administration fees payable (Note 2)                                                         |  |                             | 57,894      |   |                  |   | 53,861      |  
|Board of Managers fees payable (Note 2)                                                     |  |                             | 6,623       |   |                  |   | 8,000       |  
|Other payables                                                                               |  |                             | 4,120       |   |                  |   | 10,187      |  
|                                                                                             |  |                             |             |   |                  |   |             |  
|Total Liabilities                                                                            |  |                             | 559,673     |   |                  |   | 605,598     |  
|                                                                                             |  |                             |             |   |                  |   |             |  
|NET ASSETS                                                                                   |  | $                           | 92,252,753  |   |                  | $ | 93,348,847  |  
|                                                                                             |  |                             |             |   |                  |   |             |  
|NET ASSETS consist of:                                                                       |  |                             |             |   |                  |   |             |  
|Paid-in capital                                                                              |  | $                           | 116,982,358 |   |                  | $ | 117,164,672 |  
|Unrealized depreciation on investments                                                       |  |                             | (24,729,605 | ) |                  |   | (23,815,825 | )
|                                                                                             |  |                             |             |   |                  |   |             |  
|Total Net Assets                                                                             |  | $                           | 92,252,753  |   |                  | $ | 93,348,847  |  
|                                                                                             |  |                             |             |   |                  |   |             |  
|Units of Membership Interest Outstanding (Unlimited Number of no par value units authorized) |  |                             | 295,210     |   |                  |   | 295,210     |  
|                                                                                             |  |                             |             |   |                  |   |             |  
|NET ASSET VALUE PER UNIT                                                                     |  | $                           | 312.50      |   |                  | $ | 316.21      |  
|                                                                                             |  |                             |             |   |                  |   |             |  

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



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##### Table of Contents

Excelsior Venture Partners III, LLC

Statements of Operations (Unaudited)



|                                                                    |  |                                |            |   |      |   |           |  
|------------------------------------------------------------------- |  | ------------------------------ | ---------- | - | ---- | - | --------- | -
|                                                                    |  | Three Months Ended January 31, |           
|                                                                    |  | 2006                           |            |   | 2005 |  
|INVESTMENT INCOME:                                                  |  |                                |            |   |      |   |           |  
|Interest income from unaffiliated investments                       |  | $                              | 286,383    |   |      | $ | 187,600   |  
|Interest income from affiliated investments                         |  |                                | 90,363     |   |      |   | 43,256    |  
|Dividend income                                                     |  |                                | 9,623      |   |      |   | 7,224     |  
|                                                                    |  |                                |            |   |      |   |           |  
|Total Investment Income                                             |  |                                | 386,369    |   |      |   | 238,080   |  
|                                                                    |  |                                |            |   |      |   |           |  
|EXPENSES:                                                           |  |                                |            |   |      |   |           |  
|Management fees (Note 2)                                            |  |                                | 465,055    |   |      |   | 617,033   |  
|Administration fees (Note 2)                                        |  |                                | 32,783     |   |      |   | 33,895    |  
|Professional fees                                                   |  |                                | 50,412     |   |      |   | 38,564    |  
|Board of Managers fees (Note 2)                                    |  |                                | 15,123     |   |      |   | 15,123    |  
|Insurance Expense                                                   |  |                                | 11,454     |   |      |   | 14,091    |  
|Custodian fees                                                      |  |                                | 5,527      |   |      |   | 4,537     |  
|Miscellaneous fees                                                  |  |                                | 4,042      |   |      |   | 4,043     |  
|                                                                    |  |                                |            |   |      |   |           |  
|Total Expenses                                                      |  |                                | 584,396    |   |      |   | 727,286   |  
|                                                                    |  |                                |            |   |      |   |           |  
|NET INVESTMENT LOSS                                                 |  |                                | (198,027   | ) |      |   | (489,206  | )
|                                                                    |  |                                |            |   |      |   |           |  
|NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:(Note 1)     |  |                                |            |   |      |   |           |  
|Net realized gain on investments on affiliated investments          |  |                                | 15,713     |   |      |   | 1,586,759 |  
|Net change in unrealized appreciation (depreciation) on investments |  |                                | (913,780   | ) |      |   | 5,342,620 |  
|                                                                    |  |                                |            |   |      |   |           |  
|NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS              |  |                                | (898,067   | ) |      |   | 6,929,379 |  
|                                                                    |  |                                |            |   |      |   |           |  
|NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS     |  | $                              | (1,096,094 | ) |      | $ | 6,440,173 |  
|                                                                    |  |                                |            |   |      |   |           |  

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



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Excelsior Venture Partners III, LLC

Statements of Changes in Net Assets (Unaudited)



|                                                                    |  |                                |            |   |      |   |             |  
|------------------------------------------------------------------- |  | ------------------------------ | ---------- | - | ---- | - | ----------- | -
|                                                                    |  | Three Months Ended January 31, |           
|                                                                    |  | 2006                           |            |   | 2005 |  
|OPERATIONS:                                                         |  |                                |            |   |      |   |             |  
|Net investment loss                                                 |  | $                              | (198,027   | ) |      | $ | (489,206    | )
|Net realized gain on investments                                    |  |                                | 15,713     |   |      |   | 1,586,759   |  
|Net change in unrealized appreciation (depreciation) on investments |  |                                | (913,780   | ) |      |   | 5,342,620   |  
|                                                                    |  |                                |            |   |      |   |             |  
|Net increase (decrease) in net assets resulting from operations     |  |                                | (1,096,094 | ) |      |   | 6,440,173   |  
|                                                                    |  |                                |            |   |      |   |             |  
|NET INCREASE (DECREASE) IN NET ASSETS                               |  |                                | (1,096,094 | ) |      |   | 6,440,173   |  
|NET ASSETS:                                                         |  |                                |            |   |      |   |             |  
|Beginning of period                                                 |  |                                | 93,348,847 |   |      |   | 116,079,433 |  
|                                                                    |  |                                |            |   |      |   |             |  
|End of period                                                       |  | $                              | 92,252,753 |   |      | $ | 122,519,606 |  
|                                                                    |  |                                |            |   |      |   |             |  

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



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Excelsior Venture Partners III, LLC

Statements of Cash Flows (Unaudited)



|                                                                                                                         |  |                                |            |   |      |   |            |  
|------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------ | ---------- | - | ---- | - | ---------- | -
|                                                                                                                         |  | Three Months Ended January 31, |           
|                                                                                                                         |  | 2006                           |            |   | 2005 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                                                    |  |                                |            |   |      |   |            |  
|Net increase (decrease) in net assets resulting from operations                                                          |  | $                              | (1,096,094 | ) |      | $ | 6,440,173  |  
|Adjustments to reconcile net increase (decrease) in net assets from operations to net cash used in operating activities: |  |                                |            |   |      |   |            |  
|Net change in unrealized (depreciation) on investments                                                                   |  |                                | 913,780    |   |      |   | (5,342,620 | )
|Purchase of investments                                                                                                  |  |                                | (2,805,903 | ) |      |   | (7,380,210 | )
|Proceeds received from the sale of investments and distributions received from private investment funds                  |  |                                | 111,681    |   |      |   | 8,138,940  |  
|Sale of short-term investments  Net                                                                                     |  |                                | 2,004,949  |   |      |   | 4,364,288  |  
|Net realized (gain) on investments                                                                                       |  |                                | (15,713    | ) |      |   | (1,586,759 | )
|(Increase) in interest receivable                                                                                        |  |                                | (88,289    | ) |      |   | (44,286    | )
|(Increase)/Decrease in other receivable                                                                                  |  |                                | 478,014    |   |      |   | (4,377,806 | )
|Increase in prepaid insurance                                                                                            |  |                                | (28,244    | ) |      |   | (41,815    | )
|Increase (Decrease) in management fee payable                                                                            |  |                                | (4,240     | ) |      |   | 34,064     |  
|Decrease in Board of Managers fees payable                                                                              |  |                                | (1,374     | ) |      |   | (58,877    | )
|Decrease in other expenses payable                                                                                       |  |                                | (40,308    | ) |      |   | (145,092   | )
|                                                                                                                         |  |                                |            |   |      |   |            |  
|Net cash used in operation activities                                                                                    |  |                                | (571,741   | ) |      |   |           |  
|Net change in cash                                                                                                       |  |                                | (571,741   | ) |      |   |           |  
|                                                                                                                         |  |                                |            |   |      |   |            |  
|Cash at beginning of period                                                                                              |  |                                | 574,146    |   |      |   |           |  
|                                                                                                                         |  |                                |            |   |      |   |            |  
|Cash at end of period                                                                                                    |  | $                              | 2,405      |   |      | $ |           |  
|                                                                                                                         |  |                                |            |   |      |   |            |  

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



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##### Table of Contents

Excelsior Venture Partners III, LLC

Financial Highlights (Unaudited)

Per Unit Operating Performance: (1)



|                                                                   |  |                                |        |    |      |   |         |   
|------------------------------------------------------------------ |  | ------------------------------ | ------ | -- | ---- | - | ------- | --
|                                                                   |  | Three Months Ended January 31, |       
|                                                                   |  | 2006                           |        |    | 2005 |  
|NET ASSET VALUE, BEGINNING OF PERIOD                               |  | $                              | 316.21 |    |      | $ | 393.21  |   
|INCOME FROM INVESTMENT OPERATIONS:                                 |  |                                |        |    |      |   |         |   
|Net investment loss                                                |  |                                | (0.67  | )  |      |   | (1.65   | ) 
|Net realized and unrealized gain (loss) on investment transactions |  |                                | (3.04  | )  |      |   | 23.47   |   
|                                                                   |  |                                |        |    |      |   |         |   
|Total from investment operations                                   |  |                                | (3.71  | )  |      |   | 21.82   |   
|                                                                   |  |                                |        |    |      |   |         |   
|NET ASSET VALUE, END OF PERIOD                                     |  | $                              | 312.50 |    |      | $ | 415.03  |   
|                                                                   |  |                                |        |    |      |   |         |   
|TOTAL NET ASSET VALUE RETURN (3), (4)                              |  |                                | (1.17  | )% |      |   | 5.55    | % 
|RATIOS AND SUPPLEMENTAL DATA (5)                                   |  |                                |        |    |      |   |         |   
|Net assets, end of period (000s)                                  |  | $                              | 92,253 |    |      | $ | 122,520 |   
|Ratios to average net assets: (2)                                  |  |                                |        |    |      |   |         |   
|Net expenses                                                       |  |                                | 2.52   | %  |      |   | 2.44    | % 
|Net investment loss                                                |  |                                | (0.85  | )% |      |   | (1.64   | )%
|Portfolio Turnover Rate (3)                                        |  |                                | 0.15   | %  |      |   | 8.94    | % 



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



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



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



|(4) | Total net asset value 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.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | Income and expense ratios do not reflect the companys proportionate share of net investment income (loss) and expenses, including any performance-based fees, of the Private
Investment Funds.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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



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EXCELSIOR VENTURE PARTNERS III, LLC

NOTES TO FINANCIAL STATEMENTS

January 31, 2006 (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 below) believes offer significant long-term capital appreciation potential. Venture capital and private investment 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.

Costs incurred in connection with the initial offering of units totaled $1,468,218. Each members pro rata share of these costs was deducted from
his, her or its initial capital contribution.

The following is a summary of the Companys significant accounting policies. Such
policies are in conformity with generally accepted accounting principles for investment companies and are consistently followed in the preparation of the financial statements. Generally accepted accounting principles in the United States 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.

A. Cash and cash equivalents:

Cash and cash equivalents consist of deposits with banks and highly liquid investments with original maturities of 90 days or less.

B. Investment Valuation:

The Company values portfolio securities quarterly and at such other times as,
in the Companys Board of Managers (the Board or 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 transfer, 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 or 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.



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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
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 appropriate date, less applicable charges, if any.

At January 31, 2006 and October 31, 2005, market quotations were not readily available for securities valued at $65,790,941 or 71.31% of net assets and $63,994,789 or 68.55% 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.

C. 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.

D. 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.

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 January 31, 2006 and October 31, 2005, 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 January 31, 2006 was $105,552,949, and those investments had net depreciation on a tax basis at January 31, 2006 of $23,346,675, consisting of gross appreciation of $0 and gross depreciation of
$23,346,675. The cost basis for federal tax purposes of the Companys other investments at October 31, 2005 was $106,035,533 and those investments had net depreciation on a tax basis at October 31, 2005 of $22,472,943 consisting of
gross appreciation of $0 and gross depreciation of $22,472,943.



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

UST Advisers, Inc. (USTA) which has its principal offices at 225 High Ridge Road, Stamford, Connecticut 06905, is a Delaware corporation and
registered investment adviser (the Investment Adviser). Pursuant to an Investment Advisory Agreement (the Agreement). U.S. Trust Company, National Association, on behalf of its Asset Management Division served as the
investment adviser to the Company (the former Investment Adviser) pursuant to the Agreement. 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 end of the quarter net assets through the fifth anniversary of the first closing date of April 5, 2001, and 1.00% of net assets thereafter. Pursuant to a sub-advisory agreement (the Sub-Advisory Agreement)
among the Company, the Investment Adviser, and United States Trust Company of New York (U.S. Trust NY), U.S. Trust NY serves as the investment sub-adviser (the Investment Sub-Adviser) to the Company and received an investment
management fee from the former Investment Adviser and Investment Adviser. As of January 31, 2006 and October 31, 2005, $465,055 and $469,295 were incurred and payable to the Investment Adviser and former Investment Adviser, respectively.

USTA is a wholly owned subsidiary of United States Trust Company, N.A. United States Trust Company, N.A. and United States Trust Company
of New York are wholly-owned subsidiaries of U.S. Trust Corporation (U.S. Trust), a registered bank holding company, which has its principal offices at 114 West 47th Street, New York, New York 10036-1532, and which is, in turn, a
wholly-owned subsidiary of The Charles Schwab Corporation (Schwab), which has its principal offices at 120 Kearney Street, San Francisco, California 94108.

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 excess,
if any, of the Companys cumulative realized capital gains on Direct Investments, over the sum of (a) cumulative realized capital losses on investments of any type (b) cumulative gross unrealized capital depreciation on investments of
any type (c) cumulative net expenses. 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. As of January 31, 2006 and January 31, 2005, there was no Incentive Carried Interest earned by the Investment Adviser or the former 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, serves
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 January 31, 2006 and October 31, 2005, Excelsior Venture Investors III, LLC had an investment in the Company of
$58,565,076 and $59,260,913, respectively. This represents an ownership interest of 63.48% in the Company as of both dates.



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On November 23, 2004, the Company engaged Deloitte & Touche LLP (D&T) as
the Companys Independent Registered Public Accounting Firm for the fiscal year ended October 31, 2004, replacing Ernst & Young LLP (E&Y), the Companys prior independent public accountants. E&Y was
terminated by the Company on October 28, 2004 as a result of concerns regarding their independence at the time of issuance of their report on the Companys October 31, 2003 financial statements. These concerns are the result of
certain real estate consulting services performed by E&Y on a contingent fee basis for Charles Schwab & Co., Inc., an affiliate of the Companys Investment Adviser.

On December 16, 2004, Schwab entered into an agreement with the Company and other funds managed by the former Investment Adviser whereby Schwab has
funded a reserve account to be held by the Investment Adviser or its affiliate. This reserve account was established so that the Company and other funds managed by the Investment Adviser will be able to draw upon it to pay in full all costs incurred
related to the termination of E&Y. This agreement was executed in order to ensure that these costs related to the termination of E&Y are not borne by the Company, the other funds managed by the Investment Adviser or their respective
shareholders. Schwab is an affiliate of the Companys Investment Adviser. In consideration of the funding of the reserve account, the Company and the other funds managed by the Investment Adviser subrogated all of their claims, causes of action
and rights against E&Y for payment of these expenses to Schwab.

Note 3  Purchases and Sales of Securities

Excluding short-term investments, the Companys purchases and sales of securities for the three month periods ended January 31, 2006, and
January 31, 2005 were as follows:



|                                      |  |               |  |             
|------------------------------------- |  | ------------- |  | ------------
|Three Month Periods Ended January 31, |  | Purchases ($) |  | Proceeds ($)
|2006                                  |  | 2,805,903     |  | 111,681     
|2005                                  |  | 7,380,210     |  | 8,138,940   

Note 4  Commitments

As of January 31, 2006, the Company had outstanding investment commitments totaling $13,272,809.



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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 dividends from
affiliated companies during the period ended January 31, 2006 and the year ended October 31, 2005. Transactions with companies, which are or were affiliates, were as follows:



|                                                 |  |                                               |  |                       |            |                                   |   |                                             |  |                  |   |                     |   |                                                |  |                                |   |  |            |  |   |           
|------------------------------------------------ |  | --------------------------------------------- |  | --------------------- | ---------- | --------------------------------- | - | ------------------------------------------- |  | ---------------- | - | ------------------- | - | ---------------------------------------------- |  | ------------------------------ | - |  | ---------- |  | - | ----------
|                                                 |  |                                               |  |                       |            |                                   |   | For the Three Months Ended January 31, 2006
|Name of Investment                               |  | Shares/PrincipalAmount Held atOctober 31,2005 |  | October 31,2005 Value |            | Purchases /ConversionAcquisitions |   | Sales /ConversionProceeds                   |  | InterestReceived |   | RealizedGain (Loss) |   | Shares/ PrincipalAmount Heldat January 31,2006 |  | January 31, 2006Value (Note 1)
|Controlled Affiliates                            |  |                                               |  |                       |            |                                   |   |                                             |  |                  |   |                     |   |                                                |  |                                |   |  |            |  |   |           
|Pilot Software Inc., Series A Preferred          |  | 46,362,656                                    |  | $                     | 8,110,096  |                                   | $ |                                            |  | $                |  |                     | $ |                                               |  | $                              |  |  | 46,362,656 |  | $ | 8,110,096 
|LogicLibrary, Inc., Series A Preferred           |  | 6,530,581                                     |  |                       | 2,985,916  |                                   |   |                                            |  |                  |  |                     |   |                                               |  |                                |  |  | 6,530,581  |  |   | 2,985,916 
|LogicLibrary, Inc., Series A-1 Preferred         |  | 3,080,464                                     |  |                       | 1,408,450  |                                   |   |                                            |  |                  |  |                     |   |                                               |  |                                |  |  | 3,080,464  |  |   | 1,408,450 
|Cydelity Inc. Series A Preferred                 |  | 19,995,000                                    |  |                       |           |                                   |   |                                            |  |                  |  |                     |   |                                               |  |                                |  |  | 19,995,000 |  |   |          
|Cydelity Inc. Common Stock                       |  | 1,000,000                                     |  |                       |           |                                   |   |                                            |  |                  |  |                     |   |                                               |  |                                |  |  | 1,000,000  |  |   |          
|Cydelity Inc. Series A Warrants                  |  | 7,500,000                                     |  |                       |           |                                   |   |                                            |  |                  |  |                     |   |                                               |  |                                |  |  | 9,250,000  |  |   |          
|Cydelity Inc., Bridge Note, 8%                   |  | 3,000,000                                     |  |                       | 3,000,000  |                                   |   | 700,000                                     |  |                  |  |                     |   | 63,715                                         |  |                                |  |  | 3,700,000  |  |   | 3,700,000 
|                                                 |  |                                               |  |                       |            |                                   |   |                                             |  |                  |   |                     |   |                                                |  |                                |   |  |            |  |   |           
|Total Controlled Affiliates                      |  |                                               |  | $                     | 15,504,462 |                                   | $ | 700,000                                     |  | $                |  |                     | $ | 63,715                                         |  | $                              |  |  |            |  | $ | 16,204,462
|Non-Controlled Affiliates                        |  |                                               |  |                       |            |                                   |   |                                             |  |                  |   |                     |   |                                                |  |                                |   |  |            |  |   |           
|Chips & Systems, Inc., Series A Preferred        |  | 7,000,000                                     |  |                       |           |                                   |   |                                            |  |                  |  |                     |   |                                               |  |                                |  |  | 7,000,000  |  |   |          
|Chips & Systems, Inc. Bridge Note                |  | 1,441,133                                     |  |                       |           |                                   |   |                                            |  |                  |  |                     |   |                                               |  |                                |  |  | 1,441,133  |  |   |          
|Ethertronics, Inc., Series B Preferred           |  | 4,433,333                                     |  |                       | 6,650,000  |                                   |   |                                            |  |                  |  |                     |   |                                               |  |                                |  |  | 4,433,333  |  |   | 6,650,000 
|Ethertronics, Inc., Series B Warrants            |  | 281,667                                       |  |                       |           |                                   |   |                                            |  |                  |  |                     |   |                                               |  |                                |  |  | 281,667    |  |   |          
|Ethertronics, Inc., Series C Warrants            |  | 163,580                                       |  |                       |           |                                   |   |                                            |  |                  |  |                     |   |                                               |  |                                |  |  | 163,580    |  |   |          
|Ethertronics, Inc., Series C Preferred           |  | 980,172                                       |  |                       | 1,470,258  |                                   |   |                                            |  |                  |  |                     |   |                                               |  |                                |  |  | 980,172    |  |   | 1,470,258 
|Genoptix, Inc., Series 1-A Preferred             |  | 942,481                                       |  |                       | 950,822    |                                   |   |                                            |  |                  |  |                     |   |                                               |  |                                |  |  | 942,481    |  |   | 950,822   
|Genoptix, Inc., Series 1-B Preferred             |  | 1,403,696                                     |  |                       | 950,822    |                                   |   |                                            |  |                  |  |                     |   |                                               |  |                                |  |  | 1,403,696  |  |   | 950,822   
|Genoptix, Inc., Common Stock                     |  | 46,860                                        |  |                       |           |                                   |   |                                            |  |                  |  |                     |   |                                               |  |                                |  |  | 46,860     |  |   |          
|Genoptix, Inc., Series 1-C Preferred             |  | 620,580                                       |  |                       | 544,178    |                                   |   |                                            |  |                  |  |                     |   |                                               |  |                                |  |  | 620,580    |  |   | 554,178   
|Genoptix, Inc., Series 1-D Preferred             |  | 728,413                                       |  |                       | 461,815    |                                   |   |                                            |  |                  |  |                     |   |                                               |  |                                |  |  | 728,413    |  |   | 461,815   
|LightConnect, Inc., Series B Preferred           |  | 4,330,504                                     |  |                       | 5,000,000  |                                   |   |                                            |  |                  |  |                     |   |                                               |  |                                |  |  | 4,330,504  |  |   | 5,000,000 
|LightConnect, Inc., Series C Preferred           |  | 12,292,441                                    |  |                       | 992,000    |                                   |   |                                            |  |                  |  |                     |   |                                               |  |                                |  |  | 12,292,441 |  |   | 992,000   
|MIDAS Vision Systems, Inc., Series A-1 Preferred |  | 933,593                                       |  |                       |           |                                   |   |                                            |  |                  |  |                     |   |                                               |  |                                |  |  | 933,593    |  |   |          
|MIDAS Vision Systems, Inc., Common Stock         |  | 157,396                                       |  |                       |           |                                   |   |                                            |  |                  |  |                     |   |                                               |  |                                |  |  | 157,396    |  |   |          
|NanoOpto Corp., Series A-1 Preferred             |  | 956,234                                       |  |                       | 1,116,350  |                                   |   |                                            |  |                  |  |                     |   |                                               |  |                                |  |  | 956,234    |  |   | 242,617   
|NanoOpto Corp., Series B Preferred               |  | 3,023,399                                     |  |                       | 1,286,155  |                                   |   |                                            |  |                  |  |                     |   |                                               |  |                                |  |  | 3,023,399  |  |   | 1,286,155 
|NanoOpto Corp., Series C Preferred               |  | 1,682,470                                     |  |                       | 733,389    |                                   |   |                                            |  |                  |  |                     |   |                                               |  |                                |  |  | 1,682,470  |  |   | 733,389   
|NanoOpto Corp., Series C Warrants                |  | 229,410                                       |  |                       |           |                                   |   |                                            |  |                  |  |                     |   |                                               |  |                                |  |  | 229,410    |  |   |          
|OpVista, Inc., Series B Preferred                |  | 5,333,333                                     |  |                       |           |                                   |   |                                            |  |                  |  |                     |   |                                               |  |                                |  |  | 5,333,333  |  |   |          
|OpVista, Inc., Series C Preferred                |  | 12,671,059                                    |  |                       | 5,000,000  |                                   |   |                                            |  |                  |  |                     |   |                                               |  |                                |  |  | 12,671,059 |  |   | 5,000,000 
|OpVista, Inc., Series D Preferred                |  | 10,368,483                                    |  |                       | 1,058,000  |                                   |   |                                            |  |                  |  |                     |   |                                               |  |                                |  |  | 10,368,483 |  |   | 1,058,000 
|OpVista, Inc., Series E Preferred                |  | 15,935,224                                    |  |                       | 1,626,030  |                                   |   |                                            |  |                  |  |                     |   |                                               |  |                                |  |  | 15,935,224 |  |   | 1,626,030 
|OpVista, Inc., 6% Bridge Note                    |  |                                              |  |                       |           |                                   |   | 586,087                                     |  |                  |  |                     |   | 1,831                                          |  |                                |  |  | 586,087    |  |   | 586,087   
|OpVista, Inc., Warrants                          |  |                                              |  |                       |           |                                   |   | 2,945                                       |  |                  |  |                     |   |                                               |  |                                |  |  | 2,945      |  |   | 2,945     
|Silverback Systems, Inc., Series B-1 Preferred   |  | 2,211,898                                     |  |                       | 1,415,615  |                                   |   |                                            |  |                  |  |                     |   |                                               |  |                                |  |  | 2,211,898  |  |   | 1,415,615 
|Silverback Systems, Inc., Series C Preferred     |  | 34,364,257                                    |  |                       | 3,333,333  |                                   |   |                                            |  |                  |  |                     |   |                                               |  |                                |  |  | 34,364,257 |  |   | 3,333,333 
|Silverback Systems, Inc., 5% Bridge Notes        |  | 1,969,206                                     |  |                       | 1,969,206  |                                   |   |                                            |  |                  |  |                     |   | 24,817                                         |  |                                |  |  | 1,969,206  |  |   | 1,969,206 
|Silverback Systems, Inc., Series C Warrant       |  | 4,173,033                                     |  |                       | 196        |                                   |   |                                            |  |                  |  |                     |   |                                               |  |                                |  |  | 4,224,203  |  |   | 196       
|Tensys Medical, Inc., Series C Preferred         |  | 4,166,667                                     |  |                       | 1,887,160  |                                   |   |                                            |  |                  |  |                     |   |                                               |  |                                |  |  | 4,166,667  |  |   | 1,887,160 
|Tensys Medical, Inc., Series D Preferred         |  | 1,187,500                                     |  |                       | 537,840    |                                   |   |                                            |  |                  |  |                     |   |                                               |  |                                |  |  | 1,187,500  |  |   | 537,840   
|                                                 |  |                                               |  |                       |            |                                   |   |                                             |  |                  |   |                     |   |                                                |  |                                |   |  |            |  |   |           
|Total Non -Controlled Affiliates                 |  |                                               |  | $                     | 36,993,169 |                                   | $ | 589,032                                     |  | $                |  |                     | $ | 26,648                                         |  | $                              |  |  |            |  | $ | 36,708,468
|                                                 |  |                                               |  |                       |            |                                   |   |                                             |  |                  |   |                     |   |                                                |  |                                |   |  |            |  |   |           



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##### Table of Contents

|                                                     |  |                                               |  |                       |            |                                   |   |                                     |  |   |                  |   |                     |   |         |                                               |   |                                |   |  |            |  |   |           
|---------------------------------------------------- |  | --------------------------------------------- |  | --------------------- | ---------- | --------------------------------- | - | ----------------------------------- |  | - | ---------------- | - | ------------------- | - | ------- | --------------------------------------------- | - | ------------------------------ | - |  | ---------- |  | - | ----------
|                                                     |  |                                               |  |                       |            |                                   |   | For the Year Ended October 31, 2005
|Name ofInvestment                                    |  | Shares/PrincipalAmount Held atOctober 31,2004 |  | October 31,2004 Value |            | Purchases /ConversionAcquisitions |   | Sales /ConversionProceeds           |  |   | InterestReceived |   | RealizedGain (Loss) |   |         | Shares/PrincipalAmount Held atOctober 31,2005 |   | October 31, 2005Value (Note 1)
|Controlled Affiliates                                |  |                                               |  |                       |            |                                   |   |                                     |  |   |                  |   |                     |   |         |                                               |   |                                |   |  |            |  |   |           
|Pilot Software Inc., Series A Preferred              |  | 20,000,000                                    |  | $                     | 4,000,000  |                                   | $ | 4,110,096                           |  | $ |                 |   |                     | $ |        |                                               | $ |                               |   |  | 46,362,656 |  | $ | 8,110,096 
|Pilot Software Inc., Bridge Note, 9%                 |  | 750,000                                       |  |                       | 750,000    |                                   |   | 1,500,000                           |  |   | (2,250,000       | ) |                     |   | 101,034 |                                               |   |                               |   |  |           |  |   |          
|LogicLibrary, Inc., Series A Preferred               |  | 4,374,256                                     |  |                       | 2,000,000  |                                   |   | 985,916                             |  |   |                 |   |                     |   |        |                                               |   |                               |   |  | 6,530,581  |  |   | 2,985,916 
|LogicLibrary, Inc., Series A-1 Preferred             |  | 3,080,464                                     |  |                       | 1,408,450  |                                   |   |                                    |  |   |                 |   |                     |   |        |                                               |   |                               |   |  | 3,080,464  |  |   | 1,408,450 
|Cydelity Inc. Series A Preferred                     |  | 19,995,000                                    |  |                       | 4,000,000  |                                   |   |                                    |  |   |                 |   |                     |   |        |                                               |   |                               |   |  | 19,995,000 |  |   |          
|Cydelity Inc. Common Stock                           |  | 1,000,000                                     |  |                       |           |                                   |   |                                    |  |   |                 |   |                     |   |        |                                               |   |                               |   |  | 1,000,000  |  |   |          
|Cydelity Inc. Series A Warrants                      |  |                                              |  |                       |           |                                   |   |                                    |  |   |                 |   |                     |   |        |                                               |   |                               |   |  | 7,500,000  |  |   |          
|Cydelity Inc., Bridge Note, 8%                       |  |                                              |  |                       |           |                                   |   | 3,000,000                           |  |   |                 |   |                     |   | 123,531 |                                               |   |                               |   |  | 3,000,000  |  |   | 3,000,000 
|                                                     |  |                                               |  |                       |            |                                   |   |                                     |  |   |                  |   |                     |   |         |                                               |   |                                |   |  |            |  |   |           
|Total Controlled Affiliates                          |  |                                               |  | $                     | 12,158,450 |                                   | $ | 9,596,012                           |  | $ | (2,250,000       | ) |                     | $ | 224,565 |                                               | $ |                               |   |  |            |  | $ | 15,504,462
|Non-Controlled Affiliates                            |  |                                               |  |                       |            |                                   |   |                                     |  |   |                  |   |                     |   |         |                                               |   |                                |   |  |            |  |   |           
|Adeza Biomedical Corp., Series 5 Preferred           |  | 647,948                                       |  | $                     | 3,000,000  |                                   | $ |                                    |  | $ | (6,932,996       | ) |                     | $ |        |                                               | $ | 3,932,996                      |   |  |           |  | $ |          
|Cenquest, Inc., Series 2 Preferred                   |  | 4,425                                         |  |                       |           |                                   |   |                                    |  |   |                 |   |                     |   |        |                                               |   | (2,000,000                     | ) |  |           |  |   |          
|Chips & Systems, Inc., Series A Preferred            |  | 7,000,000                                     |  |                       | 3,500,000  |                                   |   |                                    |  |   |                 |   |                     |   |        |                                               |   |                               |   |  | 7,000,000  |  |   |          
|Chips & Systems, Inc. Bridge Note                    |  |                                              |  |                       |           |                                   |   | 1,441,133                           |  |   |                 |   |                     |   | 4,084   |                                               |   |                               |   |  | 1,441,133  |  |   |          
|Ethertronics, Inc., Series B Preferred               |  | 4,433,333                                     |  |                       | 6,650,000  |                                   |   |                                    |  |   |                 |   |                     |   |        |                                               |   |                               |   |  | 4,433,333  |  |   | 6,650,000 
|Ethertronics, Inc., Series B Warrants                |  | 281,667                                       |  |                       |           |                                   |   |                                    |  |   |                 |   |                     |   |        |                                               |   |                               |   |  | 281,667    |  |   |          
|Ethertronics, Inc., Series C Warrants                |  |                                              |  |                       |           |                                   |   |                                    |  |   |                 |   |                     |   |        |                                               |   |                               |   |  | 163,580    |  |   |          
|Ethertronics, Inc., Bridge Note                      |  |                                              |  |                       |           |                                   |   | 250,000                             |  |   | (250,000         | ) |                     |   | 3,311   |                                               |   |                               |   |  |           |  |   |          
|Ethertronics, Inc., Series C Preferred               |  |                                              |  |                       |           |                                   |   | 1,470,258                           |  |   |                 |   |                     |   |        |                                               |   |                               |   |  | 980,172    |  |   | 1,470,258 
|Genoptix, Inc., Series 1-A Preferred                 |  | 942,481                                       |  |                       | 1,253,500  |                                   |   |                                    |  |   |                 |   |                     |   |        |                                               |   |                               |   |  | 942,481    |  |   | 950,822   
|Genoptix, Inc., Series 1-B Preferred                 |  | 1,403,696                                     |  |                       | 1,250,000  |                                   |   |                                    |  |   |                 |   |                     |   |        |                                               |   |                               |   |  | 1,403,696  |  |   | 950,822   
|Genoptix, Inc., Common Stock                         |  | 46,860                                        |  |                       |           |                                   |   |                                    |  |   |                 |   |                     |   |        |                                               |   |                               |   |  | 46,860     |  |   |          
|Genoptix, Inc., Series 1-C Preferred                 |  | 310,290                                       |  |                       | 277,089    |                                   |   | 277,089                             |  |   |                 |   |                     |   |        |                                               |   |                               |   |  | 620,580    |  |   | 554,178   
|Genoptix, Inc., Series 1-D Preferred                 |  |                                              |  |                       |           |                                   |   | 461,815                             |  |   |                 |   |                     |   |        |                                               |   |                               |   |  | 728,413    |  |   | 461,815   
|LightConnect, Inc., Series B Preferred               |  | 4,330,504                                     |  |                       | 5,000,000  |                                   |   |                                    |  |   |                 |   |                     |   |        |                                               |   |                               |   |  | 4,330,504  |  |   | 5,000,000 
|LightConnect, Inc., Series C Preferred               |  | 12,292,441                                    |  |                       | 992,000    |                                   |   |                                    |  |   |                 |   |                     |   |        |                                               |   |                               |   |  | 12,292,441 |  |   | 992,000   
|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                                       |  |                       |           |                                   |   |                                    |  |   |                 |   |                     |   |        |                                               |   | (4,750,000                     | ) |  |           |  |   |          
|Monterey Design Systems, Inc., Series 2 Preferred    |  | 3,333,333                                     |  |                       | 600,000    |                                   |   |                                    |  |   | (781,176         | ) |                     |   |        |                                               |   | (2,218,825                     | ) |  |           |  |   |          
|NanoOpto Corp., Series A-1 Preferred                 |  | 956,234                                       |  |                       |           |                                   |   |                                    |  |   |                 |   |                     |   |        |                                               |   |                               |   |  | 956,234    |  |   | 1,116,350 
|NanoOpto Corp., Series B Preferred                   |  | 3,023,399                                     |  |                       | 1,655,119  |                                   |   |                                    |  |   |                 |   |                     |   |        |                                               |   |                               |   |  | 3,023,399  |  |   | 1,286,155 
|NanoOpto Corp., Bridge Note                          |  |                                              |  |                       |           |                                   |   | 500,000                             |  |   | (511,288         | ) |                     |   | 11,288  |                                               |   |                               |   |  |           |  |   |          
|NanoOpto Corp., Series C Preferred                   |  |                                              |  |                       |           |                                   |   |                                    |  |   |                 |   |                     |   |        |                                               |   |                               |   |  | 1,682,470  |  |   | 733,389   
|NanoOpto Corp., Series C Warrants                    |  |                                              |  |                       |           |                                   |   |                                    |  |   |                 |   |                     |   |        |                                               |   |                               |   |  | 229,410    |  |   |          
|OpVista, Inc., Series B Preferred                    |  | 5,333,333                                     |  |                       |           |                                   |   |                                    |  |   |                 |   |                     |   |        |                                               |   |                               |   |  | 5,333,333  |  |   |          
|OpVista, Inc., Series C Preferred                    |  | 12,671,059                                    |  |                       | 5,000,000  |                                   |   |                                    |  |   |                 |   |                     |   |        |                                               |   |                               |   |  | 12,671,059 |  |   | 5,000,000 
|OpVista, Inc., Series D Preferred                    |  |                                              |  |                       |           |                                   |   | 1,058,000                           |  |   |                 |   |                     |   |        |                                               |   |                               |   |  | 10,368,483 |  |   | 1,058,000 
|OpVista, Inc., Series E Preferred                    |  |                                              |  |                       |           |                                   |   | 1,626,030                           |  |   |                 |   |                     |   |        |                                               |   |                               |   |  | 15,935,224 |  |   | 1,626,030 
|Silverback Systems, Inc., Series B-1 Preferred       |  | 2,211,898                                     |  |                       | 450,051    |                                   |   |                                    |  |   |                 |   |                     |   |        |                                               |   |                               |   |  | 2,211,898  |  |   | 1,415,615 
|Silverback Systems, Inc., Series C Preferred         |  | 34,364,257                                    |  |                       | 4,298,896  |                                   |   |                                    |  |   |                 |   |                     |   |        |                                               |   |                               |   |  | 34,364,257 |  |   | 3,333,333 
|Silverback Systems, Inc., 5% Bridge Notes            |  |                                              |  |                       |           |                                   |   | 1,969,206                           |  |   |                 |   |                     |   | 55,783  |                                               |   |                               |   |  | 1,969,206  |  |   | 1,969,206 
|Silverback Systems, Inc., Series C Warrant           |  |                                              |  |                       |           |                                   |   | 196                                 |  |   |                 |   |                     |   |        |                                               |   |                               |   |  | 4,173,033  |  |   | 196       
|Tensys Medical, Inc., Series C Preferred             |  | 4,166,667                                     |  |                       | 5,000,000  |                                   |   |                                    |  |   |                 |   |                     |   |        |                                               |   |                               |   |  | 4,166,667  |  |   | 1,887,160 
|Tensys Medical, Inc., Series D Preferred             |  | 1,187,500                                     |  |                       | 1,425,000  |                                   |   |                                    |  |   |                 |   |                     |   |        |                                               |   |                               |   |  | 1,187,500  |  |   | 537,840   
|Virtual Silicon Technology, Inc., Series C Preferred |  | 3,096,551                                     |  |                       | 5,000,000  |                                   |   |                                    |  |   | (607,446         | ) |                     |   |        |                                               |   | (4,392,554                     | ) |  |           |  |   |          
|Virtual Silicon Technology, Inc., Bridge Note        |  | 88,738                                        |  |                       | 88,738     |                                   |   | 492,862                             |  |   |                 |   |                     |   |        |                                               |   | (492,862                       | ) |  |           |  |   |          
|                                                     |  |                                               |  |                       |            |                                   |   |                                     |  |   |                  |   |                     |   |         |                                               |   |                                |   |  |            |  |   |           
|Total Non -Controlled Affiliates                     |  |                                               |  | $                     | 45,440,393 |                                   | $ | 9,546,589                           |  | $ | (9,082,906       | ) |                     | $ | 74,466  |                                               | $ | (9,921,245                     | ) |  |            |  | $ | 36,993,169
|                                                     |  |                                               |  |                       |            |                                   |   |                                     |  |   |                  |   |                     |   |         |                                               |   |                                |   |  |            |  |   |           

As of October 31, 2005, Archemix Corporation is no longer considered to be an affiliated company.
LogicLibrary, Inc. has also been reclassified from a non-controlled affiliate to a controlled affiliate.

In addition, $191,580 of a receivable for the
liquidation of Gyration, Inc. securities (which was a non-controlled affiliate prior to the Companys disposition of those securities) during the year ended October 31, 2004 was written off as a realized loss during the year ended
October 31, 2005.



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Note 6  Pending Litigation

The former Investment Adviser was contacted in September 2003 by the Office of the New York State Attorney General (the NYAG), and the
Securities and Exchange Commission (the SEC) and later by the Attorney General of the State of West Virginia in connection with their investigations of practices in the mutual fund industry identified as market timing and
late trading of mutual fund shares (the Investigations). The former Investment Adviser has been providing full cooperation with respect to these Investigations and continues to review the facts and circumstances relevant to
the Investigations. As disclosed previously by the former Investment Adviser and its affiliates, with respect to the former Investment Adviser, these investigations have been focusing on circumstances in which a small number of parties were
permitted to engage in short-term trading of shares of certain mutual funds managed by the former Investment Adviser. The short-term trading activities permitted under these arrangements have been terminated and the former Investment Adviser has
strengthened its policies and procedures to deter frequent trading.

The former Investment Adviser, certain of its affiliates and others
have also been named in five class actions which allege that the former Investment Adviser, certain of its affiliates and others allowed certain parties to engage in illegal and improper mutual fund trading practices, which allegedly caused
financial injury to the shareholders of certain mutual funds managed by the former Investment Adviser. Each seeks unspecified monetary damages and related equitable relief. The former Investment Adviser, certain of its affiliates and others 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 and derivative actions described above have been transferred to the United States District Court for the District of Maryland for coordinated and consolidated pre-trial proceedings. In November 2005, the
Maryland court dismissed many of the plaintiffs claims in both the investor class action suits and in the derivative suits. Plaintiffs claims under Sections 10(b) and 20 of the Securities Exchange Act of 1934, as amended and under
Section 36(b) of the Investment Company Act, as amended, however, have not been dismissed. Currently, these rulings are subject to reconsideration motions by the parties. It is anticipated that discovery will commence soon with respect to
plaintiffs remaining claims.

While the ultimate outcome of these matters cannot be predicted with any certainty at this time, based
on currently available information, the Investment Adviser believes that the pending Investigations and private lawsuits are not likely to materially affect the Investment Advisers 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.



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

Three-month Period Ended January 31, 2006 as Compared to the Similar Period in 2005

Realized and Unrealized
Gains and Losses from Portfolio Investments

For the three-month periods ended January 31, 2006 and 2005, the Company had a net
realized gain on security transactions of $15,713 and $1,586,759, respectively. For the three-month periods ended January 31, 2006 and 2005, the Company had a net (increase) decrease in unrealized depreciation on investments of ($913,780) and
$5,342,620, respectively. The net realized gain for the period ended January 31, 2006 was principally the result of the Companys additional distribution received from the Companys sale of Gyration, a private company investment. The
net realized gain for the period ended January 31, 2005 was principally the result of the Companys sales of NetLogic Microsystems, realized loss of ($574,053), and Senomyx, realized gain of $2,160,666, common shares. The net change in
unrealized depreciation for the period ended January 31, 2006 was principally the result of a decrease in the valuation of Nano Opto Corporation of ($873,732), a private company investment, and an overall decrease in the valuation of the
Companys private investment funds. The net change in unrealized depreciation for the period ended January 31, 2005 was principally the result of an increase in the valuation of Adeza Biomedical (NASDAQ: ADZA) common shares, a public
company investment. The Company utilized a discount of 15% in the valuation of this holding at January 31, 2005. The discount utilized reflects the inability of the Company to sell its shares due to contractual lock-up agreements in place after
the initial public offering of common shares.

Investment Income and Expenses

For the three-month period ended January 31, 2006, the Company had investment income of $386,369 and net operating expenses of $584,396 resulting in
a net investment loss of ($198,027). In comparison, for the similar period ended January 31, 2005, the Company had investment income of $238,080 and net operating expenses of $727,286, resulting in a net investment loss of ($489,206). The
decrease in net investment loss for the period ended January 31, 2006 resulted from additional investment income due to an increase of short-term investments purchased and matured during the period. The decrease in operating expenses was
primarily due to a decline in management fees which resulted from a reduced level of net assets under management during the period.

USTA
and the Investment Sub-Adviser, provides investment management and administrative services required for the operation of the Company. In consideration of the services rendered by the Investment Adviser and the Investment Sub-Adviser, 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 as
described in Note 2 to Item 1 above. Such fee is determined and payable quarterly. For the three-month periods ended January 31, 2006 and 2005, the Investment Adviser, the former Investment Adviser and the Investment Sub-Adviser earned
$465,055 and $617,033 in management fees, respectively. Management fees recorded during the period ended January 31, 2006 decreased over the period ended January 31, 2005 due to a decrease in net assets.

Net Assets

At January 31, 2006, the
Companys net assets were $92,252,753, or a net asset value per unit of membership interest of $312.50. This represents a decrease of ($1,096,094) from net assets of $93,348,847, or a net asset value per unit of membership interest of $316.21,
at October 31, 2005. The decrease resulted principally from (i) net investment loss of ($198,027) as describe above and (ii) a net change in unrealized depreciation on investments of ($913,780) as described above.



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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 January 31, 2006, the Company held $2,405 in cash and $26,593,345 in short-term investments as compared to $574,146 held in cash and $28,598,294
in short-term investments at October 31, 2005. The decrease in short-term investments from October 31, 2005 was principally due to new and follow-on investments in private companies as well as capital calls for private investment funds.
The Company, during this period funded additional capital, totaling $1,283,537, per its commitments to the private investment funds. In connection with the Companys total commitments to private funds in the amount of $25,700,000 since
inception, the Company, through January 31, 2006, has contributed $12,427,191 or 48.4% of the total capital committed thus far. The Company also participated in follow-on financing rounds, totaling $1,522,366, for several of its private
companies.

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 71.31% of the Companys net assets. For the private investments held at January 31, 2006, changes to these estimates, i.e. changes in the valuations of these private investments, resulted in a ($913,780) decrease in net asset
value from October 31, 2005.

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 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 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.



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|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 71.31% 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. At January 31,
2006, and October 31, 2005 the Company was not subject to equity price risk normally associated with public equity markets, except to the extent that the private investment funds that the Company has invested in has, from time to time,
interests in securities which may be publicly traded.



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

(a) Evaluation of
Disclosure Controls and Procedures. As of January 31, 2006 (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 the Securities Exchange Act of 1934 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.



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

None.



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

None.



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

The following information is
provided herein although it is not required to be filed on the Form 8-K.

At a meeting held on December 15, 2005, the Board of
Managers (the Board) of the Company, and those Managers (the Independent Managers) who are not interested persons of the Company as defined in the Investment Company Act of 1940, as amended, voting separately,
approved the assumption of the Companys investment advisory contract with the Investment Adviser. In connection with such action, the Investment Adviser presented detailed information to the Board requested by the Independent Managers through
their counsel. Such information included (i) information confirming the financial condition of the Investment Adviser and the Investment Advisers profitability derived from its relationship with the Company; (ii) a description of the
personnel and services provided by the Investment Adviser; (iii) comparative information on investment performance; and (iv) information regarding brokerage and portfolio transactions. Also, U.S. Trust Corporation has agreed to ensure that
the Investment Adviser will perform all of the former Investment Adviser duties and obligations under the Agreement and the Sub-Advisory Agreement and agrees to indemnify, defend and hold the company harmless for any and all losses, liabilities,
actions or expenses resulting from or arising out of the failure of the Investment Adviser to perform the duties and obligations assumed by it under the Agreement and the Sub-Advisory Agreement to the same extent the former Investment Adviser would
have been liable for failure to perform under the Agreement and the Sub-Advisory Agreement.

The Board reviewed and discussed financial
information provided by the Investment Adviser which included an annual report and financial statements for U.S. Trust Corporation. The Board reviewed and considered the Investment Advisers profitability derived from its relationship with the
Company. Specifically, the Board reviewed and considered a profit contribution analysis of the Investment Adviser showing its fees, income, and expenses in connection with the Company and the methodology used in the analysis. The Board determined
that the Investment Adviser is solvent and sufficiently well capitalized to perform the ongoing responsibilities to the Company and to satisfy its obligations under the Investment Company Act of 1940, as amended and the advisory and sub-advisory
agreements.

The Board reviewed the advisory fee and the effective investment advisory fee rate paid by the Company and the appropriateness
of such advisory fee. The Board reviewed and considered any economies of scale realized by the Company and how the current advisory fee for the Company reflects the economies of scale for the benefit of the shareholders of the Company, noting that
as a closed-end fund nearing the end of its investment period and distributing its assets economies of scale were not a significant factor. It was noted, however, that the management fee payable to the Investment Adviser by the Company is reduced
after the period of initial investment to reflect similar issues.

The Board also reviewed and considered the fees of other payments
received by the Investment Adviser. Specifically, the Board reviewed and considered comparison of fees charged by investment advisers to fund peers of the Company, noting that the Investment Advisers fees were at the lower end of a narrow
range. The Board also considered and reviewed information regarding brokerage, observing that the Company only occasionally engages in transactions in the public securities markets.

The Board reviewed and considered the qualifications of the current and anticipated portfolio managers to manage the portfolio of the Company, including
their history managing private equity investments generally and their prior involvement with companies in the Companys investment portfolio, and the background and expertise of the key personnel and amount of time they would be able to devote
to the affairs of the Company. The Board concluded, in light of the particular requirements of the Company and the relatively late stage of the investment program, that it was satisfied with the professional qualifications and overall commitment to
the Company of the anticipated portfolio management team.

The Board considered the nature, extent and quality of services rendered to the
Company by the Investment Adviser and the investment performance of the Company based on the data provided which included comparisons with the public markets as evidenced by NASDAQ data, venture economics data, and data concerning performance
relative to other venture and private equity funds with generally similar objectives and management policies that had commenced investment operations at about the same time and for which detailed information is available. The Board determined that
in light of the data taken as a whole and the nature and stages of the investment program of the Company, the investment performance was reasonable and acceptable. The Board discussed the Investment Advisers profitability, and it was noted
that the profitability percentage was within ranges generally determined to be reasonable, given the services rendered and



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the Companys performance and services provided. The Board concluded that the Companys fees paid to the Investment Adviser were reasonable in
light of comparative performance and advisory fee information, cost of the services provided and profits to be realized and benefits derived by the Investment Adviser from the relationship with the Company.



|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.
|--- | --------------------



| | (1) | On December 20, 2005, the Company filed a Current Report on Form 8-K to report (i) under Item 5.02 a departure of the co-chief executive officer and the appointment
of a co-chief executive officer and (ii) under Item 8.01 that U.S. Trust Corporation (U.S. Trust), the parent company of U.S. Trust Company, N.A., the investment adviser to the Company has determined to restructure its bank
subsidiaries and the corporate structure through which they provide investment advisory services to the funds they advise.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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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: March 17, 2006 |  |  |  | By:                                 |  | /s/ Leo P. Grohowski

|                     |  |  |  |     |  |                            |  | 
|-------------------- |  |  |  | --- |  | -------------------------- |  | 
|                     |  |  |  |     |  | Leo P. Grohowski          
|                     |  |  |  |     |  | Co-Chief Executive Officer
|                     |  |  | 
|Date: March 17, 2006 |  |  |  | By: |  | /s/ Raghav V. Nandagopal  

|                     |  |  |  |     |  |                               |  | 
|-------------------- |  |  |  | --- |  | ----------------------------- |  | 
|                     |  |  |  |     |  | Raghav V. Nandagopal         
|                     |  |  |  |     |  | Co-Chief Executive Officer   
|                     |  |  | 
|Date: March 17, 2006 |  |  |  | By: |  | /s/ Robert F. Aufenanger     
|                     |  |  |  |     |  | Robert F. Aufenanger         
|                     |  |  |  |     |  | Treasurer                    
|                     |  |  |  |     |  | (Principal Financial Officer)