##### Table of Contents

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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 January 31, 2005



OR



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



For the transition period from
 to



Commission file number 000-29665



EXCELSIOR VENTURE PARTNERS III, LLC

(Exact Name of Registrant as Specified in Its Charter)



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



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



|                                                                                  |  |           
|--------------------------------------------------------------------------------- |  | ----------
|114 West 47th Street, New York, NY                                                |  | 10036-1532
|Former Name, Former Address and Former Fiscal Year, if Changed Since last Report.



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



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



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##### Table of Contents

EXCELSIOR VENTURE PARTNERS III, LLC



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



|         |  |                                                                                                             |  |         
|-------- |  | ----------------------------------------------------------------------------------------------------------- |  | --------
|         |  | INDEX                                                                                                       |  | PAGE NO.
|PART I.  |  | FINANCIAL INFORMATION                                                                                       |  |         
|         |  |                                                                                                            
|Item 1.  |  | Financial Statements                                                                                        |  | 1       
|         |  |                                                                                                            
|         |  | Portfolio of Investments as of January 31, 2005 and October 31, 2004                                        |  | 2       
|         |  |                                                                                                            
|         |  | Statements of Assets and Liabilities at January 31, 2005 and October 31, 2004                               |  | 9       
|         |  |                                                                                                            
|         |  | Statements of Operations for the three-month periods ended January 31, 2005 and January 31, 2004            |  | 10      
|         |  |                                                                                                            
|         |  | Statements of Changes in Net Assets for the three-month periods ended January 31, 2005 and January 31, 2004 |  | 11      
|         |  |                                                                                                            
|         |  | Statements of Cash Flows for the three-month periods ended January 31, 2005 and January 31, 2004            |  | 12      
|         |  |                                                                                                            
|         |  | Financial Highlights for the three-month periods ended January 31, 2005 and January 31, 2004                |  | 13      
|         |  |                                                                                                            
|         |  | Notes to Financial Statements                                                                               |  | 14      
|         |  |                                                                                                            
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                       |  | 21      
|         |  |                                                                                                            
|Item 3.  |  | Quantitative and Qualitative Disclosures about Market Risk                                                  |  | 23      
|         |  |                                                                                                            
|Item 4.  |  | Controls and Procedures                                                                                     |  | 23      
|         |  |                                                                                                            
|PART II. |  | OTHER INFORMATION                                                                                           |  |         
|         |  |                                                                                                            
|Item 1.  |  | Legal Proceedings                                                                                           |  | 23      
|         |  |                                                                                                            
|Item 2.  |  | Changes in Securities and Use of Proceeds                                                                   |  | 23      
|         |  |                                                                                                            
|Item 3.  |  | Defaults Upon Senior Securities                                                                             |  | 23      
|         |  |                                                                                                            
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                         |  | 23      
|         |  |                                                                                                            
|Item 5.  |  | Other Information                                                                                           |  | 23      
|         |  |                                                                                                            
|Item 6.  |  | Exhibits and Reports on Form 8-K                                                                            |  | 24      





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##### Table of Contents

PART I. FINANCIAL INFORMATION



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



Excelsior Venture Partners III, LLC

Portfolio of Investments
(Unaudited)



|                                 |  |                  |             |                     |        |  
|-------------------------------- |  | ---------------- | ----------- | ------------------- | ------ | -
|                                 |  | January 31, 2005 |            
|                                 |  | Value            |             | Percent ofNetAssets |       
|PORTFOLIO STRUCTURE              |  |                  |             |                     |        |  
|SHORT-TERM INVESTMENTS:          |  |                  |             |                     |        |  
|MONEY MARKET INSTRUMENTS         |  | $                | 40,234,006  |                     | 32.84  | %
|INVESTMENT COMPANIES             |  |                  | 927,901     |                     | 0.76   | %
|PRIVATE COMPANIES                |  |                  | 62,972,864  |                     | 51.39  | %
|PUBLIC COMPANY                   |  |                  | 6,563,632   |                     | 5.36   | %
|PRIVATE INVESTMENT FUNDS         |  |                  | 6,839,094   |                     | 5.58   | %
|                                 |  |                  |             |                     |        |  
|TOTAL INVESTMENTS                |  |                  | 117,537,497 |                     | 95.93  | %
|OTHER ASSETS & LIABILITIES (NET) |  |                  | 4,982,109   |                     | 4.07   | %
|                                 |  |                  |             |                     |        |  
|NET ASSETS                       |  | $                | 122,519,606 |                     | 100.00 | %
|                                 |  |                  |             |                     |        |  



Excelsior Venture Partners III, LLC

Portfolio of Investments



|                                 |  |                  |             |                     |        |  
|-------------------------------- |  | ---------------- | ----------- | ------------------- | ------ | -
|                                 |  | October 31, 2004 |            
|                                 |  | Value            |             | Percent ofNetAssets |       
|PORTFOLIO STRUCTURE              |  |                  |             |                     |        |  
|SHORT-TERM INVESTMENTS:          |  |                  |             |                     |        |  
|MONEY MARKET INSTRUMENTS         |  | $                | 44,139,985  |                     | 38.03  | %
|INVESTMENT COMPANIES             |  |                  | 1,386,211   |                     | 1.19   | %
|PRIVATE COMPANIES                |  |                  | 60,065,508  |                     | 51.75  | %
|PUBLIC COMPANIES                 |  |                  | 4,682,927   |                     | 4.03   | %
|PRIVATE INVESTMENT FUNDS         |  |                  | 5,456,505   |                     | 4.70   | %
|                                 |  |                  |             |                     |        |  
|TOTAL INVESTMENTS                |  |                  | 115,731,136 |                     | 99.70  | %
|OTHER ASSETS & LIABILITIES (NET) |  |                  | 348,297     |                     | 0.30   | %
|                                 |  |                  |             |                     |        |  
|NET ASSETS                       |  | $                | 116,079,433 |                     | 100.00 | %
|                                 |  |                  |             |                     |        |  



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



1



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##### Table of Contents



Excelsior Venture Partners III, LLC

Portfolio of Investments January 31, 2005 (Unaudited)



|                       |                                     |  |                                                                                  |                     |                            |                |   |           
|---------------------- | ----------------------------------- |  | -------------------------------------------------------------------------------- | ------------------- | -------------------------- | -------------- | - | ----------
|PrincipalAmount/Shares |                                     |  |                                                                                  | Acquisition Date ## |                            | Value (Note 1)
|                       | MONEY MARKET INSTRUMENTS  32.84%   |  |                                                                                  |                     |                            |               
|$                      | 4,000,000                           |  | Washington Bank Mutual Note 2.35%, 02/02/05 (Cost $4,000,000)                    |                     |                            |                | $ | 4,000,000 
|                       | 3,000,000                           |  | Societe Generale Commercial Paper 2.27%, 02/03/05 (Cost $2,999,433)              |                     |                            |                |   | 2,999,433 
|                       | 4,000,000                           |  | Coca-Cola Commercial Paper 2.24%, 02/03/05 (Cost $3,999,253)                     |                     |                            |                |   | 3,999,253 
|                       | 3,000,000                           |  | Federal Home Loan Bank Corp. Discount Note 2.23%, 02/04/05 (Cost $2,999,257)     |                     |                            |                |   | 2,999,257 
|                       | 4,000,000                           |  | Federal National Mortgage Assoc. Discount Note 2.26%, 02/04/05 (Cost $3,998,996) |                     |                            |                |   | 3,998,996 
|                       | 3,500,000                           |  | UBS Financial Commercial Paper 2.29%, 02/04/05 (Cost $3,499,111)                 |                     |                            |                |   | 3,499,111 
|                       | 3,750,000                           |  | New Center Asset Trust Commercial Paper 2.34%, 02/08/05 (Cost $3,748,050)        |                     |                            |                |   | 3,748,050 
|                       | 3,000,000                           |  | Morgan Stanley Commercial Paper 2.52%, 02/08/05 (Cost $2,998,320)                |                     |                            |                |   | 2,998,320 
|                       | 4,000,000                           |  | GE Capital Commercial Paper 2.32%, 02/11/05 (Cost $3,997,164)                    |                     |                            |                |   | 3,997,164 
|                       | 4,000,000                           |  | Bank of America Note 2.23%, 02/14/05 (Cost $4,000,000)                           |                     |                            |                |   | 4,000,000 
|                       | 4,000,000                           |  | Goldman Sachs Commercial Paper 2.51%, 02/17/05 (Cost $3,994,422)                 |                     |                            |                |   | 3,994,422 
|                       |                                     |  |                                                                                  |                     |                            |                |   |           
|                       |                                     |  | TOTAL MONEY MARKET INSTRUMENTS (Cost $40,234,006)                                |                     |                            |                |   | 40,234,006
|                       |                                     |  |                                                                                  |                     |                            |                |   |           
|                       | PUBIC COMPANY  5.36%               |  |                                                                                  |                     |                            |               
|                       | Common Stocks  5.36%               |  |                                                                                  |                     |                            |               
|                       | Life Sciences  5.36%               |  |                                                                                  |                     |                            |               
|                       | 485,961                             |  | Adeza Biomedical Corp.                                                           |                     |                            |                |   | 6,563,632 
|                       |                                     |  |                                                                                  |                     |                            |                |   |           
|                       |                                     |  | (Nasdaq: ADZA)                                                                   |                     |                            |                |   |           
|                       |                                     |  | TOTAL COMMON STOCKS (Cost $3,000,000)                                            |                     |                            |                |   | 6,563,632 
|                       |                                     |  |                                                                                  |                     |                            |                |   |           
|                       | PRIVATE COMPANIES **, #, @  51.39% |  |                                                                                  |                     |                            |               
|                       | Common Stocks  0.00%               |  |                                                                                  |                     |                            |               
|                       | Capital Equipment  0.00%           |  |                                                                                  |                     |                            |               
|                       | 157,396                             |  | MIDAS Vision Systems, Inc.                                                       |                     | 03/03                      |                |   |          
|                       |                                     |  |                                                                                  |                     |                            |                |   |           
|                       | Life Sciences  0.00%               |  |                                                                                  |                     |                            |               
|                       | 46,860                              |  | Genoptix, Inc.                                                                   |                     | 07/03                      |                |   |          
|                       |                                     |  |                                                                                  |                     |                            |                |   |           
|                       |                                     |  |                                                                                  |                     |                            |                |   |          
|                       | Semiconductor  0.00%               |  |                                                                                  |                     |                            |               
|                       | 708,955                             |  | Monterey Design Systems, Inc.                                                    |                     | 06/03                      |                |   |          
|                       |                                     |  |                                                                                  |                     |                            |                |   |           
|                       |                                     |  | TOTAL COMMON STOCKS (Cost $8,750,000)                                            |                     |                            |                |   |          
|                       |                                     |  |                                                                                  |                     |                            |                |   |           
|                       | Preferred Stocks  47.02%           |  |                                                                                  |                     |                            |               
|                       | Capital Equipment  0.00%           |  |                                                                                  |                     |                            |               
|                       | 933,593                             |  | MIDAS Vision Systems, Inc., Series A-1                                           |                     | 03/03                      |                |   |          
|                       |                                     |  |                                                                                  |                     |                            |                |   |           
|                       | Consumer Products  0.00%           |  |                                                                                  |                     |                            |               
|                       | 517,260                             |  | Senomyx, Inc., Series E                                                          |                     | 11/01                      |                |   |          
|                       |                                     |  |                                                                                  |                     |                            |                |   |           
|                       | Enterprise Software  9.35%         |  |                                                                                  |                     |                            |               
|                       | 7,564,077                           |  | LogicLibrary, Inc., Series A                                                     |                     | 01/02, 08/03, 05/04, 12/04 |                |   | 3,458,450 
|                       | 20,000,000                          |  | ***Pilot Software Inc., Series A                                                 |                     | 05/02 & 04/03              |                |   | 4,000,000 
|                       | 19,995,000                          |  | ***Datanautics Inc., Series A                                                    |                     | 01/04                      |                |   | 4,000,000 
|                       |                                     |  |                                                                                  |                     |                            |                |   |           
|                       |                                     |  |                                                                                  |                     |                            |                |   | 11,458,450
|                       | Information Services  0.00%        |  |                                                                                  |                     |                            |               
|                       | 4,425                               |  | Cenquest, Inc., Series 2                                                         |                     | 7/01                       |                |   |          
|                       |                                     |  |                                                                                  |                     |                            |                |   |           
|                       | Life Sciences  4.51%               |  |                                                                                  |                     |                            |               
|                       | 1,999,999                           |  | Archemix Corporation, Inc., Series A                                             |                     | 08/02, 01/03, 11/03        |                |   | 1,999,999 
|                       | 466,666                             |  | Archemix Corporation, Inc., Series B                                             |                     | 03/04 & 09/04              |                |   | 466,666   
|                       | 942,481                             |  | Genoptix, Inc., Series B-1                                                       |                     | 12/01                      |                |   | 1,253,500 
|                       | 1,403,696                           |  | Genoptix, Inc., Series B-2                                                       |                     | 07/03, 09/03, 12/03        |                |   | 1,250,000 
|                       | 620,580                             |  | Genoptix, Inc., Series C                                                         |                     | 08/04 & 01/05              |                |   | 554,178   
|                       |                                     |  |                                                                                  |                     |                            |                |   |           
|                       |                                     |  |                                                                                  |                     |                            |                |   | 5,524,343 
|                       | Medical Technology  5.24%          |  |                                                                                  |                     |                            |               
|                       | 4,166,667                           |  | Tensys Medical, Inc., Series C                                                   |                     | 03/02                      |                |   | 5,000,000 
|                       | 1,187,500                           |  | Tensys Medical, Inc., Series D                                                   |                     | 05/04                      |                |   | 1,425,000 
|                       |                                     |  |                                                                                  |                     |                            |                |   |           
|                       |                                     |  |                                                                                  |                     |                            |                |   | 6,425,000 



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Excelsior Venture Partners III, LLC

Portfolio of Investments January 31, 2005  (continued)



|                                      |                                       |  |                                               |                     |                                 |                |           
|------------------------------------- | ------------------------------------- |  | --------------------------------------------- | ------------------- | ------------------------------- | -------------- | ----------
|PrincipalAmount /Shares/Percent Owned |                                       |  |                                               | Acquisition Date ## |                                 | Value (Note 1)
|                                      | Optical  11.19%                      |  |                                               |                     |                                
|                                      | 4,330,504                             |  | LightConnect, Inc., Series B                  |                     | 07/01                           |                | 5,000,000 
|                                      | 12,292,441                            |  | LightConnect, Inc., Series C                  |                     | 12/02                           |                | 992,000   
|                                      | 956,234                               |  | NanoOpto Corporation, Series A-1              |                     | 10/01& 03/02                    |                |          
|                                      | 3,023,399                             |  | NanoOpto Corporation, Series B                |                     | 09/03, 11/03,01/04, 07/04       |                | 1,655,118 
|                                      | 5,333,333                             |  | OpVista, Inc., Series B                       |                     | 07/01                           |                |          
|                                      | 12,671,059                            |  | OpVista, Inc., Series C                       |                     | 09/03                           |                | 5,000,000 
|                                      | 102,040                               |  | OpVista, Inc., Series D                       |                     | 11/04                           |                | 1,058,000 
|                                      |                                       |  |                                               |                     |                                 |                |           
|                                      |                                       |  |                                               |                     |                                 |                | 13,705,118
|                                      | Semiconductor  11.30%                |  |                                               |                     |                                
|                                      | 7,000,000                             |  | Chips & Systems, Inc., Series A               |                     | 03/04                           |                | 3,500,000 
|                                      | 3,333,333                             |  | Monterey Design Systems, Inc., Series 2       |                     | 06/03                           |                | 600,000   
|                                      | 1,538,461                             |  | NetLogic Microsystems, Inc., Series D         |                     | 08/01                           |                |          
|                                      | 2,211,898                             |  | Silverback Systems, Inc., Series B-1          |                     | 02/02                           |                | 450,052   
|                                      | 34,364,257                            |  | Silverback Systems, Inc., Series C            |                     | 03/03, 09/03,04/04              |                | 4,298,896 
|                                      | 3,096,551                             |  | Virtual Silicon Technology, Inc., Series C    |                     | 12/01                           |                | 5,000,000 
|                                      |                                       |  |                                               |                     |                                 |                |           
|                                      |                                       |  |                                               |                     |                                 |                | 13,848,948
|                                      | Wireless  5.43%                      |  |                                               |                     |                                
|                                      | 4,433,333                             |  | Ethertronics, Inc., Series B                  |                     | 06/01, 09/02,07/03, 05/04       |                | 6,650,000 
|                                      |                                       |  |                                               |                     |                                 |                |           
|                                      |                                       |  | TOTAL PREFERRED STOCKS (Cost $67,685,700)     |                     |                                 |                | 57,611,859
|                                      |                                       |  |                                               |                     |                                 |                |           
|                                      | Notes  4.38%                         |  |                                               |                     |                                
|                                      | Enterprise Software  2.10%           |  |                                               |                     |                                
|$                                     | 573,270                               |  | ***Datanautics, Inc., Bridge Note             |                     | 12/04 & 01/05                   |                | 573,270   
|                                      | 2,000,000                             |  | ***Pilot Software, Inc., Bridge Note          |                     | 08/04, 09/04,10/04, 11/04,12/04 |                | 2,000,000 
|                                      |                                       |  |                                               |                     |                                 |                |           
|                                      | Semiconductor1.66 %                  |  |                                               |                     |                                
|                                      | 211,185                               |  | Virtual Silicon Technology, Inc., Bridge Note |                     | 10/04 &12/04                    |                | 211,185   
|                                      | 1,159,883                             |  | Chips & Systems, Inc., Bridge Note            |                     | 11/04 & 01/05                   |                | 1,159,883 
|                                      | 666,667                               |  | Silverback Systems, Inc., Bridge Note         |                     | 01/05                           |                | 666,667   
|                                      |                                       |  |                                               |                     |                                 |                |           
|                                      | Wireless  .21 %                      |  |                                               |                     |                                
|                                      | 250,000                               |  | Ethertronics, Inc., Bridge Note               |                     |                                 |                | 250,000   
|                                      |                                       |  |                                               |                     |                                 |                |           
|                                      | Optical  .41 %                       |  |                                               |                     |                                
|                                      | 500,000                               |  | NanoOpto Corp., Bridge Note                   |                     |                                 |                | 500,000   
|                                      |                                       |  |                                               |                     |                                 |                |           
|                                      |                                       |  | TOTAL NOTES (Cost $5,361,005)                 |                     |                                 |                | 5,361,005 
|                                      |                                       |  |                                               |                     |                                 |                |           
|                                      | Warrants  0.00%                      |  |                                               |                     |                                
|                                      | Wireless  0.00%                      |  |                                               |                     |                                
|                                      | 100,000                               |  | Ethertronics, Inc.                            |                     | 09/02                           |                |          
|                                      | 115,000                               |  | Ethertronics, Inc.                            |                     | 07/03                           |                |          
|                                      | 66,667                                |  | Ethertronics, Inc.                            |                     | 08/03                           |                |          
|                                      |                                       |  |                                               |                     |                                 |                |           
|                                      |                                       |  |                                               |                     |                                 |                |          
|                                      |                                       |  | TOTAL WARRANTS (Cost $0.00)                   |                     |                                 |                |           
|                                      |                                       |  |                                               |                     |                                 |                |           
|                                      |                                       |  | TOTAL  PRIVATE COMPANIES (Cost $81,796,705)  |                     |                                 |                | 62,972,864
|                                      |                                       |  |                                               |                     |                                 |                |           
|                                      | PRIVATE INVESTMENT FUNDS @, #  5.58% |  |                                               |                     |                                
|                                      | 0.40%                                 |  | Advanced Technology Ventures VII, LP          |                     | 08/01-10/04                     |                | 720,624   
|                                      | 1.48%                                 |  | Burrill Life Sciences Capital Fund            |                     | 12/02-12/04                     |                | 902,672   
|                                      | 1.35%                                 |  | CHL Medical Partners II, LP                   |                     | 01/02-11/04                     |                | 632,377   
|                                      | 4.94%                                 |  | CMEA Ventures Partners, LP                    |                     | 12/03-01/05                     |                | 271,020   



3



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Excelsior Venture Partners III, LLC

Portfolio of Investments January 31, 2005  (continued)



|                                               |  |                                                                              |  |                     |             |                |          
|---------------------------------------------- |  | ---------------------------------------------------------------------------- |  | ------------------- | ----------- | -------------- | ---------
|Principal Amount/Shares/ Percent Owned         |  |                                                                              |  | Acquisition Date ## |             | Value (Note 1)
|0.36%                                          |  | Morgenthaler Partners VII, LP                                                |  | 07/01-01/05         |             |                | 1,376,456
|0.60%                                          |  | Prospect Venture Partners II, LP                                             |  | 06/01-01/05         |             |                | 1,452,266
|0.90%                                          |  | Sevin Rosen Fund VI, LP                                                      |  | 10/04-01/05         |             |                | 300,000  
|2.36%                                          |  | Tallwood II, LP                                                              |  | 12/02-11/04         |             |                | 747,891  
|1.75%                                          |  | Valhalla Partners II, LP                                                     |  | 10/03-12/04         |             |                | 435,788  
|                                               |  |                                                                              |  |                     |             |                |          
|                                               |  | TOTAL  PRIVATE INVESTMENT FUNDS (Cost $8,035,002)                           |  |                     |             |                | 6,839,094
|                                               |  |                                                                              |  |                     |             |                |          
|INVESTMENT COMPANIES  0.76%                   |  |                                                                              |  |                     |            
|927,901                                        |  | Dreyfus Government Cash Management Fund Institutional Shares (Cost $927,901) |  |                     |             |                | 927,901  
|                                               |  |                                                                              |  |                     |             |                |          
|TOTAL INVESTMENTS (Cost $133,993,614)  95.93% |  |                                                                              |  |                     | 117,537,497
|OTHER ASSETS & LIABILITIES (NET)  4.07%       |  |                                                                              |  |                     | 4,982,109  
|                                               |  |                                                                              |  |                     |             |                |          
|NET ASSETS  100.00%                           |  |                                                                              |  | $                   | 122,519,606
|                                               |  |                                                                              |  |                     |             |                |          

---

|# | Restricted as to public resale.
|- | -------------------------------



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



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



|** | At January 31, 2005 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.
Total market value of affiliated securities owned at January 31, 2005 was $58,963,226.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|*** | At January 31, 2005 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. Total market value of controlled affiliated securities owned at January 31, 2005 was $10,573,270.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



4



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##### Table of Contents



Excelsior Venture Partners III, LLC

Portfolio of Investments October 31, 2004



|                       |                                     |  |                                                                     |                  |       |                |   |           
|---------------------- | ----------------------------------- |  | ------------------------------------------------------------------- | ---------------- | ----- | -------------- | - | ----------
|PrincipalAmount/Shares |                                     |  |                                                                     | Acquisition Date |       | Value (Note 1)
|                       | MONEY MARKET INSTRUMENTS  38.03%   |  |                                                                     |                  |       |               
|$                      | 3,000,000                           |  | UBS Financial Commercial Paper 1.75%, 11/01/04                      |                  |       |                | $ | 2,999,854 
|                       | 3,000,000                           |  | Morgan Stanley Commercial Paper 1.79%, 11/02/04                     |                  |       |                |   | 2,999,702 
|                       | 4,000,000                           |  | Federal Home Loan Mortgage Corp. Discount Note 1.75%, 11/02/04      |                  |       |                |   | 3,999,611 
|                       | 6,000,000                           |  | Federal Home Loan Mortgage Corp. Discount Note 1.715%, 11/02/04     |                  |       |                |   | 5,999,428 
|                       | 3,000,000                           |  | Danske Bank Commercial Paper 1.76%, 11/03/04                        |                  |       |                |   | 2,999,560 
|                       | 3,000,000                           |  | Du Pont Commercial Paper 1.75%, 11/03/04                            |                  |       |                |   | 2,999,563 
|                       | 9,900,000                           |  | Federal Home Loan Bank Discount Note 1.70%, 11/04/04                |                  |       |                |   | 9,898,130 
|                       | 3,750,000                           |  | Caterpillar Finance Commercial Paper 1.73%, 11/10/04                |                  |       |                |   | 3,748,198 
|                       | 8,500,000                           |  | Federal National Mortgage Association Discount Note 1.72%, 11/10/04 |                  |       |                |   | 8,495,939 
|                       |                                     |  |                                                                     |                  |       |                |   |           
|                       |                                     |  | TOTAL MONEY MARKET INSTRUMENTS (Cost $44,139,985)                   |                  |       |                |   | 44,139,985
|                       |                                     |  |                                                                     |                  |       |                |   |           
|                       | PUBLIC COMPANIES **, #  4.03%      |  |                                                                     |                  |       |               
|                       |                                     |  | Common Stocks  4.03%                                               |                  |       |                |   |           
|                       |                                     |  | Consumer Products  2.56%                                           |                  |       |                |   |           
|                       | 428,572                             |  | Senomyx, Inc.                                                       |                  | 06/04 |                |   | 2,976,005 
|                       |                                     |  |                                                                     |                  |       |                |   |           
|                       |                                     |  | Semiconductor  1.47%                                               |                  |       |                |   |           
|                       | 384,615                             |  | Netlogic Microsystems Inc.                                          |                  | 07/04 |                |   | 1,706,922 
|                       |                                     |  |                                                                     |                  |       |                |   |           
|                       |                                     |  | TOTAL PUBLIC COMPANIES (Cost $6,500,000)                            |                  |       |                |   | 4,682,927 
|                       |                                     |  |                                                                     |                  |       |                |   |           
|                       | PRIVATE COMPANIES **, #, @  51.75% |  |                                                                     |                  |       |               
|                       |                                     |  | Common Stocks  0.00%                                               |                  |       |                |   |           
|                       |                                     |  | Capital Equipment  0.00%                                           |                  |       |                |   |           
|                       | 157,396                             |  | MIDAS Vision Systems, Inc.                                          |                  | 03/03 |                |   |          
|                       |                                     |  |                                                                     |                  |       |                |   |           
|                       |                                     |  | Life Sciences  0.00%                                               |                  |       |                |   |           
|                       | 46,860                              |  | Genoptix, Inc.                                                      |                  | 07/03 |                |   |          
|                       |                                     |  |                                                                     |                  |       |                |   |           
|                       |                                     |  | Semiconductor  0.00%                                               |                  |       |                |   |           
|                       | 708,955                             |  | Monterey Design Systems, Inc.                                       |                  | 06/03 |                |   |          
|                       |                                     |  |                                                                     |                  |       |                |   |           
|                       |                                     |  | TOTAL COMMON STOCKS (Cost $8,750,000)                               |                  |       |                |   |          
|                       |                                     |  |                                                                     |                  |       |                |   |           



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



5



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Excelsior Venture Partners III, LLC

Portfolio of Investments October 31, 2004  (continued)



|           |  |                                          |  |                           |  |                |           
|---------- |  | ---------------------------------------- |  | ------------------------- |  | -------------- | ----------
|Shares     |  |                                          |  | Acquisition Date          |  | Value (Note 1)
|           |  | PRIVATE COMPANIES **, #, @  (continued) |  |                           |  |                |           
|           |  | Preferred Stocks  51.03%                |  |                           |  |                |           
|           |  | Capital Equipment  0.00%                |  |                           |  |                |           
|933,593    |  | MIDAS Vision Systems, Inc., Series A-1   |  | 03/03                     |  | $              |          
|           |  |                                          |  |                           |  |                |           
|           |  | Enterprise Software  9.83%              |  |                           |  |                |           
|19,995,000 |  | ***Datanautics, Inc., Series A Preferred |  | 01/04                     |  |                | 4,000,000 
|7,454,720  |  | LogicLibrary, Inc., Series A             |  | 01/02, 08/03, 05/04       |  |                | 3,408,450 
|20,000,000 |  | ***Pilot Software Inc., Series A         |  | 05/02 & 04/03             |  |                | 4,000,000 
|           |  |                                          |  |                           |  |                |           
|           |  |                                          |  |                           |  |                | 11,408,450
|           |  |                                          |  |                           |  |                |           
|           |  | Information Services  0.00%             |  |                           |  |                |           
|4,425      |  | Cenquest, Inc., Series 2                 |  | 07/01                     |  |                |          
|           |  |                                          |  |                           |  |                |           
|           |  | Life Sciences  7.10%                    |  |                           |  |                |           
|647,948    |  | Adeza Biomedical Corporation, Series 5   |  | 09/01                     |  |                | 3,000,000 
|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 B-1               |  | 12/01                     |  |                | 1,253,500 
|1,403,696  |  | Genoptix, Inc., Series B-2               |  | 07/03, 09/03, 12/03       |  |                | 1,250,000 
|310,290    |  | Genoptix, Inc., Series C                 |  | 08/04                     |  |                | 277,089   
|           |  |                                          |  |                           |  |                |           
|           |  |                                          |  |                           |  |                | 8,247,254 
|           |  |                                          |  |                           |  |                |           
|           |  | Medical Technology  5.54%               |  |                           |  |                |           
|4,166,667  |  | Tensys Medical, Inc., Series C           |  | 03/02                     |  |                | 5,000,000 
|1,187,500  |  | Tensys Medical, Inc., Series D           |  | 05/04                     |  |                | 1,425,000 
|           |  |                                          |  |                           |  |                |           
|           |  |                                          |  |                           |  |                | 6,425,000 
|           |  |                                          |  |                           |  |                |           
|           |  | Optical  10.90%                         |  |                           |  |                |           
|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              |  |                |          
|3,023,399  |  | NanoOpto Corporation, Series B           |  | 09/03, 11/03,01/04, 07/04 |  |                | 1,655,118 
|5,333,333  |  | OpVista, Inc., Series B                  |  | 07/01                     |  |                |          
|12,671,059 |  | OpVista, Inc., Series C                  |  | 09/03                     |  |                | 5,000,000 
|           |  |                                          |  |                           |  |                |           
|           |  |                                          |  |                           |  |                | 12,647,118
|           |  |                                          |  |                           |  |                |           



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



6



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##### Table of Contents



Excelsior Venture Partners III, LLC

Portfolio of Investments October 31, 2004  (continued)



|                       |            |  |                                                             |                  |                           |                |   |           
|---------------------- | ---------- |  | ----------------------------------------------------------- | ---------------- | ------------------------- | -------------- | - | ----------
|PrincipalAmount/Shares |            |  |                                                             | Acquisition Date |                           | Value (Note 1)
|                       |            |  | PRIVATE COMPANIES **, #, @  (continued)                    |                  |                           |                |   |           
|                       |            |  | Preferred Stocks  (continued)                              |                  |                           |                |   |           
|                       |            |  | Semiconductor  11.93%                                      |                  |                           |                |   |           
|                       | 7,000,000  |  | Chips & Systems, Inc., Series A                             |                  | 03/04                     |                | $ | 3,500,000 
|                       | 3,333,333  |  | Monterey Design Systems, Inc., Series 2                     |                  | 06/03                     |                |   | 600,000   
|                       | 2,211,898  |  | Silverback Systems, Inc., Series B-1                        |                  | 02/02                     |                |   | 450,052   
|                       | 34,364,257 |  | Silverback Systems, Inc., Series C                          |                  | 03/03, 09/03, 04/04       |                |   | 4,298,896 
|                       | 3,096,551  |  | Virtual Silicon Technology, Inc., Series C                  |                  | 12/01                     |                |   | 5,000,000 
|                       |            |  |                                                             |                  |                           |                |   |           
|                       |            |  |                                                             |                  |                           |                |   | 13,848,948
|                       |            |  |                                                             |                  |                           |                |   |           
|                       |            |  | Wireless  5.73%                                            |                  |                           |                |   |           
|                       | 4,433,333  |  | Ethertronics, Inc., Series B                                |                  | 06/01, 09/02, 07/03,05/04 |                |   | 6,650,000 
|                       |            |  |                                                             |                  |                           |                |   |           
|                       |            |  | TOTAL PREFERRED STOCKS (Cost $69,300,611)                   |                  |                           |                |   | 59,226,770
|                       |            |  |                                                             |                  |                           |                |   |           
|                       |            |  | Notes  0.72%                                               |                  |                           |                |   |           
|                       |            |  | Enterprise Software  0.65%                                 |                  |                           |                |   |           
|$                      | 750,000    |  | ***Pilot Software Inc., Bridge Note, 9%, 04/22/05           |                  | 08/04 & 09/04, 10/04      |                |   | 750,000   
|                       |            |  | Semiconductor  0.07%                                       |                  |                           |                |   |           
|$                      | 88,738     |  | Virtual Silicon Technology, Inc., Bridge Note, 6%, 04/22/05 |                  | 10/04                     |                |   | 88,738    
|                       |            |  |                                                             |                  |                           |                |   |           
|                       |            |  | TOTAL NOTES (Cost $838,738)                                 |                  |                           |                |   | 838,738   
|                       |            |  |                                                             |                  |                           |                |   |           
|                       |            |  | Warrants  0.00%                                            |                  |                           |                |   |           
|                       |            |  | Wireless  0.00%                                            |                  |                           |                |   |           
|                       | 100,000    |  | Ethertronics, Inc.                                          |                  | 09/02                     |                |   |          
|                       | 115,000    |  | Ethertronics, Inc.                                          |                  | 07/03                     |                |   |          
|                       | 66,667     |  | Ethertronics, Inc.                                          |                  | 08/03                     |                |   |          
|                       |            |  |                                                             |                  |                           |                |   |           
|                       |            |  |                                                             |                  |                           |                |   |          
|                       |            |  | TOTAL WARRANTS (Cost $0)                                    |                  |                           |                |   |          
|                       |            |  |                                                             |                  |                           |                |   |           
|                       |            |  | TOTAL  PRIVATE COMPANIES (Cost $78,889,349)                |                  |                           |                |   | 60,065,508
|                       |            |  |                                                             |                  |                           |                |   |           



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



7



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Excelsior Venture Partners III, LLC

Portfolio of Investments October 31, 2004  (continued)



|                                       |  |                                                                               |  |                  |  |                |            
|-------------------------------------- |  | ----------------------------------------------------------------------------- |  | ---------------- |  | -------------- | -----------
|Percent Owned                          |  |                                                                               |  | Acquisition Date |  | Value (Note 1)
|PRIVATE INVESTMENT FUNDS **, #  4.70% |  |                                                                               |  |                  | 
|0.40%                                  |  | Advanced Technology Ventures VII, L.P.                                        |  | 08/01-04/04      |  | $              | 715,058    
|1.44%                                  |  | Burrill Life Sciences Capital Fund                                            |  | 12/02-08/04      |  |                | 829,098    
|1.35%                                  |  | CHL Medical Partners II, L.P.                                                 |  | 01/02-02/04      |  |                | 482,377    
|1.04 %                                 |  | CMEA Ventures, L.P.                                                           |  | 12/03-04/04      |  |                | 121,020    
|0.36%                                  |  | Morgenthaler Partners VII, L.P.                                               |  | 07/01-07/04      |  |                | 1,076,400  
|0.58%                                  |  | Prospect Venture Partners II, L.P.                                            |  | 06/01-09/04      |  |                | 1,325,462  
|0.90 %                                 |  | Sevin Rosen Fund VI, L.P.                                                     |  | 10/04            |  |                | 90,000     
|2.36%                                  |  | Tallwood II, L.P.                                                             |  | 12/02-09/04      |  |                | 597,891    
|1.70%                                  |  | Valhalla Partners, L.P.                                                       |  | 10/03-09/04      |  |                | 219,199    
|                                       |  |                                                                               |  |                  |  |                |            
|                                       |  | TOTAL  PRIVATE INVESTMENT FUNDS (Cost $6,614,318)                            |  |                  |  |                | 5,456,505  
|                                       |  |                                                                               |  |                  |  |                |            
|                                       |  |                                                                               | 
|Shares                                 |  |                                                                               |  |                  |  |               
|INVESTMENT COMPANIES  1.19%           |  |                                                                               |  |                  | 
|1,386,211                              |  | Dreyfus Government Cash Management Fund Institutional Shares(Cost $1,386,211) |  |                  |  |                | 1,386,211  
|                                       |  |                                                                               |  |                  |  |                |            
|                                       |  | TOTAL INVESTMENTS (Cost $137,529,863)  99.70%                                |  |                  |  |                | 115,731,136
|                                       |  | OTHER ASSETS & LIABILITIES (NET)  0.30%                                      |  |                  |  |                | 348,297    
|                                       |  |                                                                               |  |                  |  |                |            
|                                       |  | NET ASSETS  100.00%                                                          |  |                  |  | $              | 116,079,433
|                                       |  |                                                                               |  |                  |  |                |            



|** | Restricted as to public resale. Acquired between June 1, 2001 and October 31, 2004. Total cost of restricted securities at October 31, 2004 aggregated $92,003,667. Total value of
restricted securities owned at October 31, 2004 was $70,204,940 or 60.48% of net assets.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



|@ | At October 31, 2004, the Company owned 5% or more of the companys outstanding voting shares thereby making the company an affiliate as defined by the Investment Company Act of
1940. Total value of affiliated securities owned at October 31, 2004 was $51,315,508.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|*** | At October 31, 2004, 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. Total value of controlled affiliated securities owned at October 31, 2004 was $8,750,000.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



8



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Excelsior Venture Partners III, LLC

Statements of Assets and Liabilities



|                                                                                             |  |                            |             |   |                 |   |             |  
|-------------------------------------------------------------------------------------------- |  | -------------------------- | ----------- | - | --------------- | - | ----------- | -
|                                                                                             |  | January 31,2005(Unaudited) |             |   | October 31,2004 |  
|ASSETS:                                                                                      |  |                            |             |   |                 |   |             |  
|Unaffiliated Issuers at value (Cost $49,196,909 and $52,140,514, respectively)               |  | $                          | 48,001,001  |   |                 | $ | 55,665,628  |  
|Controlled Affiliated Issuers at value (Cost $10,573,270 and $8,750,000, respectively)       |  |                            | 10,573,270  |   |                 |   | 8,750,000   |  
|Non Controlled Affiliated Issuers at value (Cost $74,223,435 and $76,639,349, respectively)  |  |                            | 58,963,226  |   |                 |   | 51,315,508  |  
|                                                                                             |  |                            |             |   |                 |   |             |  
|Investments, at value (Cost $133,993,614 and $137,529,863, respectively) (Note 1)            |  |                            | 117,537,497 |   |                 |   | 115,731,136 |  
|                                                                                             |  |                            |             |   |                 |   |             |  
|Cash and cash equivalents                                                                    |  |                            |            |   |                 |   |            |  
|Interest receivable                                                                          |  |                            | 54,861      |   |                 |   | 10,575      |  
|Other receivables                                                                            |  |                            | 5,621,536   |   |                 |   | 1,243,730   |  
|Prepaid insurance                                                                            |  |                            | 45,606      |   |                 |   | 3,791       |  
|                                                                                             |  |                            |             |   |                 |   |             |  
|Total Assets                                                                                 |  |                            | 123,259,500 |   |                 |   | 116,989,232 |  
|                                                                                             |  |                            |             |   |                 |   |             |  
|LIABILITIES:                                                                                 |  |                            |             |   |                 |   |             |  
|Management fees payable (Note 2)                                                             |  |                            | 617,633     |   |                 |   | 583,569     |  
|Professional fees payable                                                                    |  |                            | 34,736      |   |                 |   | 184,559     |  
|Administration fees payable (Note 2)                                                         |  |                            | 54,086      |   |                 |   | 50,936      |  
|Board of Managers fees payable (Note 2)                                                     |  |                            | 9,123       |   |                 |   | 68,000      |  
|Other payables                                                                               |  |                            | 24,316      |   |                 |   | 22,735      |  
|                                                                                             |  |                            |             |   |                 |   |             |  
|Total Liabilities                                                                            |  |                            | 739,894     |   |                 |   | 909,799     |  
|                                                                                             |  |                            |             |   |                 |   |             |  
|NET ASSETS                                                                                   |  | $                          | 122,519,606 |   |                 | $ | 116,079,433 |  
|                                                                                             |  |                            |             |   |                 |   |             |  
|NET ASSETS consist of:                                                                       |  |                            |             |   |                 |   |             |  
|Paid-in capital                                                                              |  | $                          | 138,975,723 |   |                 | $ | 137,878,170 |  
|Unrealized depreciation on investments                                                       |  |                            | (16,456,117 | ) |                 |   | (21,798,737 | )
|                                                                                             |  |                            |             |   |                 |   |             |  
|Total Net Assets                                                                             |  | $                          | 122,519,606 |   |                 | $ | 116,079,433 |  
|                                                                                             |  |                            |             |   |                 |   |             |  
|Units of Membership Interest Outstanding (Unlimited Number of no par value units authorized) |  |                            | 295,210     |   |                 |   | 295,210     |  
|                                                                                             |  |                            |             |   |                 |   |             |  
|NET ASSET VALUE PER UNIT                                                                     |  | $                          | 415.03      |   |                 | $ | 393.21      |  
|                                                                                             |  |                            |             |   |                 |   |             |  



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



9



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Excelsior Venture Partners III, LLC

Statements of Operations (Unaudited)



|                                                                    |  |                               |           |   |      |   |            |  
|------------------------------------------------------------------- |  | ----------------------------- | --------- | - | ---- | - | ---------- | -
|                                                                    |  | Three Months EndedJanuary 31, |          
|                                                                    |  | 2005                          |           |   | 2004 |  
|INVESTMENT INCOME:                                                  |  |                               |           |   |      |   |            |  
|Interest income from unaffiliated investments                       |  | $                             | 187,600   |   |      | $ | 122,135    |  
|Interest income from affiliated investments                         |  |                               | 43,256    |   |      |   | 6,729      |  
|Dividend income                                                     |  |                               | 7,224     |   |      |   | 1,195      |  
|                                                                    |  |                               |           |   |      |   |            |  
|Total Income                                                        |  |                               | 238,080   |   |      |   | 130,059    |  
|                                                                    |  |                               |           |   |      |   |            |  
|EXPENSES:                                                           |  |                               |           |   |      |   |            |  
|Management fees (Note 2)                                            |  |                               | 617,033   |   |      |   | 609,842    |  
|Administration fees (Note 2)                                        |  |                               | 33,895    |   |      |   | 35,341     |  
|Professional fees                                                   |  |                               | 38,564    |   |      |   | 35,288     |  
|Board of Managers fees (Note 2)                                    |  |                               | 15,123    |   |      |   | 15,124     |  
|Insurance Expense                                                   |  |                               | 14,091    |   |      |   | 20,116     |  
|Custodian fees                                                      |  |                               | 4,537     |   |      |   | 5,636      |  
|Miscellaneous fees                                                  |  |                               | 4,043     |   |      |   | 4,033      |  
|                                                                    |  |                               |           |   |      |   |            |  
|Total Expenses                                                      |  |                               | 727,286   |   |      |   | 725,380    |  
|                                                                    |  |                               |           |   |      |   |            |  
|NET INVESTMENT LOSS                                                 |  |                               | (489,206  | ) |      |   | (595,321   | )
|                                                                    |  |                               |           |   |      |   |            |  
|NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:(Note 1)     |  |                               |           |   |      |   |            |  
|Net realized gain on investments on affiliated investments          |  |                               | 1,586,759 |   |      |   |           |  
|Net change in unrealized appreciation (depreciation) on investments |  |                               | 5,342,620 |   |      |   | (888,390   | )
|                                                                    |  |                               |           |   |      |   |            |  
|NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS              |  |                               | 6,929,379 |   |      |   | (888,390   | )
|                                                                    |  |                               |           |   |      |   |            |  
|NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS     |  | $                             | 6,440,173 |   |      | $ | (1,483,711 | )
|                                                                    |  |                               |           |   |      |   |            |  



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



10



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Excelsior Venture Partners III, LLC

Statements of Changes in Net Assets (Unaudited)



|                                                                    |  |                               |             |   |      |   |             |  
|------------------------------------------------------------------- |  | ----------------------------- | ----------- | - | ---- | - | ----------- | -
|                                                                    |  | Three Months EndedJanuary 31, |            
|                                                                    |  | 2005                          |             |   | 2004 |  
|OPERATIONS:                                                         |  |                               |             |   |      |   |             |  
|Net investment loss                                                 |  | $                             | (489,206    | ) |      | $ | (595,321    | )
|Net realized gain on investments                                    |  |                               | 1,586,759   |   |      |   |            |  
|Net change in unrealized appreciation (depreciation) on investments |  |                               | 5,342,620   |   |      |   | (888,390    | )
|                                                                    |  |                               |             |   |      |   |             |  
|Net increase (decrease) in net assets resulting from operations     |  |                               | 6,440,173   |   |      |   | (1,483,711  | )
|                                                                    |  |                               |             |   |      |   |             |  
|NET INCREASE (DECREASE) IN NET ASSETS                               |  |                               | 6,440,173   |   |      |   | (1,483,711  | )
|NET ASSETS:                                                         |  |                               |             |   |      |   |             |  
|Beginning of period                                                 |  |                               | 116,079,433 |   |      |   | 122,457,853 |  
|                                                                    |  |                               |             |   |      |   |             |  
|End of period                                                       |  | $                             | 122,519,606 |   |      | $ | 120,974,142 |  
|                                                                    |  |                               |             |   |      |   |             |  



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



11



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Excelsior Venture Partners III, LLC

Statements of Cash Flows (Unaudited)



|                                                                                                                             |  |                               |            |   |      |   |            |  
|---------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                                                                             |  | Three Months EndedJanuary 31, |           
|                                                                                                                             |  | 2005                          |            |   | 2004 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                                                        |  |                               |            |   |      |   |            |  
|Net increase (decrease) in net assets resulting from operations                                                              |  | $                             | 6,440,173  |   |      | $ | (1,483,711 | )
|Adjustments to reconcile net increase (decrease) in net assets from operations to net cash provided by operating activities: |  |                               |            |   |      |   |            |  
|Net change in unrealized depreciation on investments                                                                         |  |                               | (5,342,620 | ) |      |   | 888,390    |  
|Purchase of investments                                                                                                      |  |                               | (7,380,210 | ) |      |   | (5,295,642 | )
|Proceeds received from the sale of investments and distributions received from private investment funds                      |  |                               | 8,138,940  |   |      |   | 63,929     |  
|Sale of short-term investments  Net                                                                                         |  |                               | 4,364,288  |   |      |   | 6,005,568  |  
|Net realized gain on investments                                                                                             |  |                               | (1,586,759 | ) |      |   |           |  
|Decrease (increase) in interest receivable                                                                                   |  |                               | (44,286    | ) |      |   | 4          |  
|Increase in other receivable                                                                                                 |  |                               | (4,377,806 | ) |      |   |           |  
|Increase in prepaid insurance                                                                                                |  |                               | (41,815    | ) |      |   | (52,650    | )
|Increase (Decrease) in management fee payable                                                                                |  |                               | 34,064     |   |      |   | (7,480     | )
|Decrease in Board of Managers fees payable                                                                                  |  |                               | (58,877    | ) |      |   | (44,876    | )
|Decrease in other expenses payable                                                                                           |  |                               | (145,092   | ) |      |   | (4,323     | )
|                                                                                                                             |  |                               |            |   |      |   |            |  
|Net cash provided by operating activities                                                                                    |  |                               |           |   |      |   | 69,209     |  
|                                                                                                                             |  |                               |            |   |      |   |            |  
|Net change in cash                                                                                                           |  |                               |           |   |      |   | 69,209     |  
|                                                                                                                             |  |                               |            |   |      |   |            |  
|Cash at beginning of period                                                                                                  |  |                               |           |   |      |   | 3,738,154  |  
|                                                                                                                             |  |                               |            |   |      |   |            |  
|Cash at end of period                                                                                                        |  | $                             |           |   |      | $ | 3,807,363  |  
|                                                                                                                             |  |                               |            |   |      |   |            |  



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



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Excelsior Venture Partners III, LLC

Financial Highlights (Unaudited)



Per Unit
Operating Performance: (1)



|                                                                   |  |                               |         |    |      |   |         |   
|------------------------------------------------------------------ |  | ----------------------------- | ------- | -- | ---- | - | ------- | --
|                                                                   |  | Three Months EndedJanuary 31, |        
|                                                                   |  | 2005                          |         |    | 2004 |  
|NET ASSET VALUE, BEGINNING OF PERIOD                               |  | $                             | 393.21  |    |      | $ | 414.82  |   
|INCOME FROM INVESTMENT OPERATIONS:                                 |  |                               |         |    |      |   |         |   
|Net investment loss                                                |  |                               | (1.65   | )  |      |   | (2.02   | ) 
|Net realized and unrealized gain (loss) on investment transactions |  |                               | 23.47   |    |      |   | (3.01   | ) 
|                                                                   |  |                               |         |    |      |   |         |   
|Total from investment operations                                   |  |                               | 21.82   |    |      |   | (5.03   | ) 
|                                                                   |  |                               |         |    |      |   |         |   
|NET ASSET VALUE, END OF PERIOD                                     |  | $                             | 415.03  |    |      | $ | 409.79  |   
|                                                                   |  |                               |         |    |      |   |         |   
|TOTAL NET ASSET VALUE RETURN(3), (4)                               |  |                               | 5.55    | %  |      |   | (1.21   | )%
|                                                                   |  |                              
|RATIOS AND SUPPLEMENTAL DATA:                                      |  |                               |         |    |      |   |         |   
|Net assets, end of period (000s)                                  |  | $                             | 122,520 |    |      | $ | 120,974 |   
|Ratios to average net assets: (2)                                  |  |                               |         |    |      |   |         |   
|Net expenses                                                       |  |                               | 2.44    | %  |      |   | 2.38    | % 
|Net investment loss                                                |  |                               | (1.64   | )% |      |   | (1.96   | )%
|Portfolio Turnover Rate (3)                                        |  |                               | 8.94    | %  |      |   | 0.09    | % 



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



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



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



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



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



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EXCELSIOR VENTURE PARTNERS
III, LLC



NOTES TO FINANCIAL STATEMENTS



January 31, 2005 (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 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. Certain amounts in the prior period financial statements have
been reclassified to conform to the current periods financial statements.



A. Investment Valuation:



The Company values portfolio securities quarterly and at such other times as, in the Board of Managers view, circumstances warrant. Securities for which market quotations are readily available generally will be
valued at the last sale price on the date of valuation or, if no sale occurred, at the mean of the latest bid and ask prices; provided that, as to such securities that may have legal, contractual or practical restrictions on 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 (as defined below) 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 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



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



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



At January 31, 2005 and October 31, 2004, market quotations were not readily available for securities valued at $69,811,958 or 56.98% of
net assets and $65,522,013 or 56.45% of net assets, respectively. Such securities were valued by the Investment Adviser, under the supervision of the Board of Managers. Because of the inherent uncertainty of valuation, the estimated values may
differ significantly from the values that would have been used had a ready market for the securities existed, and the differences could be material.



B. Security transactions and investment income:



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



C. Income taxes:



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



The cost of the Private Investment Funds for federal tax purposes is based on amounts reported to the Company on Schedule K-1 from the
Private Investment Funds. As of January 31, 2005 and October 31, 2004, the Company had not received information to determine the tax cost of the Private Investment Funds as of those dates. The cost basis for federal tax purposes of the
Companys other investments at January 31, 2005 was $125,958,612, and those investments had net depreciation on a tax basis at January 31, 2005 of $15,260,209, consisting of gross appreciation of $10,418,150 and gross depreciation of
$25,678,359. The cost basis for federal tax purposes of the Companys other investments at October 31, 2004 was $130,915,545 and those investments had net depreciation on a tax basis at October 31, 2004 of $20,640,914 consisting of gross
appreciation of $8,311,832 and gross depreciation of $28,952,746.



D. Dividends to members:



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



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



Prior to June 1, 2003, U.S. Trust Company served as the Investment Adviser to the Company pursuant to an Investment Advisory Agreement (the Agreement) with the Company. Under the Agreement for the services provided, the
Investment Adviser is entitled to receive a management fee at an annual rate equal to 2.00% of the Companys end of quarter net assets through the fifth



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anniversary of the first closing date of April 5, 2001, and 1.00% of net assets thereafter. Prior to June 1, 2003, and pursuant to sub-advisory agreements
among the Company, U.S. Trust Company, United States Trust Company of New York (U.S. Trust NY) and U.S. Trust Company, N.A., U.S. Trust NY and U.S. Trust Company, N.A. served as the investment sub-advisers to the Company and received an
investment management fee from the Investment Adviser. As of January 31, 2005 and October 31, 2004, $617,633 and $583,569 were payable to the Investment Adviser.



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



U.S. Trust NY is a New York state-chartered bank and trust company and a member of the Federal Reserve System. Effective June 1, 2003, U.S. Trust Company merged into U.S. Trust Company, N.A., a nationally chartered
bank. Pursuant to an assumption agreement dated June 1, 2003, U.S. Trust Company, N.A. assumed the duties and obligations of U.S. Trust Company under the Agreement. As a result, U.S. Trust Company, N.A., acting through its registered investment
advisory division, U.S. Trust Company, N.A. Asset Management Division, now serves as Investment Adviser to the Company with U.S. Trust NY, acting through its registered investment advisory division, U.S. TrustNew York Asset Management
Division, serving as a sub-investment adviser. The merger had no impact on the management or operations of the investment advisory functions performed for the Company, and did not constitute a change in control. U.S. Trust NY and U.S. Trust Company,
N.A. are each a wholly-owned subsidiary of U.S. Trust Corporation, a registered bank holding company. U.S. Trust Corporation is an indirect wholly-owned subsidiary of The Charles Schwab Corporation (Schwab).



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



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



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



As of January 31, 2005 and
October 31, 2004, Excelsior Venture Investors III, LLC had an investment in the Company of $77,779,489 and $73,691,035, 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 public accountants 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



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



Note 3  Purchases and Sales of Securities



Excluding short-term investments, the Companys purchases and sales
of securities for the three month periods ended January 31, 2005, and January 31, 2004 were as follows:



|                                     |  |               |  |             
|------------------------------------ |  | ------------- |  | ------------
|Three Month Periods EndedJanuary 31, |  | Purchases ($) |  | Proceeds ($)
|2005                                 |  | 7,380,210     |  | 8,138,940   
|2004                                 |  | 5,295,642     |  | 63,929      



Note 4  Commitments



As of January 31, 2005, the Company had outstanding
investment commitments totaling $17,502,475.



Note 5  Transactions
with Affiliated Companies



An affiliated company is a
company in which the Company has ownership of more than 5% of the voting securities. The Company did not receive dividends from affiliated companies during the period ended January 31, 2005 and the year ended October 31, 2004. Transactions with
companies, which are or were affiliates, were as follows:



|                                        |  |                                   |  |                       |           |                                             |   |                          |  |                   |   |                     |   |                                  |  |                                |   |  |            |  |   |           
|--------------------------------------- |  | --------------------------------- |  | --------------------- | --------- | ------------------------------------------- | - | ------------------------ |  | ----------------- | - | ------------------- | - | -------------------------------- |  | ------------------------------ | - |  | ---------- |  | - | ----------
|                                        |  |                                   |  |                       |           | For the Three Months Ended January 31, 2005 |   |                         
|Name of Investment                      |  | Shares/ParHeld at October 31,2004 |  | October 31,2004 Value |           | Purchases /ConversionAcquisitions           |   | Sale/Conversion Proceeds |  | Interest Received |   | RealizedGain (Loss) |   | Shares/ParHeld atJanuary 31,2005 |  | January 31,2005 Value (Note 1)
|Controlled Affiliates                   |  |                                   |  |                       |           |                                             |   |                          |  |                   |   |                     |   |                                  |  |                                |   |  |            |  |   |           
|Pilot Software Inc., Series A Preferred |  | 20,000,000                        |  | $                     | 4,000,000 |                                             | $ |                         |  | $                 |  |                     | $ |                                 |  | $                              |  |  | 20,000,000 |  | $ | 4,000,000 
|Pilot Software Inc., Bridge Note, 9%    |  | 750,000                           |  |                       | 750,000   |                                             | $ | 1,250,000                |  | $                 |  |                     | $ | 33,288                           |  | $                              |  |  | 2,000,000  |  | $ | 2,000,000 
|Datanautics Inc., Series A Preferred    |  | 19,995,000                        |  | $                     | 4,000,000 |                                             | $ |                         |  | $                 |  |                     | $ |                                 |  | $                              |  |  | 19,995,000 |  | $ | 4,000,000 
|Datanautics Inc., Bridge Note           |  |                                  |  |                       |          |                                             | $ | 573,270                  |  | $                 |  |                     | $ |                                 |  | $                              |  |  | 573,270    |  | $ | 573,270   
|                                        |  |                                   |  |                       |           |                                             |   |                          |  |                   |   |                     |   |                                  |  |                                |   |  |            |  |   |           
|Total Controlled Affiliates             |  |                                   |  | $                     | 8,750,000 |                                             | $ | 1,823,270                |  | $                 |  |                     | $ | 33,288                           |  | $                              |  |  |            |  | $ | 10,573,270
|                                        |  |                                   |  |                       |           |                                             |   |                          |  |                   |   |                     |   |                                  |  |                                |   |  |            |  |   |           



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|                                                     |  |                                   |  |                       |            |                                             |   |                          |  |                   |   |                     |   |                                  |  |                                |   |  |            |  |   |           
|---------------------------------------------------- |  | --------------------------------- |  | --------------------- | ---------- | ------------------------------------------- | - | ------------------------ |  | ----------------- | - | ------------------- | - | -------------------------------- |  | ------------------------------ | - |  | ---------- |  | - | ----------
|                                                     |  |                                   |  |                       |            | For the Three Months Ended January 31, 2005 |   |                         
|Name of Investment                                   |  | Shares/ParHeld at October 31,2004 |  | October 31,2004 Value |            | Purchases /ConversionAcquisitions           |   | Sale/Conversion Proceeds |  | Interest Received |   | RealizedGain (Loss) |   | Shares/ParHeld atJanuary 31,2005 |  | January 31,2005 Value (Note 1)
|Non Controlled Affiliates                            |  |                                   |  |                       |            |                                             |   |                          |  |                   |   |                     |   |                                  |  |                                |   |  |            |  |   |           
|Adeza Biomedical Corp., Series 5 Preferred           |  | 647,948                           |  | $                     | 3,000,000  |                                             | $ |                         |  | $                 |  |                     | $ |                                 |  | $                              |  |  | 485,961    |  | $ | 6,563,632 
|Archemix Corporation, Series A Preferred             |  | 1,999,999                         |  |                       | 1,999,999  |                                             |   |                         |  |                   |  |                     |   |                                 |  |                                |  |  | 1,999,999  |  |   | 1,999,999 
|Archemix Corporation, Series B Preferred             |  | 466,666                           |  |                       | 466,666    |                                             |   |                         |  |                   |  |                     |   |                                 |  |                                |  |  | 466,666    |  |   | 466,666   
|Cenqest, Inc., Series 2 Preferred                    |  | 4,425                             |  |                       |           |                                             |   |                         |  |                   |  |                     |   |                                 |  |                                |  |  | 4,425      |  |   |          
|Chips & Systems, Inc. Series A Preferred             |  | 7,000,000                         |  |                       | 3,500,000  |                                             |   |                         |  |                   |  |                     |   |                                 |  |                                |  |  | 7,000,000  |  |   | 3,500,000 
|Chips & Systems, Inc. Bridge Note                    |  |                                  |  |                       |           |                                             |   | 1,159,883                |  |                   |  |                     |   | 7,398                            |  |                                |  |  | 1,159,883  |  |   | 1,159,883 
|Ethertronics Inc., Series B Preferred                |  | 4,433,333                         |  |                       | 6,650,000  |                                             |   |                         |  |                   |  |                     |   |                                 |  |                                |  |  | 4,433,333  |  |   | 6,650,000 
|Ethertronics Inc., Warrant                           |  | 281,667                           |  |                       |           |                                             |   |                         |  |                   |  |                     |   |                                 |  |                                |  |  | 281,667    |  |   |          
|Ethertronics Inc., Bridge Note                       |  |                                  |  |                       |           |                                             |   | 250,000                  |  |                   |  |                     |   |                                 |  |                                |  |  | 250,000    |  |   | 250,000   
|Genoptix, Inc., Series B-1 Preferred                 |  | 942,481                           |  |                       | 1,253,500  |                                             |   |                         |  |                   |  |                     |   |                                 |  |                                |  |  | 942,481    |  |   | 1,253,500 
|Genoptix, Inc., Series B-2 Preferred                 |  | 1,403,696                         |  |                       | 1,250,000  |                                             |   | 515,148                  |  |                   |  |                     |   |                                 |  |                                |  |  | 1,403,696  |  |   | 1,250,000 
|Genoptix, Inc., Common Stock                         |  | 46,860                            |  |                       |           |                                             |   |                         |  |                   |  |                     |   |                                 |  |                                |  |  | 46,860     |  |   |          
|Genoptix, Inc., Series C Preferred                   |  | 310,290                           |  |                       | 277,089    |                                             |   |                         |  |                   |  |                     |   |                                 |  |                                |  |  | 620,580    |  |   | 554,178   
|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   
|LogicLibrary, Inc., Series A Preferred               |  | 7,454,720                         |  |                       | 3,408,450  |                                             |   | 50,000                   |  |                   |  |                     |   |                                 |  |                                |  |  | 7,564,077  |  |   | 3,458,450 
|MIDAS Vision Systems, Inc., Series A-1 Preferred     |  | 933,593                           |  |                       |           |                                             |   |                         |  |                   |  |                     |   |                                 |  |                                |  |  | 933,593    |  |   |          
|MIDAS Vision Systems, Inc., Common Stock             |  | 157,396                           |  |                       |           |                                             |   |                         |  |                   |  |                     |   |                                 |  |                                |  |  | 157,396    |  |   |          
|Monterey Design Systems, Inc., Common Stock          |  | 708,955                           |  |                       |           |                                             |   |                         |  |                   |  |                     |   |                                 |  |                                |  |  | 708,955    |  |   |          
|Monterey Design Systems, Inc., Series 2 Preferred    |  | 3,333,333                         |  |                       | 600,000    |                                             |   |                         |  |                   |  |                     |   |                                 |  |                                |  |  | 3,333,333  |  |   | 600,000   
|NanoOpto Corp., Series A-1 Preferred                 |  | 956,234                           |  |                       |           |                                             |   |                         |  |                   |  |                     |   |                                 |  |                                |  |  | 956,234    |  |   |          
|NanoOpto Corp., Series B Preferred                   |  | 3,023,399                         |  |                       | 1,655,119  |                                             |   |                         |  |                   |  |                     |   |                                 |  |                                |  |  | 3,023,399  |  |   | 1,655,118 
|NanoOpto Corp., Bridge Note                          |  |                                  |  |                       |           |                                             |   | 500,000                  |  |                   |  |                     |   |                                 |  |                                |  |  | 500,000    |  |   | 500,000   
|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                |  |                   |  |                     |   |                                 |  |                                |  |  | 102,404    |  |   | 1,058,000 
|Silverback Systems, Inc., Series B-1 Preferred       |  | 2,211,898                         |  |                       | 450,051    |                                             |   |                         |  |                   |  |                     |   |                                 |  |                                |  |  | 2,211,898  |  |   | 450,051   
|Silverback Systems, Inc., Series C Preferred         |  | 34,364,257                        |  |                       | 4,298,896  |                                             |   |                         |  |                   |  |                     |   |                                 |  |                                |  |  | 34,364,257 |  |   | 4,298,897 
|Silverback Systems, Inc., Bridge Note                |  |                                  |  |                       |           |                                             |   | 666,667                  |  |                   |  |                     |   |                                 |  |                                |  |  | 666,667    |  |   | 666,667   
|Tensys Medical, Inc., Series C Preferred             |  | 4,166,667                         |  |                       | 5,000,000  |                                             |   |                         |  |                   |  |                     |   |                                 |  |                                |  |  | 4,166,667  |  |   | 5,000,000 
|Tensys Medical, Inc., Series D Preferred             |  | 1,187,500                         |  |                       | 1,425,000  |                                             |   |                         |  |                   |  |                     |   |                                 |  |                                |  |  | 1,187,500  |  |   | 1,425,000 
|Virtual Silicon Technology, Inc., Series C Preferred |  | 3,096,551                         |  |                       | 5,000,000  |                                             |   |                         |  |                   |  |                     |   |                                 |  |                                |  |  | 3,096,551  |  |   | 5,000,000 
|Virtual Silicon Technology, Inc., Bridge Note        |  | 88,738                            |  |                       | 88,738     |                                             |   | 122,447                  |  |                   |  |                     |   | 2,570                            |  |                                |  |  | 211,185    |  |   | 211,185   
|                                                     |  |                                   |  |                       |            |                                             |   |                          |  |                   |   |                     |   |                                  |  |                                |   |  |            |  |   |           
|Total Non Controlled Affiliates                      |  |                                   |  | $                     | 51,315,508 |                                             | $ | 4,322,145                |  | $                 |  |                     | $ | 9,968                            |  | $                              |  |  |            |  | $ | 58,963,226
|                                                     |  |                                   |  |                       |            |                                             |   |                          |  |                   |   |                     |   |                                  |  |                                |   |  |            |  |   |           



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##### Table of Contents

|                                                     |  |                                               |            |                       |   |                                   |  |                                     |            |  |                  |            |                     |  |   |                                              |  |                               |            |   |  |            |  |   |           
|---------------------------------------------------- |  | --------------------------------------------- | ---------- | --------------------- | - | --------------------------------- |  | ----------------------------------- | ---------- |  | ---------------- | ---------- | ------------------- |  | - | -------------------------------------------- |  | ----------------------------- | ---------- | - |  | ---------- |  | - | ----------
|                                                     |  |                                               |            |                       |   |                                   |  | For the Year Ended October 31, 2004 |            | 
|Name of Investment                                   |  | Shares/PrincipalAmount Heldat October 31,2003 |            | October 31,2003 Value |   | Purchases /ConversionAcquisitions |  | Sale/ConversionProceeds             |            |  | InterestReceived |            | Realized Gain(Loss) |  |   | Shares/PrincipalAmountHeld atOctober 31,2004 |  | October 31,2004 Value(Note 1)
|Controlled Affiliates                                |  |                                               |            |                       |   |                                   |  |                                     |            |  |                  |            |                     |  |   |                                              |  |                               |            |   |  |            |  |   |           
|Pilot Software Inc., Series A Preferred              |  |                                               | 20,000,000 |                       | $ | 4,000,000                         |  | $                                   |           |  | $                |           |                     |  | $ |                                             |  | $                             |           |   |  | 20,000,000 |  | $ | 4,000,000 
|Pilot Software Inc., Bridge Note, 9%                 |  |                                               |           |                       |   |                                  |  |                                     | 750,000    |  |                  |           |                     |  |   | 9,062                                        |  |                               |           |   |  | 750,000    |  |   | 750,000   
|Datanautics Inc., Series A Preferred                 |  |                                               |           |                       |   |                                  |  |                                     | 4,000,000  |  |                  |            |                     |  |   |                                             |  |                               |           |   |  | 19,995,000 |  |   | 4,000,000 
|Datanautics, Inc., Promissory Note 3%                |  |                                               | 4,000,000  |                       |   | 4,000,000                         |  |                                     |           |  |                  | (4,000,000 | )                   |  |   |                                             |  |                               |           |   |  |           |  |   |          
|                                                     |  |                                               |            |                       |   |                                   |  |                                     |            |  |                  |            |                     |  |   |                                              |  |                               |            |   |  |            |  |   |           
|Total Controlled Affiliates                          |  |                                               |            |                       | $ | 8,000,000                         |  | $                                   | 4,750,000  |  | $                | (4,000,000 | )                   |  | $ | 9,062                                        |  | $                             |           |   |  |            |  | $ | 8,750,000 
|                                                     |  |                                               |            |                       |   |                                   |  |                                     |            |  |                  |            |                     |  |   |                                              |  |                               |            |   |  |            |  |   |           
|                                                     |  |                                               |            |                       |  
|                                                     |  |                                               |            |                       |   |                                   |  | For the Year Ended October 31, 2004 |            | 
|Name of Investment                                   |  | Shares/PrincipalAmount Heldat October 31,2003 |            | October 31,2003 Value |   | Purchases /ConversionAcquisitions |  | Sale/ConversionProceeds             |            |  | InterestReceived |            | Realized Gain(Loss) |  |   | Shares/PrincipalAmountHeld atOctober 31,2004 |  | October 31,2004 Value(Note 1)
|Non Controlled Affiliates                            |  |                                               |            |                       |   |                                   |  |                                     |            |  |                  |            |                     |  |   |                                              |  |                               |            |   |  |            |  |   |           
|Adeza Biomedical Corp., Series 5 Preferred           |  |                                               | 647,948    |                       | $ | 3,000,000                         |  | $                                   |           |  | $                |           |                     |  | $ |                                             |  | $                             |           |   |  | 647,948    |  | $ | 3,000,000 
|Ancile Pharmaceuticals, Inc. Series D Preferred      |  |                                               | 2,419,355  |                       |   |                                  |  |                                     |           |  |                  |           |                     |  |   |                                             |  |                               | (3,000,000 | ) |  |           |  |   |          
|Ancile Pharmaceuticals, Inc. Bridge Note 6%          |  | $                                             | 850,000    |                       |   |                                  |  |                                     |           |  |                  |           |                     |  |   |                                             |  |                               | (850,000   | ) |  |           |  |   |          
|Ancile Pharmaceuticals, Inc. Warrants                |  |                                               | 2          |                       |   |                                  |  |                                     |           |  |                  |           |                     |  |   |                                             |  |                               |           |   |  |           |  |   |          
|Archemix Corporation, Series A Preferred             |  |                                               | 1,314,285  |                       |   | 1,314,285                         |  |                                     | 685,714    |  |                  |           |                     |  |   |                                             |  |                               |           |   |  | 1,999,999  |  |   | 1,999,999 
|Archemix Corporation, Series B Preferred             |  |                                               |           |                       |   |                                  |  |                                     | 466,666    |  |                  |           |                     |  |   |                                             |  |                               |           |   |  | 466,666    |  |   | 466,666   
|Cenquest, Inc., Series 2 Preferred                   |  |                                               | 4,425      |                       |   |                                  |  |                                     |           |  |                  |           |                     |  |   |                                             |  |                               |           |   |  | 4,425      |  |   |          
|Chips & Systems, Inc., Series A Preferred            |  |                                               |           |                       |   |                                  |  |                                     | 3,500,000  |  |                  |           |                     |  |   |                                             |  |                               |           |   |  | 7,000,000  |  |   | 3,500,000 
|Ethertronics Inc., Series B Preferred                |  |                                               | 3,766,666  |                       |   | 5,650,000                         |  |                                     | 1,000,000  |  |                  |           |                     |  |   |                                             |  |                               |           |   |  | 4,433,333  |  |   | 6,650,000 
|Ethertronics Inc., Warrants                          |  |                                               | 281,667    |                       |   |                                  |  |                                     |           |  |                  |           |                     |  |   |                                             |  |                               |           |   |  | 281,667    |  |   |          
|Genoptix, Inc., Series B-1 Preferred                 |  |                                               | 942,481    |                       |   | 1,253,500                         |  |                                     |           |  |                  |           |                     |  |   |                                             |  |                               |           |   |  | 942,481    |  |   | 1,253,500 
|Genoptix, Inc., Series B-2 Preferred                 |  |                                               | 826,823    |                       |   | 734,851                           |  |                                     | 515,148    |  |                  |           |                     |  |   |                                             |  |                               |           |   |  | 1,403,696  |  |   | 1,250,000 
|Genoptix, Inc., Series C Preferred                   |  |                                               |           |                       |   |                                  |  |                                     | 277,089    |  |                  |           |                     |  |   |                                             |  |                               |           |   |  | 310,290    |  |   | 277,089   
|Genoptix, Inc., Common Stock                         |  |                                               | 46,860     |                       |   |                                  |  |                                     |           |  |                  |           |                     |  |   |                                             |  |                               |           |   |  | 46,860     |  |   |          
|Gyration, Inc., Series C-2 Preferred                 |  |                                               | 1,523,810  |                       |   | 4,000,000                         |  |                                     |            |  |                  | (5,290,579 | )                   |  |   |                                             |  |                               | 1,290,579  |   |  |           |  |   |          
|Gyration, Inc., Bridge Note 12%                      |  |                                               |           |                       |   |                                  |  |                                     | 2,797,200  |  |                  | (2,797,200 | )                   |  |   | 6,658                                        |  |                               |           |   |  |           |  |   |          
|Gyration, Inc., Warrant                              |  |                                               |           |                       |   |                                  |  |                                     | 2,800      |  |                  | (2,800     | )                   |  |   |                                             |  |                               |           |   |  |           |  |   |          
|LightConnect, Inc., Series B Preferred               |  |                                               | 4,330,504  |                       |   | 948,563                           |  |                                     |           |  |                  |           |                     |  |   |                                             |  |                               |           |   |  | 4,330,504  |  |   | 5,000,000 
|LightConnect, Inc., Series C Preferred               |  |                                               | 12,292,441 |                       |   | 992,000                           |  |                                     |           |  |                  |           |                     |  |   |                                             |  |                               |           |   |  | 12,292,441 |  |   | 992,000   
|LogicLibrary, Inc., Series A Preferred               |  |                                               | 5,914,488  |                       |   | 2,704,226                         |  |                                     | 704,225    |  |                  |           |                     |  |   |                                             |  |                               |           |   |  | 7,454,720  |  |   | 3,408,450 
|MIDAS Vision Systems, Inc., Series A-1 Preferred     |  |                                               | 933,593    |                       |   |                                  |  |                                     |           |  |                  |           |                     |  |   |                                             |  |                               |           |   |  | 933,593    |  |   |          
|MIDAS Vision Systems, Inc., Common Stock             |  |                                               | 157,396    |                       |   |                                  |  |                                     |           |  |                  |           |                     |  |   |                                             |  |                               |           |   |  | 157,396    |  |   |          
|Monterey Design Systems, Inc., Common Stock          |  |                                               | 708,955    |                       |   |                                  |  |                                     |           |  |                  |           |                     |  |   |                                             |  |                               |           |   |  | 708,955    |  |   |          
|Monterey Design Systems, Inc., Series 2 Preferred    |  |                                               | 3,333,333  |                       |   | 5,400,000                         |  |                                     |           |  |                  |           |                     |  |   |                                             |  |                               |           |   |  | 3,333,333  |  |   | 600,000   
|NanoOpto Corp., Series A-1 Preferred                 |  |                                               | 956,234    |                       |   | 604,259                           |  |                                     |           |  |                  |           |                     |  |   |                                             |  |                               |           |   |  | 956,234    |  |   |          
|NanoOpto Corp., Series B Preferred                   |  |                                               | 558,295    |                       |   | 888,244                           |  |                                     | 1,048,656  |  |                  |           |                     |  |   |                                             |  |                               |           |   |  | 3,023,399  |  |   | 1,655,119 
|OpVista, Inc., Series B Preferred                    |  |                                               | 5,333,333  |                       |   | 1,500,000                         |  |                                     |           |  |                  |           |                     |  |   |                                             |  |                               |           |   |  | 5,333,333  |  |   |          
|OpVista, Inc., Series C Preferred                    |  |                                               | 12,671,059 |                       |   | 5,000,000                         |  |                                     |           |  |                  |           |                     |  |   | 71                                           |  |                               |           |   |  | 12,671,059 |  |   | 5,000,000 
|Silverback Systems, Inc., Series B-1 Preferred       |  |                                               | 2,211,898  |                       |   | 450,052                           |  |                                     |           |  |                  |           |                     |  |   |                                             |  |                               |           |   |  | 2,211,898  |  |   | 450,051   
|Silverback Systems, Inc., Series C Preferred         |  |                                               | 30,927,835 |                       |   | 3,965,564                         |  |                                     | 333,333    |  |                  |           |                     |  |   |                                             |  |                               |           |   |  | 34,364,257 |  |   | 4,298,896 
|Tensys Medical, Inc., Series C Preferred             |  |                                               | 4,166,667  |                       |   | 5,000,000                         |  |                                     |           |  |                  |           |                     |  |   |                                             |  |                               |           |   |  | 4,166,667  |  |   | 5,000,000 
|Tensys Medical, Inc., Series D Preferred             |  |                                               |           |                       |   |                                  |  |                                     | 1,425,000  |  |                  |           |                     |  |   |                                             |  |                               |           |   |  | 1,187,500  |  |   | 1,425,000 
|Virtual Silicon Technology, Inc., Series C Preferred |  |                                               | 3,096,551  |                       |   | 5,000,000                         |  |                                     |           |  |                  |           |                     |  |   |                                             |  |                               |           |   |  | 3,096,551  |  |   | 5,000,000 
|Virtual Silicon Technology, Inc., Bridge Note        |  |                                               |           |                       |   |                                  |  |                                     | 88,738     |  |                  |           |                     |  |   |                                             |  |                               |           |   |  | 88,738     |  |   | 88,738    
|                                                     |  |                                               |            |                       |   |                                   |  |                                     |            |  |                  |            |                     |  |   |                                              |  |                               |            |   |  |            |  |   |           
|Total Non Controlled Affiliates                      |  |                                               |            |                       | $ | 48,405,544                        |  | $                                   | 12,844,569 |  | $                | (8,090,579 | )                   |  | $ | 6,729                                        |  | $                             | (2,559,421 | ) |  |            |  | $ | 51,315,508
|                                                     |  |                                               |            |                       |   |                                   |  |                                     |            |  |                  |            |                     |  |   |                                              |  |                               |            |   |  |            |  |   |           



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Note 6  Pending Litigation



The 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 Investment Adviser has been providing full cooperation with respect to these Investigations and continues to review the facts and
circumstances relevant to the Investigations. As disclosed previously by the Investment Adviser and its affiliates, with respect to the 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 certain mutual funds managed by the Investment Adviser. The short-term trading activities permitted under these arrangements have been terminated and the Investment Adviser has strengthened its
policies and procedures to deter frequent trading.



The
Investment Adviser, and certain of its affiliates, has also been named in class action lawsuits which allege that the 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. The Investment Adviser and certain affiliates have also been named in derivative actions alleging breach of fiduciary duty in relation to allegedly illegal and improper mutual fund trading
practices. The class actions and derivative litigations had been consolidated by the federal courts in 2004 into a multi-district litigation, together with similar actions brought by the plaintiffs against other investment companies and their
affiliates. Discovery is currently stayed on these actions.



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



Note 7  Guarantees



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



Note 8  Subsequent Events



In March 2005, the Company declared a dividend of $36.84
per share, or $10,875,536, to shareholders of record on April 18, 2005.



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##### Table of Contents

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



Three-month Period Ended January 31, 2005 as Compared to the Similar Period in 2004



Realized and Unrealized Gains and Losses from Portfolio Investments



For the three-month periods ended January 31, 2005 and 2004, the Company had
a net realized gain/(loss) on security transactions of $1,586,759 and $0, respectively. For the three-month periods ended January 31, 2005 and 2004, the Company had a net change in unrealized depreciation on investments of $5,342,620 and ($888,390),
respectively. The net realized gain for the period ended January 31, 2005 was principally the result of the Companys sales of NetLogic Microsystems, realized loss of ($574,053), and Senomyx, realized gain of $2,160,666, common shares. The net
change in unrealized depreciation for the period ended January 31, 2005 was principally the result of an increase in the valuation of Adeza Biomedical (NASDAQ: ADZA) common shares, a public company investment, during the period ended January 31,
2005. The Company utilized a discount of 15% in the valuation of this holding at January 31, 2005. The discount utilized reflects the inability of the Company to sell its shares due to contractual lock-up agreements in place after the initial public
offering of common shares. The net change in unrealized depreciation for the period ended January 31, 2004 was principally the result of a $886,041 write-down taken on NanoOpto Corporation, a private company investment, during the period ended
January 31, 2004.



Investment Income and Expenses



For the three-month period ended January 31, 2005, the Company had
investment income of $238,080 and net operating expenses of $727,286 resulting in a net investment loss of ($489,206). In comparison, for the similar period ended January 31, 2004, the Company had investment income of $130,059 and net operating
expenses of $725,380, resulting in a net investment loss of ($595,321). The increase in net investment income for the period ended January 31, 2005 resulted from an increase in short-term investments purchased and maturing during the period.
Operating expenses during the period ended January 31, 2005 were essentially flat when compared to the period ended January 31, 2004.



U.S. Trust Company, N.A., acting through its registered investment advisory division, U.S. Trust Company, N.A. Asset Management Division (the
Investment Adviser), and United States Trust Company of New York, acting through its registered investment advisory division, U.S. Trust - New York Asset Management Division (the Investment Sub-Adviser and together with U.S.
Trust Company, N.A., the Investment Advisers), provide investment management and administrative services required for the operation of the Company. The term Investment Adviser includes, where applicable, U.S. Trust Company, the entity
that merged into U.S. Trust Company, N.A. on June 1, 2003 as described in Note 2 to Item 1 above. In consideration of the services rendered by the Investment Advisers, the Company pays a management fee based upon a percentage of the net assets of
the Company invested or committed to be invested in certain types of investments and an incentive fee based in part on a percentage of realized capital gains of the Company as described in Note 2 to Item 1 above. Such fee is determined and payable
quarterly. For the three-month periods ended January 31, 2005 and 2004, the Investment Advisers earned $617,033 and $609,842 in management fees, respectively. Management fees recorded during the period ended January 31, 2005 increased over the
period ended January 31, 2004 due to an increase in net assets.



Net Assets



At January 31, 2005, the Companys net assets were
$122,519,606, or a net asset value per unit of membership interest of $415.03. This represents an increase of $6,440,173 from net assets of $116,079,433, or a net asset value per unit of membership interest of $393.21, at October 31, 2004. The
increase resulted principally from (i) a net realized gain in connection with the Companys sales of NetLogic Microsystems and Senomyx common shares, (ii) a net change in unrealized appreciation on investments principally related to an increase
in the valuation of Adeza Biomedical (NASDAQ: ADZA) common shares, a public company investment and, (iii) operating expenses of $727,286 exceeding investment income of $238,080.



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##### Table of Contents

Liquidity and Capital Resources



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



At January 31, 2005, the Company held $0 in cash and $41,161,907 in short-term investments as compared to $0 held in cash and $45,526,196 in short-term investments at October 31, 2004. The decrease in short-term investments from October 31,
2004 was 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 $1,472,864, per its commitments to the private investment
funds. In connection with the Companys total commitments to private funds in the amount of $25,700,000 since inception, the Company, through January 31, 2005, has contributed $8,197,525 or 31.9 % of the total capital committed thus far. The
Company also participated in follow-on financing rounds, totaling $5,907,346, 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 57.0% of the Companys net assets. For the private investments held at January 31, 2005, changes to these estimates, i.e. changes in the
valuations of these private investments, resulted in a $0 change in net asset value from October 31, 2004.



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



Initially, direct private company investments are valued based upon their original cost until developments provide a sufficient basis for use of a
valuation other than cost. Upon the occurrence of developments providing a sufficient basis for a change in valuation, direct private company investments will be valued by the private market or appraisal methods of valuation.
The private market method shall only be used with respect to reliable third party transactions by sophisticated, independent investors. The appraisal method shall be based upon such factors affecting the company such as earnings, net worth, reliable
private sale prices of the companys securities, the market prices for similar securities of comparable companies, an assessment of the companys future prospects or, if appropriate, liquidation value. The values for the investments
referred to in this paragraph will be estimated regularly by the Investment Adviser or a committee of the Board, both under the supervision of the Board, and, in any event, not less frequently than quarterly. However, there can be no assurance that
such value will represent the return that might ultimately be realized by the Company from the investments.



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



The
Investment Adviser also makes estimates regarding discounts on market prices of publicly traded securities where appropriate. For securities which have legal, contractual or practical restrictions on transfer, a discount of 10% to 40% from the
public market price will be applied.



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##### Table of Contents

|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 57.0% of net assets, which are not publicly traded. These investments are recorded at fair value as determined by the Investment Advisers in accordance with valuation guidelines adopted by the Board of Managers. This method of
valuation does not result in increases or decreases in the fair value of these securities in response to changes in market prices. Thus, these securities are not subject to equity price risk normally associated with public equity markets, except
that to the extent that the private investment funds hold underlying public securities, the Company is indirectly exposed to equity price risk associated with the public markets. Nevertheless, the Company is exposed to equity price risk through its
investments in the equity securities of one public company, Adeza Biomedical Corporation (NASDAQ: ADZA). During the three-month period ended January 31, 2005, this company successfully completed an initial public offering of common stock. At January
31, 2005, this publicly traded equity security was valued at $6,563,632, and a 15% discount to the closing market price at that date, representing 5.4% of the Companys net assets. Thus, there is exposure to equity price risk, estimated as the
potential loss in fair value due to a hypothetical 10% decrease in quoted market prices, representing a decrease in the value of these securities of $656,363. At October 31, 2004, the Company was exposed to equity price risk through its investments
in the equity securities of two public companies, NetLogic Microsystems, Inc. (NASDAQ: NETL), and Senomyx, Inc. (NASDAQ: SNMX). At October 31, 2004, these publicly traded equity securities were valued at $4,682,927, and a 30% discount to the closing
market price at that date, representing 4.0% of the Companys net assets. Thus, there is exposure to equity price risk, estimated as the potential loss in fair value due to a hypothetical 10% decrease in quoted market prices, representing a
decrease in the value of these securities of $468,293.



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



(a) Evaluation of Disclosure Controls and Procedures. As of January 31, 2005 (the end of the period covered by this report), the Companys principal
executive officers and principal financial officer evaluated the effectiveness of the Companys disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and have concluded that, based on such evaluation, the
Companys disclosure controls and procedures were adequate and effective to ensure that material information relating to the Company was made known to them by others within those entities.



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



PART
II. OTHER INFORMATION



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



None.



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



None.



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



None.



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



None.



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



None.



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



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



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



(b) Reports on Form 8-K.



|    |  |                                                                                                                                                                                                                                                                             
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) |  | On November 2, 2004, the Company filed a Current Report on Form 8-K to report under Item 4.01 a change in the Companys certifying accountant.                                                                                                                              
|    | 
|(2) |  | On November 4, 2004, the Company filed a Current Report on Form 8-K/A to report under Items 4.01 and 9.01 that the Company filed as an Exhibit the response of Ernst & Young LLP to the
disclosures made in the report on Form 8-K filed by the Company on November 2, 2004.
|    | 
|(3) |  | On November 29, 2004, the Company filed a Current Report on Form 8-K to report under Item 4.01 that Deloitte & Touche LLP was the Companys certifying accountant.                                                                                                          



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SIGNATURES



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



|                     |  |  |  |                                     |  |                          |  |                              
|-------------------- |  |  |  | ----------------------------------- |  | ------------------------ |  | -----------------------------
|                     |  |  |  | EXCELSIOR VENTURE PARTNERS III, LLC
|                     |  |  | 
|Date: March 16, 2005 |  |  |  | By:                                 |  | /s/ Douglas A. Lindgren 
|                     |  |  |  |                                     |  |                          |  | Douglas A. Lindgren          
|                     |  |  |  |                                     |  |                          |  | Chief Executive Officer      
|                     |  |  | 
|Date: March 16, 2005 |  |  |  | By:                                 |  | /s/ Robert F. Aufenanger
|                     |  |  |  |                                     |  |                          |  | Robert F. Aufenanger         
|                     |  |  |  |                                     |  |                          |  | Treasurer                    
|                     |  |  |  |                                     |  |                          |  | (Principal Financial Officer)