---

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549



---

FORM 10-Q



---

(Mark One)

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

For the quarterly period ended April 30, 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.    Yes  x    No ̈

Indicate by check mark whether the Registrant is a large
accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large 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 ̈No  x

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEEDING FIVE YEARS:

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



---



---

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 Form 10-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 April 30, 2006 and October 31, 2005.                                    |  | 2       
|         |  |                                                                                                       
|         |  | Statements of Assets and Liabilities at April 30, 2006 and October 31, 2005.                           |  | 9       
|         |  |                                                                                                       
|         |  | Statements of Operations for the six-month periods ended April 30, 2006 and April 30, 2005.            |  | 10      
|         |  |                                                                                                       
|         |  | Statements of Operations for the three-month periods ended April 30, 2006 and April 30, 2005.          |  | 11      
|         |  |                                                                                                       
|         |  | Statements of Changes in Net Assets for the six-month periods ended April 30, 2006 and April 30, 2005. |  | 12      
|         |  |                                                                                                       
|         |  | Statements of Cash Flows for the six-month periods ended April 30, 2006 and April 30, 2005.            |  | 13      
|         |  |                                                                                                       
|         |  | Financial Highlights for the six-month periods ended April 30, 2006 and April 30, 2005.                |  | 14      
|         |  |                                                                                                       
|         |  | Notes to Financial Statements.                                                                         |  | 15      
|         |  |                                                                                                       
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations.                 |  | 22      
|         |  |                                                                                                       
|Item 3.  |  | Quantitative and Qualitative Disclosures about Market Risk.                                            |  | 24      
|         |  |                                                                                                       
|Item 4.  |  | Controls and Procedures                                                                                |  | 24      
|         |  |                                                                                                       
|PART II. |  | OTHER INFORMATION                                                                                      |  |         
|         |  |                                                                                                       
|Item 1.  |  | Legal Proceedings.                                                                                     |  | 25      
|         |  |                                                                                                       
|Item 2.  |  | Changes in Securities and Use of Proceeds.                                                             |  | 25      
|         |  |                                                                                                       
|Item 3.  |  | Defaults Upon Senior Securities.                                                                       |  | 25      
|         |  |                                                                                                       
|Item 4.  |  | Submission of Matters to a Vote of Security Holders.                                                   |  | 25      
|         |  |                                                                                                       
|Item 5.  |  | Other Information.                                                                                     |  | 25      
|         |  |                                                                                                       
|Item 6.  |  | Exhibits and Reports on Form 8-K.                                                                      |  | 25      



---

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Excelsior Venture Partners III, LLC

Portfolio of Investments (Unaudited)



|                                 |  |                |            |                      |        |  
|-------------------------------- |  | -------------- | ---------- | -------------------- | ------ | -
|                                 |  | April 30, 2006 |           
|                                 |  | Value          |            | Percent of NetAssets |       
|PORTFOLIO STRUCTURE              |  |                |            |                      |        |  
|SHORT-TERM INVESTMENTS:          |  |                |            |                      |        |  
|MONEY MARKET INSTRUMENTS         |  | $              | 21,905,564 |                      | 24.32  | %
|INVESTMENT COMPANIES             |  |                | 1,046,128  |                      | 1.16   | %
|PRIVATE COMPANIES                |  |                | 56,509,462 |                      | 62.73  | %
|PRIVATE INVESTMENT FUNDS         |  |                | 10,587,305 |                      | 11.75  | %
|                                 |  |                |            |                      |        |  
|TOTAL INVESTMENTS                |  |                | 90,048,459 |                      | 99.96  | %
|OTHER ASSETS & LIABILITIES (NET) |  |                | 39,675     |                      | 0.04   | %
|                                 |  |                |            |                      |        |  
|NET ASSETS                       |  | $              | 90,088,134 |                      | 100.00 | %
|                                 |  |                |            |                      |        |  

Excelsior Venture Partners III, LLC

Portfolio of Investments



|                                 |  |                  |            |                      |        |  
|-------------------------------- |  | ---------------- | ---------- | -------------------- | ------ | -
|                                 |  | October 31, 2005 |           
|                                 |  | Value            |            | Percent of NetAssets |       
|PORTFOLIO STRUCTURE              |  |                  |            |                      |        |  
|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



---

Excelsior Venture Partners III, LLC

Portfolio of Investments April 30, 2006 (Unaudited)



|                                      |  |                                                                       |  |                                  |  |                |           
|------------------------------------- |  | --------------------------------------------------------------------- |  | -------------------------------- |  | -------------- | ----------
|PrincipalAmount/Shares/ Percent Owned |  |                                                                       |  | Acquisition Date ##              |  | Value (Note 1)
|MONEY MARKET INSTRUMENTS 24.32%      |  |                                                                       |  |                                  | 
|                                      |  |                                                                       | 
|$  6,425,000                          |  | Federal Home Loan Bank Discount Note 4.71%, 05/01/06                  |  |                                  |  | $              | 6,425,000 
|1,000,000                             |  | UBS Financial Commercial Paper 4.74%, 05/05/06                        |  |                                  |  |                | 999,473   
|3,000,000                             |  | Bank of New York Commercial Paper 4.72%, 05/11/06                     |  |                                  |  |                | 2,996,067 
|3,000,000                             |  | Washington Mutual Certificate of Deposit 4.80%, 05/11/06              |  |                                  |  |                | 3,000,000 
|1,000,000                             |  | Federal Home Loan Bank Discount Note 4.70%, 05/17/06                  |  |                                  |  |                | 997,913   
|2,000,000                             |  | Federal Farm Credit Bureau Discount Note 4.70%, 05/17/06              |  |                                  |  |                | 1,995,822 
|2,500,000                             |  | International Lease Finance Discount Commercial Paper 4.80%, 05/18/06 |  |                                  |  |                | 2,494,333 
|2,000,000                             |  | Wells Fargo Certificate of Deposit 4.78%, 05/18/06                    |  |                                  |  |                | 2,000,000 
|1,000,000                             |  | Federal Home Loan Bank Discount Note 4.77%, 05/24/06                  |  |                                  |  |                | 996,956   
|                                      |  |                                                                       |  |                                  |  |                |           
|                                      |  | TOTAL MONEY MARKET INSTRUMENTS (Cost $21,905,564)                     |  |                                  |  |                | 21,905,564
|                                      |  |                                                                       |  |                                  |  |                |           
|PRIVATE COMPANIES **  62.73%         |  |                                                                       |  |                                  | 
|Common Stocks #,@  0.01%             |  |                                                                       |  |                                  | 
|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                            |  |                |          
|                                      |  |                                                                       |  |                                  |  |                |           
|Semiconductor  0.01%                 |  |                                                                       |  |                                  | 
|40,026                                |  | Silverback Systems, Inc.                                              |  | 04/06                            |  |                | 11,420    
|                                      |  |                                                                       |  |                                  |  |                |           
|                                      |  |                                                                       |  |                                  |  |                |           
|                                      |  |                                                                       |  |                                  |  |                |           
|                                      |  | TOTAL COMMON STOCKS (Cost $10,006,581)                                |  |                                  |  |                | 11,420    
|                                      |  |                                                                       |  |                                  |  |                |           
|Preferred Stocks #  56.68%           |  |                                                                       |  |                                  | 
|Capital Equipment @  0.00%           |  |                                                                       |  |                                  | 
|933,593                               |  | MIDAS Vision Systems, Inc., Series A-1                                |  | 03/03                            |  |                |          
|                                      |  |                                                                       |  |                                  |  |                |           
|Enterprise Software @  14.19%        |  |                                                                       |  |                                  | 
|19,995,000                            |  | ***Cydelity Inc.,. Series A                                           |  | 01/04                            |  |                |          
|7,146,701                             |  | ***LogicLibrary, Inc., Series A                                       |  | 01/02, 12/04,02/05 & 08/05&03/06 |  |                | 3,267,606 
|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 
|                                      |  |                                                                       |  |                                  |  |                |           
|                                      |  |                                                                       |  |                                  |  |                | 12,786,152
|                                      |  |                                                                       |  |                                  |  |                |           
|Life Sciences  6.24%                 |  |                                                                       |  |                                  | 
|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 @  2.69%          |  |                                                                       |  |                                  | 
|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.

2



---

Excelsior Venture Partners III, LLC

Portfolio of Investments April 30, 2006  (continued)



|                                       |  |                                                                   |  |                                                      |  |               
|-------------------------------------- |  | ----------------------------------------------------------------- |  | ---------------------------------------------------- |  | --------------
|Principal Amount/Shares/ Percent Owned |  |                                                                   |  | Acquisition Date ##                                  |  | Value (Note 1)
|Optical @  17.69%                     |  |                                                                   |  |                                                     
|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 @  6.85%                |  |                                                                   |  |                                                     
|7,000,000                              |  | Chips & Systems, Inc., Series A                                   |  | 03/04                                                |  |              
|772,503                                |  | Silverback Systems, Inc., Series A-2                              |  | 04/06                                                |  | 4,513,973     
|559,993                                |  | Silverback Systems, Inc., Series B                                |  | 04/06                                                |  | 1,660,551     
|                                       |  |                                                                   |  |                                                      |  |               
|                                       |  |                                                                   |  |                                                      |  | 6,174,524     
|                                       |  |                                                                  
|Wireless @ 9.02%                      |  |                                                                   |  |                                                     
|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 $65,106,238)                         |  |                                                      |  | 51,061,762    
|                                       |  |                                                                   |  |                                                      |  |               
|                                       |  |                                                                  
|Notes @  6.03%                        |  |                                                                   |  |                                                     
|Enterprise Software  4.11%            |  |                                                                   |  |                                                     
|$3,700,000                             |  | ***Cydelity Inc. 8% Bridge Note, April 2006                       |  | 12/04, 01/05, 02/05,03/05, 04/05, 05/05,07/05, 01/06 |  | 3,700,000     
|                                       |  |                                                                   |  |                                                      |  |               
|Optical  1.92 %                       |  |                                                                   |  |                                                     
|1,727,599                              |  | OpVista, Inc. 8%, Bridge Note, July 2006, October 2006            |  | 01/06, 04/06                                         |  | 1,727,599     
|                                       |  |                                                                   |  |                                                      |  |               
|                                       |  |                                                                  
|Semiconductor  0.00 %                 |  |                                                                   |  |                                                     
|1,441,133                              |  | Chips & Systems, Inc., 6% Bridge Note March 2005 #                |  | 11/04, 01/05, 02/05                                  |  |              
|                                       |  |                                                                   |  |                                                      |  |               
|                                       |  |                                                                   |  |                                                      |  |               
|                                       |  |                                                                   |  |                                                      |  |               
|                                       |  | TOTAL NOTES (Cost $6,868,732)                                     |  |                                                      |  | 5,427,599     
|                                       |  |                                                                   |  |                                                      |  |               
|Warrants #,@  0.01%                   |  |                                                                   |  |                                                     
|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  0.01 %                       |  |                                                                   |  |                                                     
|229,410                                |  | NanoOpto Corp. Series C (expiration date 12/09)                   |  | 12/04                                                |  |              
|3,386,121                              |  | OpVista, Inc. Series E (expiration date 01/11, 04/11)             |  | 01/06, 04/06                                         |  | 8,681         
|                                       |  |                                                                   |  |                                                      |  |               
|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 $8,681)                                      |  |                                                      |  | 8,681         
|                                       |  |                                                                   |  |                                                      |  |               
|                                       |  | TOTAL  PRIVATE COMPANIES (Cost $81,990,232)                      |  |                                                      |  | 56,509,462    
|                                       |  |                                                                   |  |                                                      |  |               



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

3



---

Excelsior Venture Partners III, LLC

Portfolio of Investments April 30, 2006  (continued)



|                                               |  |                                                                                |  |                    |  |              
|---------------------------------------------- |  | ------------------------------------------------------------------------------ |  | ------------------ |  | -------------
|PrincipalAmount/Shares/ Percent Owned          |  |                                                                                |  | AcquisitionDate ## |  | Value(Note 1)
|PRIVATE INVESTMENT FUNDS **, #  11.75%        |  |                                                                               
|0.39%                                          |  | Advanced Technology Ventures VII, LP                                           |  | 08/01-02/06        |  | 1,073,452    
|1.56%                                          |  | Burrill Life Sciences Capital Fund                                             |  | 12/02-04/06        |  | 1,293,381    
|1.35%                                          |  | CHL Medical Partners II, LP                                                    |  | 01/02-04/06        |  | 764,327      
|1.04%                                          |  | CMEA Ventures VI, LP                                                           |  | 12/03-10/05        |  | 518,866      
|0.36%                                          |  | Morgenthaler Partners VII, L.P.                                                |  | 07/01-01/06        |  | 1,561,576    
|0.58%                                          |  | Prospect Venture Partners II, LP                                               |  | 06/01-04/06        |  | 1,822,227    
|0.98%                                          |  | Sevin Rosen Fund IX, LP                                                        |  | 10/04-02/06        |  | 887,002      
|2.36%                                          |  | Tallwood II, LP                                                                |  | 12/02-04/06        |  | 1,356,147    
|1.70%                                          |  | Valhalla Partners, LP                                                          |  | 10/03-04/06        |  | 1,310,327    
|                                               |  |                                                                                |  |                    |  |              
|                                               |  | TOTAL  PRIVATE INVESTMENT FUNDS (Cost $11,861,130)                            |  |                    |  | 10,587,305   
|                                               |  |                                                                                |  |                    |  |              
|INVESTMENT COMPANIES 1.16%                    |  |                                                                                |  |                   
|1,046,128                                      |  | Dreyfus Government Cash Management Fund Institutional Shares (Cost $1,046,128) |  |                    |  | 1,046,128    
|                                               |  |                                                                                |  |                    |  |              
|TOTAL INVESTMENTS (Cost $116,803,054)  99.96% |  |                                                                                |  | 90,048,459        
|OTHER ASSETS & LIABILITIES (NET)  0.04%       |  |                                                                                |  | 39,675            
|                                               |  |                                                                                |  |                    |  |              
|NET ASSETS  100.00%                           |  |                                                                                |  | 90,088,134        
|                                               |  |                                                                                |  |                    |  |              

---

|** | Restricted as to public resale. Acquired between June 1, 2001 and April 30, 2006.
Total cost of restricted securities at April 30, 2006 aggregated $93,851,362. Total value of restricted securities owned at April 30, 2006 was $67,096,767 or 74.48% of net assets.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|@ | At April 30, 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 April 30, 2006 (including investments in controlled affiliates) was $53,809,463.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|*** | At April 30, 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 April 30, 2006 was $16,486,152.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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



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

4



---

Excelsior Venture Partners III, LLC

Portfolio of Investments October 31, 2005



|                                       |  |                                                                |  |                    |   |                |           
|-------------------------------------- |  | -------------------------------------------------------------- |  | ------------------ | - | -------------- | ----------
|Principal Amount/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.

5



---

Excelsior Venture Partners III, LLC

Portfolio of Investments October 31, 2005  (continued)



|                                     |  |                                        |  |                            |  |               
|------------------------------------ |  | -------------------------------------- |  | -------------------------- |  | --------------
|PrincipalAmount/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



---

Excelsior Venture Partners III, LLC

Portfolio of Investments October 31, 2005  (continued)



|                                     |                                      |  |                                                                     |                  |                                               |               |           
|------------------------------------ | ------------------------------------ |  | ------------------------------------------------------------------- | ---------------- | --------------------------------------------- | ------------- | ----------
|PrincipalAmount/Shares/Percent Owned |                                      |  |                                                                     | Acquisition Date |                                               | Value (Note1)
|                                     | 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



---

Excelsior Venture Partners III, LLC

Portfolio of Investments October 31, 2005  (continued)



|                                       |  |                                                     |  |                    |  |              
|-------------------------------------- |  | --------------------------------------------------- |  | ------------------ |  | -------------
|PrincipalAmount/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.

8



---

Excelsior Venture Partners III, LLC

Statements of Assets and Liabilities



|                                                                                             |  |                           |             |   |                  |   |             |  
|-------------------------------------------------------------------------------------------- |  | ------------------------- | ----------- | - | ---------------- | - | ----------- | -
|                                                                                             |  | April 30, 2006(Unaudited) |             |   | October 31, 2005 |  
|ASSETS:                                                                                      |  |                           |             |   |                  |   |             |  
|Unaffiliated Issuers at value (Cost $37,512,821 and $41,438,334 respectively)                |  | $                         | 36,238,996  |   |                  | $ | 40,095,452  |  
|Controlled Affiliated Issuers at value (Cost $20,486,152 and $19,504,462 respectively)       |  |                           | 16,486,152  |   |                  |   | 15,504,462  |  
|Non Controlled Affiliated Issuers at value (Cost $58,804,081 and $55,466,112 respectively)   |  |                           | 37,323,311  |   |                  |   | 36,993,169  |  
|                                                                                             |  |                           |             |   |                  |   |             |  
|Investments, at value (Cost $116,803,054 and $116,408,908 respectively) (Note 1)             |  |                           | 90,048,459  |   |                  |   | 92,593,083  |  
|                                                                                             |  |                           |             |   |                  |   |             |  
|Cash and cash equivalents (Note 1)                                                           |  |                           | 5,926       |   |                  |   | 574,146     |  
|Interest receivable                                                                          |  |                           | 296,411     |   |                  |   | 182,860     |  
|Distribution receivable                                                                      |  |                           | 180,352     |   |                  |   | 600,031     |  
|Other receivables                                                                            |  |                           | 1,945       |   |                  |   | 1,945       |  
|Prepaid Insurance                                                                            |  |                           | 20,014      |   |                  |   | 2,380       |  
|                                                                                             |  |                           |             |   |                  |   |             |  
|Total Assets                                                                                 |  |                           | 90,553,107  |   |                  |   | 93,954,445  |  
|                                                                                             |  |                           |             |   |                  |   |             |  
|LIABILITIES:                                                                                 |  |                           |             |   |                  |   |             |  
|Management fees payable (Note 2)                                                             |  |                           | 378,063     |   |                  |   | 469,295     |  
|Professional fees payable                                                                    |  |                           | 21,147      |   |                  |   | 64,255      |  
|Administration fees payable (Note 2)                                                         |  |                           | 45,017      |   |                  |   | 53,861      |  
|Board of Managers fees payable (Note 2)                                                     |  |                           | 9,254       |   |                  |   | 8,000       |  
|Other payables                                                                               |  |                           | 11,492      |   |                  |   | 10,187      |  
|                                                                                             |  |                           |             |   |                  |   |             |  
|Total Liabilities                                                                            |  |                           | 464,973     |   |                  |   | 605,598     |  
|                                                                                             |  |                           |             |   |                  |   |             |  
|NET ASSETS                                                                                   |  | $                         | 90,088,134  |   |                  | $ | 93,348,847  |  
|                                                                                             |  |                           |             |   |                  |   |             |  
|NET ASSETS consist of:                                                                       |  |                           |             |   |                  |   |             |  
|Paid-in capital                                                                              |  | $                         | 116,842,729 |   |                  | $ | 117,164,672 |  
|Unrealized depreciation on investments                                                       |  |                           | (26,754,595 | ) |                  |   | (23,815,825 | )
|                                                                                             |  |                           |             |   |                  |   |             |  
|Total Net Assets                                                                             |  | $                         | 90,088,134  |   |                  | $ | 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                                                                     |  | $                         | 305.17      |   |                  | $ | 316.21      |  
|                                                                                             |  |                           |             |   |                  |   |             |  



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

9



---

Excelsior Venture Partners III, LLC

Statements of Operations (Unaudited)



|                                                                    |  |                            |            |   |      |   |            |  
|------------------------------------------------------------------- |  | -------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                    |  | Six Months Ended April 30, |           
|                                                                    |  | 2006                       |            |   | 2005 |  
|INVESTMENT INCOME:                                                  |  |                            |            |   |      |   |            |  
|Interest income from unaffiliated investments                       |  | $                          | 567,290    |   |      | $ | 478,457    |  
|Interest income from affiliated investments                         |  |                            | 196,667    |   |      |   | 108,629    |  
|Dividend income                                                     |  |                            | 15,316     |   |      |   | 14,734     |  
|                                                                    |  |                            |            |   |      |   |            |  
|Total Investment Income                                             |  |                            | 779,273    |   |      |   | 601,820    |  
|                                                                    |  |                            |            |   |      |   |            |  
|EXPENSES:                                                           |  |                            |            |   |      |   |            |  
|Management fees (Note 2)                                            |  |                            | 843,118    |   |      |   | 1,128,008  |  
|Professional fees                                                   |  |                            | 116,390    |   |      |   | 125,138    |  
|Administration fees (Note 2)                                        |  |                            | 65,434     |   |      |   | 70,776     |  
|Board of Managers fees (Note 2)                                    |  |                            | 29,754     |   |      |   | 29,753     |  
|Insurance Expense                                                   |  |                            | 22,065     |   |      |   | 31,987     |  
|Custodian fees                                                      |  |                            | 17,901     |   |      |   | 9,567      |  
|Miscellaneous fees                                                  |  |                            | 16,400     |   |      |   | 7,934      |  
|                                                                    |  |                            |            |   |      |   |            |  
|Total Expenses                                                      |  |                            | 1,111,062  |   |      |   | 1,403,163  |  
|                                                                    |  |                            |            |   |      |   |            |  
|NET INVESTMENT LOSS                                                 |  |                            | (331,789   | ) |      |   | (801,343   | )
|                                                                    |  |                            |            |   |      |   |            |  
|NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: (Note 1)    |  |                            |            |   |      |   |            |  
|                                                                    |  |                           
|Net realized (loss)/gain on investments on unaffiliated investments |  |                            | (6,550     | ) |      |   | 1,587,218  |  
|Net realized gain/(loss) on investments on affiliated investments   |  |                            | 16,396     |   |      |   | (7,146,254 | )
|Net change in unrealized (depreciation)/appreciation on investments |  |                            | (2,938,770 | ) |      |   | 5,935,119  |  
|                                                                    |  |                            |            |   |      |   |            |  
|NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS              |  |                            | (2,928,924 | ) |      |   | 376,083    |  
|                                                                    |  |                            |            |   |      |   |            |  
|NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS     |  | $                          | (3,260,713 | ) |      | $ | (425,260   | )
|                                                                    |  |                            |            |   |      |   |            |  



10



---

Excelsior Venture Partners III, LLC

Statements of Operations (Unaudited)



|                                                                    |  |                              |            |   |      |   |            |  
|------------------------------------------------------------------- |  | ---------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                    |  | Three Months Ended April 30, |           
|                                                                    |  | 2006                         |            |   | 2005 |  
|INVESTMENT INCOME:                                                  |  |                              |            |   |      |   |            |  
|Interest income from unaffiliated investments                       |  | $                            | 280,907    |   |      | $ | 290,907    |  
|Interest income from affiliated investments                         |  |                              | 106,304    |   |      |   | 65,323     |  
|Dividend income                                                     |  |                              | 5,693      |   |      |   | 7,511      |  
|                                                                    |  |                              |            |   |      |   |            |  
|Total Investment Income                                             |  |                              | 392,904    |   |      |   | 363,741    |  
|                                                                    |  |                              |            |   |      |   |            |  
|EXPENSES:                                                           |  |                              |            |   |      |   |            |  
|Management fees (Note 2)                                            |  |                              | 378,063    |   |      |   | 510,975    |  
|Professional fees                                                   |  |                              | 65,978     |   |      |   | 86,574     |  
|Administration fees (Note 2)                                        |  |                              | 32,652     |   |      |   | 36,881     |  
|Board of Managers fees (Note 2)                                    |  |                              | 14,630     |   |      |   | 14,630     |  
|Insurance Expense                                                   |  |                              | 10,610     |   |      |   | 17,896     |  
|Custodian fees                                                      |  |                              | 12,375     |   |      |   | 5,030      |  
|Miscellaneous fees                                                  |  |                              | 12,358     |   |      |   | 3,902      |  
|                                                                    |  |                              |            |   |      |   |            |  
|Total Expenses                                                      |  |                              | 526,666    |   |      |   | 675,888    |  
|                                                                    |  |                              |            |   |      |   |            |  
|NET INVESTMENT LOSS                                                 |  |                              | (133,762   | ) |      |   | (312,147   | )
|                                                                    |  |                              |            |   |      |   |            |  
|NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:(Note 1)     |  |                              |            |   |      |   |            |  
|                                                                    |  |                             
|Net realized gain/(loss) on investments on affiliated investments   |  |                              | 683        |   |      |   | (7,145,795 | )
|Net realized loss on investments on unaffiliated investments        |  |                              | (6,550     | ) |      |   |           |  
|Net change in unrealized (depreciation)/appreciation on investments |  |                              | (2,024,990 | ) |      |   | 592,509    |  
|                                                                    |  |                              |            |   |      |   |            |  
|NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS                     |  |                              | (2,030,857 | ) |      |   | (6,553,286 | )
|                                                                    |  |                              |            |   |      |   |            |  
|NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS                |  | $                            | (2,164,619 | ) |      | $ | (6,865,433 | )
|                                                                    |  |                              |            |   |      |   |            |  



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

11



---

Excelsior Venture Partners III, LLC

Statements of Changes in Net Assets (Unaudited)



|                                                       |  |                            |            |   |      |   |             |  
|------------------------------------------------------ |  | -------------------------- | ---------- | - | ---- | - | ----------- | -
|                                                       |  | Six Months Ended April 30, |           
|                                                       |  | 2006                       |            |   | 2005 |  
|OPERATIONS:                                            |  |                            |            |   |      |   |             |  
|                                                       |  |                           
|Net investment loss                                    |  | $                          | (331,789   | ) |      | $ | (801,343    | )
|                                                       |  |                           
|Net realized gain/(loss) on investments                |  |                            | 9,846      |   |      |   | (5,559,036  | )
|Net change in unrealized depreciation on investments   |  |                            | (2,938,770 | ) |      |   | 5,935,119   |  
|                                                       |  |                            |            |   |      |   |             |  
|Net (decrease) in net assets resulting from operations |  |                            | (3,260,713 | ) |      |   | (425,260    | )
|                                                       |  |                            |            |   |      |   |             |  
|DISTRIBUTIONS TO SHAREHOLDERS                          |  |                            |            |   |      |   |             |  
|Distributions                                          |  |                            |           |   |      |   | (10,875,536 | )
|                                                       |  |                            |            |   |      |   |             |  
|NET (DECREASE) IN NET ASSETS                           |  |                            | (3,260,713 | ) |      |   | (11,300,796 | )
|                                                       |  |                           
|NET ASSETS:                                            |  |                            |            |   |      |   |             |  
|                                                       |  |                           
|Beginning of period                                    |  |                            | 93,348,847 |   |      |   | 116,079,433 |  
|                                                       |  |                            |            |   |      |   |             |  
|End of period                                          |  | $                          | 90,088,134 |   |      | $ | 104,778,637 |  
|                                                       |  |                            |            |   |      |   |             |  



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

12



---

Excelsior Venture Partners III, LLC

Statements of Cash Flows (Unaudited)



|                                                                                                                                       |  |                            |            |   |      |   |             |  
|-------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------- | ---------- | - | ---- | - | ----------- | -
|                                                                                                                                       |  | Six Months Ended April 30, |           
|                                                                                                                                       |  | 2006                       |            |   | 2005 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                                                                  |  |                            |            |   |      |   |             |  
|Net increase (decrease) in net assets resulting from operations                                                                        |  | $                          | (3,260,713 | ) |      | $ | (425,260    | )
|Adjustments to reconcile net increase (decrease) in net assets from operations to net cash provided by (used in) operating
activities: |  |                            |            |   |      |   |             |  
|Net change in unrealized depreciation on investments                                                                                   |  |                            | 2,938,770  |   |      |   | (5,935,119  | )
|Purchase of investments                                                                                                                |  |                            | (6,536,725 | ) |      |   | (10,544,504 | )
|Proceeds received from the sale of investments and distributions received from private investment funds                                |  |                            | 505,822    |   |      |   | 8,834,437   |  
|Sale of short-term investments  Net                                                                                                   |  |                            | 5,646,602  |   |      |   | 13,728,250  |  
|Net realized (gain)/loss on investments                                                                                                |  |                            | (9,846     | ) |      |   | 5,559,036   |  
|Increase in interest receivable                                                                                                        |  |                            | (113,551   | ) |      |   | (108,276    | )
|Decrease in other receivable                                                                                                           |  |                            | 419,679    |   |      |   | 146,365     |  
|Increase in prepaid insurance                                                                                                          |  |                            | (17,634    | ) |      |   | (29,671     | )
|Decrease in management fee payable                                                                                                     |  |                            | (91,232    | ) |      |   | (72,594     | )
|Increase/(Decrease) in Board of Managers fees payable                                                                                 |  |                            | 1,254      |   |      |   | (44,247     | )
|Decrease in other expenses payable                                                                                                     |  |                            | (50,646    | ) |      |   | (164,013    | )
|                                                                                                                                       |  |                            |            |   |      |   |             |  
|Net cash provided by/(used in) operating activities                                                                                    |  |                            | (568,220   | ) |      |   | 10,944,404  |  
|                                                                                                                                       |  |                           
|CASH FLOWS FROM FINANCING ACTIVITIES                                                                                                   |  |                            |            |   |      |   |             |  
|                                                                                                                                       |  |                           
|Cash Distributions to Unitholders                                                                                                      |  |                            |           |   |      |   | (10,875,536 | )
|                                                                                                                                       |  |                            |            |   |      |   |             |  
|Net Cash Used in Financing Activities                                                                                                  |  |                            |           |   |      |   | (10,875,536 | )
|                                                                                                                                       |  |                            |            |   |      |   |             |  
|Net change in cash                                                                                                                     |  |                            | (568,220   | ) |      |   | 68,868      |  
|                                                                                                                                       |  |                            |            |   |      |   |             |  
|Cash at beginning of period                                                                                                            |  |                            | 574,146    |   |      |   |            |  
|                                                                                                                                       |  |                            |            |   |      |   |             |  
|Cash at end of period                                                                                                                  |  | $                          | 5,926      |   |      | $ | 68,868      |  
|                                                                                                                                       |  |                            |            |   |      |   |             |  



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

13



---

Excelsior Venture Partners III, LLC

Financial Highlights (Unaudited)

Per Unit Operating Performance: (1)



|                                                                   |  |                            |        |    |      |   |         |   
|------------------------------------------------------------------ |  | -------------------------- | ------ | -- | ---- | - | ------- | --
|                                                                   |  | Six Months Ended April 30, |       
|                                                                   |  | 2006                       |        |    | 2005 |  
|NET ASSET VALUE, BEGINNING OF PERIOD                               |  | $                          | 316.21 |    |      | $ | 393.21  |   
|                                                                   |  |                           
|INCOME FROM INVESTMENT OPERATIONS:                                 |  |                            |        |    |      |   |         |   
|Net investment loss                                                |  |                            | (1.12  | )  |      |   | (2.71   | ) 
|Net realized and unrealized gain (loss) on investment transactions |  |                            | (9.92  | )  |      |   | 1.27    |   
|                                                                   |  |                            |        |    |      |   |         |   
|Total from investment operations                                   |  |                            | (11.04 | )  |      |   | (1.44   | ) 
|                                                                   |  |                            |        |    |      |   |         |   
|FINANCING ACTIVITIES                                               |  |                            |        |    |      |   |         |   
|Distribution to Members                                            |  |                            |       |    |      |   | (36.84  | ) 
|                                                                   |  |                           
|NET DECREASE IN NET ASSETS:                                        |  |                            | (11.04 | )  |      |   | (38.28  | ) 
|                                                                   |  |                           
|NET ASSET VALUE, END OF PERIOD                                     |  | $                          | 305.17 |    |      | $ | 354.93  |   
|                                                                   |  |                            |        |    |      |   |         |   
|TOTAL NET ASSET VALUE RETURN(3), (4)                               |  |                            | (3.49  | )% |      |   | (0.37   | )%
|                                                                   |  |                           
|RATIOS AND SUPPLEMENTAL DATA (5)                                   |  |                            |        |    |      |   |         |   
|Net assets, end of period (000s)                                  |  | $                          | 90,088 |    |      | $ | 104,779 |   
|Ratios to average net assets: (2)                                  |  |                            |        |    |      |   |         |   
|Net expenses                                                       |  |                            | 2.42   | %  |      |   | 2.45    | % 
|Net investment loss                                                |  |                            | (0.72  | )% |      |   | (1.40   | )%
|Portfolio Turnover Rate (3)                                        |  |                            | 0.76   | %  |      |   | 12.11   | % 

---

|(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.

14



---

EXCELSIOR VENTURE PARTNERS III, LLC

NOTES TO FINANCIAL STATEMENTS

April 30, 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.

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



15



---

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 April 30, 2006 and October 31, 2005, market quotations were not readily available for securities valued at $67,096,767 or 74.48% 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 April 30, 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 April 30, 2006 was $104,941,924, and those investments had net depreciation on a tax basis at April 30, 2006 of $25,480,770, consisting of gross appreciation of $0 and gross depreciation of $25,480,770.
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.



16



---

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). The Investment Adviser is a wholly-owned subsidiary of United States Trust Company, National Association (USTC-NA). USTC-NA is a wholly-owned subsidiary of U. S. Trust
Corporation (U.S. Trust), a registered bank holding company, which has its principal offices at 114 West 47thStreet, 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.

Prior to December 16, 2005, U.S. Trust Company, N.A., on behalf of its Asset Management Division served as the investment adviser to the
Company (the former Investment Adviser) pursuant to an Investment Advisory Agreement (the Agreement). Effective December 16, 2005, USTA assumed the duties of the former Investment Adviser.

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. Prior to December 16, 2005 and pursuant to a sub-advisory agreement (the Sub-Advisory
Agreement) among the Company, the former Investment Adviser, and United States Trust Company of New York (U.S. Trust NY), U.S. Trust NY served 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 April 30, 2006 and October 31, 2005, $378,063 and $469,295 were payable to the Investment Adviser and former Investment Adviser, respectively.

Prior to March 31, 2006, USTA was a wholly owned subsidiary of U.S. Trust Company, N.A. (UST-NA) and UST-NA and U.S.Trust NY
were wholly-owned subsidiaries of U.S. Trust. Effective March 31, 2006, U.S. Trust NY converted into a national bank named United States Trust Company, National Association (USTC-NA) and UST-NA merged into USTC-NA. USTC-NA is the surviving entity
and remains a wholly owned subsidiary of U.S. Trust.

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.



17



---

As of April 30, 2006 and October 31, 2005, Excelsior Venture Investors III, LLC had an
investment in the Company of $57,190,905 and $59,260,913, respectively. This represents an ownership interest of 63.48% in the Company as of both dates.

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 six-month periods ended April 30, 2006, and April 30, 2005 were as follows:



|                                  |  |               |  |             
|--------------------------------- |  | ------------- |  | ------------
|Six Month Periods Ended April 30, |  | Purchases ($) |  | Proceeds ($)
|2006                              |  | 6,536,725     |  | 505,822     
|2005                              |  | 10,544,504    |  | 8,834,437   

Note 4  Commitments

As of April 30, 2006, the Company had outstanding investment commitments totaling $12,572,614.



18



---

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 six months ended April 30, 2006 and 2005 and the year ended October 31, 2005. Transactions with companies, which are or were affiliates, were as follows:



|                                                 |  |                                               |  |                       |            |                                   |   |                                         |  |   |                  |   |                     |   |         |                                              |   |                              |   |  |            |  |   |           
|------------------------------------------------ |  | --------------------------------------------- |  | --------------------- | ---------- | --------------------------------- | - | --------------------------------------- |  | - | ---------------- | - | ------------------- | - | ------- | -------------------------------------------- | - | ---------------------------- | - |  | ---------- |  | - | ----------
|                                                 |  |                                               |  |                       |            |                                   |   | For the Six Months Ended April 30, 2006 |  |  
|Name of Investment                               |  | Shares/PrincipalAmount Held atOctober 31,2005 |  | October 31,2005 Value |            | Purchases /ConversionAcquisitions |   | Sales /ConversionProceeds               |  |   | InterestReceived |   | RealizedGain (Loss) |   |         | Shares/PrincipalAmount Held atApril 30, 2006 |   | April 30, 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  |                                   |   | 281,690                                 |  |   |                 |   |                     |   |        |                                              |   |                             |   |  | 7,146,701  |  |   | 3,267,606 
|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                                 |  |   |                 |   |                     |   | 135,890 |                                              |   |                             |   |  | 3,700,000  |  |   | 3,700,000 
|                                                 |  |                                               |  |                       |            |                                   |   |                                         |  |   |                  |   |                     |   |         |                                              |   |                              |   |  |            |  |   |           
|Total Controlled Affiliates                      |  |                                               |  | $                     | 15,504,462 |                                   | $ | 981,690                                 |  | $ |                 |   |                     | $ | 135,890 |                                              | $ |                             |   |  |            |  | $ | 16,486,152
|                                                 |  |                                               |  |                       |            |                                   |   |                                        
|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., 8% Bridge Note                    |  |                                              |  |                       |           |                                   |   | 1,727,599                               |  |   |                 |   |                     |   | 14,675  |                                              |   |                             |   |  | 1,727,599  |  |   | 1,727,599 
|OpVista, Inc., Warrants                          |  | 3,386,121                                     |  |                       |           |                                   |   | 8,681                                   |  |   |                 |   |                     |   |        |                                              |   |                             |   |  | 3,384,448  |  |   | 8,681     
|Silverback Systems, Inc., Common                 |  |                                              |  |                       |           |                                   |   | 4,759,081                               |  |   |                 |   |                     |   |        |                                              |   |                             |   |  | 40,026     |  |   | 11,420    
|Silverback Systems, Inc., Series B               |  |                                              |  |                       |           |                                   |   | 1,500,781                               |  |   |                 |   |                     |   |        |                                              |   |                             |   |  | 559,992    |  |   | 1,660,552 
|Silverback Systems, Inc., Series A-2 Preferred   |  |                                              |  |                       |           |                                   |   | 2,070,310                               |  |   |                 |   |                     |   |        |                                              |   |                             |   |  | 772,503    |  |   | 4,513,973 
|Silverback Systems, Inc., Series B-1 Preferred   |  | 2,211,898                                     |  |                       | 1,415,615  |                                   |   |                                        |  |   | (1,415,615       | ) |                     |   |        |                                              |   |                             |   |  |           |  |   |          
|Silverback Systems, Inc., Series C Preferred     |  | 34,364,257                                    |  |                       | 3,333,333  |                                   |   |                                        |  |   | (3,343,467       | ) |                     |   |        |                                              |   |                             |   |  |           |  |   |          
|Silverback Systems, Inc., 5% Bridge Notes        |  | 1,969,206                                     |  |                       | 1,969,206  |                                   |   | 300,000                                 |  |   | (2,269,206       | ) |                     |   |        |                                              |   |                             |   |  |           |  |   |          
|Silverback Systems, Inc., Series C Warrant       |  | 4,173,033                                     |  |                       | 196        |                                   |   |                                        |  |   | (196             | ) |                     |   |        |                                              |   | (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 |                                   | $ | 10,366,452                              |  | $ | (7,028,484       | ) |                     | $ | 14,675  |                                              | $ | (196                         | ) |  |            |  | $ | 37,323,311
|                                                 |  |                                               |  |                       |            |                                   |   |                                         |  |   |                  |   |                     |   |         |                                              |   |                              |   |  |            |  |   |           



19



---

|                                                     |  |                                               |  |                       |            |                                   |   |                                     |  |   |                  |   |                     |   |         |                                               |   |                               |   |  |            |  |   |           
|---------------------------------------------------- |  | --------------------------------------------- |  | --------------------- | ---------- | --------------------------------- | - | ----------------------------------- |  | - | ---------------- | - | ------------------- | - | ------- | --------------------------------------------- | - | ----------------------------- | - |  | ---------- |  | - | ----------
|                                                     |  |                                               |  |                       |            |                                   |   | For the Year Ended October 31, 2005 |  |  
|Name of Investment                                   |  | Shares/PrincipalAmount Held atOctober 31,2004 |  | October 31,2004 Value |            | Purchases /ConversionAcquisitions |   | Sales /ConversionProceeds           |  |   | InterestReceived |   | RealizedGain (Loss) |   |         | Shares/PrincipalAmount Held atOctober 31,2005 |   | October 31,2005 Value(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
|                                                     |  |                                               |  |                       |            |                                   |   |                                     |  |   |                  |   |                     |   |         |                                               |   |                               |   |  |            |  |   |           



20



---

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.

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 provided 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 several class action and derivative lawsuits 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 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(a) of the Securities Exchange Act of 1934, as amended and under Section 36(b) and 48(a) of the Investment Company Act of
1940, as amended, however, have not been dismissed. Discovery has commenced 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 and consultation with counsel, 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. Neither the Investment Adviser nor the Company are a subject of the Investigations nor a 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.



21



---

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

Six-month and
Three-month Periods Ended April 30, 2006 as Compared to the Similar Period in 2005

Realized and Unrealized Gains and Losses from Portfolio
Investments

For the six-month periods ended April 30, 2006 and 2005, the Company had a net realized gain (loss) on security
transactions of $9,846 and ($5,559,036), respectively. For the six-month periods ended April 30, 2006 and 2005, the Company had a net change in unrealized (depreciation)/appreciation on investments of ($2,938,770) and $5,935,119, respectively.
The net realized gain for the period ended April 30, 2006 was principally the result of the Companys additional distribution received from the Companys sale of Gyration, a private company investment which was partially offset by
realized loss from the sale of stock distributed by the Companys private investment funds. The realized loss for the period ended April 30, 2005 was principally the result of the Companys sale of Monterey Design Systems during the
period. The net change in unrealized depreciation for the period ended April 30, 2006 was principally the result of a decrease in the valuation of Nano Opto Corporation of ($873,732), and Silverback Systems, Inc of ($2,134,094) both private
company investments. The net change in unrealized depreciation for the period ended April 30, 2005 was principally the combination of: i) the sale of Monterey Design Systems, a private company investment, which resulted in a decrease in unrealized
depreciation of approximately $7,150,000 due to the reclassification from unrealized depreciation to realized loss, ii) the sale of Netlogic Microsystems common shares, a public company investment, which resulted in an decrease in unrealized
depreciation of $3,293,078, iii) the sale of Senomyx common shares, a public company investment, which resulted in an increase in unrealized depreciation of $1,476,005, iv) an increase in the value of Adeza Biomedical common shares, a public company
investment, by $3,196,003, v) a decrease of $4,941,133 due to the write-off of Chips & Systems, a private company investment, and vi) a decrease of $1,124,649 due to the write-down of Genoptix, a private company investment.

For the three-month periods ended April 30, 2006 and 2005, the Company had a net realized (loss) on security transactions of ($5,867) and
($7,145,795), respectively. For the three-month periods ended April 30, 2006 and 2005, the Company had a net (increase) decrease in unrealized depreciation on investments of ($2,024,990) and $592,509 respectively. The net realized loss for the
period ended April 30, 2006 was principally the result of the sale of stock distributed by the Companys private investment funds. The realized loss for the period ended April 30, 2005 was principally the result of the Companys
sale of Monterey Design Systems during the period. The net change in unrealized depreciation for the period ended April 30, 2006 was principally the result of a decrease in the valuation of Silverback Systems, Inc. of ($2,134,094), a private
company investment. The net change in unrealized depreciation for the period ended April 30, 2005 was principally the combination of the sale of Monterey Design Systems, a private company investment, which resulted in an increase in unrealized
appreciation of $7,150,000 due to the reclassification from unrealized depreciation to realized loss and partially offset by (i) a decrease in value of Adeza Biomedical common shares, a public company investment, by $367,629, (ii) a decrease of
$4,941,133 due to the write-off of Chips & Systems, and (iii) a decrease of $1,124,649 due to the write-down of Genoptix.

Investment Income
and Expenses

For the six-month period ended April 30, 2006, the Company had investment income of $779,273 and operating expenses
of $1,111,062, resulting in a net investment loss of ($331,789). In comparison, for the similar period ended April 30, 2005, the Company had investment income of $601,820 and operating expenses of $1,403,163, resulting in a net investment loss
of ($801,343). The increase in net investment income resulted from the increase in short-term interest income and additional interest income from affiliated investments. The Company continues its investment program in venture capital companies and
private equity funds. The decrease in operating expenses was due primarily to a decline in management fees as a result of reduced net assets under management during the period.

For the three-month period ended April 30, 2006, the Company had investment income of $392,904 and net operating expenses of $526,666 resulting in a
net investment loss of ($133,762). In comparison, for the similar period ended April 30, 2005, the Company had investment income of $363,741 and net operating expenses of $675,888, resulting in a net investment loss of ($312,147). The increase
in net investment income for the period ended April 30, 2006 resulted from additional investment income from affiliated investments. 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.



22



---

The Investment Adviser and the Investment Sub-Adviser, provide 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 six-month periods ended April 30, 2006 and 2005, the Investment Adviser, the former Investment Adviser and the Investment Sub-Adviser earned $843,118 and $1,128,088 in management fees, respectively. Management fees, recorded
during the period ended April 30, 2006 decreased over the period ended January 31, 2005 due to a decrease in net assets. For the three-month periods ended April 30, 2006 and 2005, the Investment Advisers earned $378,063 and $510,975
in management fees, respectively. Management fees recorded during the period ended April 30, 2006 decreased over the period ended April 30, 2005 due to a decline in net assets under management.

Net Assets

At April 30, 2006, the
Companys net assets were $90,088,134, or a net asset value per unit of membership interest of $305.17. This represents a decrease of ($3,260,713) 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 ($331,789) as describe above and (ii) a net change in unrealized depreciation on investments of ($2,938,770) as described above.

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 April 30, 2006, the Company held $5,926 in cash and $22,951,692 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 $1,983,731, 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 April 30, 2006, has contributed $13,127,386 or 51.1 % of the total capital committed thus far. The Company also participated in follow-on financing rounds, totaling $4,451,304, 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 74.48% of the Companys net assets. For the
private investments held at April 30, 2006, changes to these estimates, i.e. changes in the valuations of these private investments, resulted in a ($2,938,770) 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.



23



---

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.

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 74.48% 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 April 30, 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
April 30, 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.



24



---

|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.

Item 5. Other Information.

None.

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



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



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



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

None



25



---

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: June 14, 2006 |  | By:                                 |  | /s/ Leo P. Grohowski         
|                    |  |                                     |  | Leo P. Grohowski             
|                    |  |                                     |  | Co-Chief Executive Officer   
|                    |  |                                    
|Date: June 14, 2006 |  | By:                                 |  | /s/ Raghav V. Nandagopal     
|                    |  |                                     |  | Raghav V. Nandagopal         
|                    |  |                                     |  | Co-Chief Executive Officer   
|                    |  |                                    
|Date: June 14, 2006 |  | By:                                 |  | /s/ Robert F. Aufenanger     
|                    |  |                                     |  | Robert F. Aufenanger         
|                    |  |                                     |  | Treasurer                    
|                    |  |                                     |  | (Principal Financial Officer)



26